Brookfield
A Global Asset Management Company
2010 Annual Report
investMent pRinciples And finAnciAl highlights
Business philosophy
• Build the business and all relationships based on integrity
• Attract and retain high calibre individuals who will grow with us over the long term
• Ensure our people think and act like owners in all their decisions
• Treat our clients’ money like it is our own
investMent guidelines
• Invest as lead investor, where we possess competitive advantages and are in a position to actively manage
our assets and create value through operational or other improvements
• Acquire assets on a value basis to maximize long-term, risk-adjusted return on capital
• Build sustainable cash flows to provide certainty, reduce risk and lower the cost of capital
• Recognize that superior returns often require contrarian thinking
MeAsuReMent of ouR coRpoRAte success
• Measure success based on total return on capital over the long term
• Encourage calculated risks, but compare returns with risk
• Sacrifice short-term profit, if necessary, to achieve long-term capital appreciation
• Seek profitability rather than growth, because size does not necessarily add value
contents
Letter to Shareholders
MD&A of Financial Results
Internal Control Over Financial Reporting
Consolidated Financial Statements
4
13
92
96
Sustainable Development
Corporate Governance
Shareholder Information
Board of Directors and Officers
156
157
158
159
Cautionary Statement – Forward-Looking Statements
154
BRookfield Asset MAnAgeMent
1.5$
billion of cash flow
from operations
$
37.45
pershare of
intrinsic value
AS AT AnD FOR ThE yEARS EnDED DECEMBER 31
(MILLIOnS, ExCEpT pER ShARE AMOunTS)
pER FuLLy DILuTED COMMOn ShARE
Cash flow from operations
Intrinsic value1
net tangible asset value2
Market trading price – nySE
net income
Dividends paid
TOTAL
Total assets under management
Consolidated balance sheet assets
Intrinsic value1
net tangible asset value2
Revenues
Operating income
Cash flow from operations
net income
Diluted number of common shares outstanding
2010
20093
20083
$
2.37
$
2.43
$
2.33
37.45
30.96
33.29
2.33
0.52
34.20
28.45
22.18
0.71
0.52
31.72
26.56
15.27
1.02
1.454
$ 121,558
$ 108,342
$ 89,753
78,131
22,261
18,261
13,623
4,511
1,463
1,454
616
61,902
20,154
16,654
12,082
4,515
1,450
454
608
53,597
18,599
15,499
12,909
4,616
1,423
649
600
1.
2.
3.
4.
Represents net tangible asset value (see note 2) plus the estimated value of the company’s asset management business
Reflects carrying values on a pre-tax basis prepared in accordance with procedures and assumptions utilized to prepare the company’s IFRS financial statements,
adjusted to reflect asset values not otherwise recognized under IFRS (see Management’s Discussion and Analysis of Financial Results)
2009 and 2008 results are based on Canadian GAAp financial results
Includes Brookfield Infrastructure special dividend of $0.94 and regular dividends of $0.51 per share
Our primary financial objective is to increase
the intrinsic value of Brookfield on a per
share basis, at a rate in excess of 12% when
measured over the long term.
2010 AnnuAl RepoRt 1
owneR, opeRAtoR And MAnAgeR of ReAl Assets
ouR plAtfoRMs
RenewABle poweR
pRopeRty
hydroelectric Generation and Wind
Office, Retail, Residential,
Development
infRAstRuctuRe
utilities, Transport and
Energy, Timberlands
One of the largest independent
producers of renewable hydro
power in north America
Among the worlds largest
property investors
Global platform of high quality
infrastructure assets
• 167 hydroelectric power plants with
approximately 4,300 MW capacity
• ~90 million square feet
of office properties
• Long-life assets providing essential
services with high barriers to entry
• Long-life assets with minimal
• ~180 million square feet
carbon emissions
of retail properties
• Low cost, reliable form of generation
• ~80 million square feet of
residential density
• Long-term contracts, many
with regulated rate bases
• Competitive positions in
key global markets
pRivAte equity And
finAnce
Restructuring, Real Estate
Finance, Bridge Lending
puBlic secuRities And
AdvisoRy seRvices
Investment Management
Specialty products that leverage
our best-in-class operating
platforms and expertise
Specialty products that leverage
our best-in-class operating
platforms and expertise
• Deal sourcing networks
and access to deal flow
• Track record of transaction
execution to fuel growth
• Investment management of
equity and debt securities
• Investment banking, residential
brokerage, global relocations,
property management services
A yeAR of gRowth
• Led the successful $8 billion restructuring of General Growth properties and in the process acquired a major
stake in one of America’s leading retail mall companies
• Rationalized and strengthened our global office platform under one Brookfield entity and announced merger
of our Canadian and u.S. residential properties operations to create north America’s sixth largest residential
platform
• Significantly expanded our infrastructure business with the acquisition of the remaining 60% of an Australian-
based infrastructure company, with high quality utilities, transport and energy assets on four continents
• Raised approximately $7.5 billion of private and institutional and public capital market financings, including the
final close of three private infrastructure funds
2 BRookfield Asset MAnAgeMent
A gloBAl Business
Brookfield has a global presence which leverages the knowledge
and market insight of local management teams, with operating and
financial expertise on an international scale.
100 offices
oR locAtions 20 countRies
pRivAte funds
21
cAnAdA
$21 billion AuM
3,000 Employees
euRope & Middle eAst
$4 billion AuM
3,000 Employees
property, Renewable power & Infrastructure
property & Infrastructure
u.s.
$66 billion AuM
4,000 Employees
property, Renewable power & Infrastructure
south AMeRicA
$15 billion AuM
6,000 Employees
property, Renewable power & Infrastructure
AsiA & AustRAlAsiA
$16 billion AuM
2,000 Employees
property & Infrastructure
500 investMent
pRofessionAls 18,000 opeRAting
eMployees
2010 AnnuAl RepoRt 3
letteR to shAReholdeRs
overview
The last three years will likely be looked upon as three of the more important years in the
development of our company. In 2008, our operations demonstrated their resilience during a
difficult period, while in 2009 and 2010 we were able to capitalize on this strength by being
in a position to make a number of strategic investments in high quality assets at attractive
valuations. During this time, we completed two very large restructurings, added a number of
market-leading operating units to our business, raised substantial capital from institutional
and retail clients, and took our relationships to new levels. This period, while challenging, has
changed Brookfield and reinforced our commitment to invest in real assets on a value basis.
From an operations perspective, we generated $1.5 billion of cash flow from operations or
$2.37 per share, consistent with our results in 2009. net income for the overall company
was just over $3 billion, of which $1.5 billion was attributable to the common shareholders,
representing $2.33 per common share. More importantly, our growth initiatives broadened
our asset base and deepened our business. As the recovery gains momentum, and as our
economically sensitive businesses continue to recover, and these new operations start to
fully contribute, we should achieve substantially increased cash flows.
Market conditions
We continue to see very positive sequential and year-over-year growth in almost all of our
businesses and believe that this will continue to be the case in 2011. Job creation remains
slow, but the ultimate recovery in employment levels bodes well for our shorter cycle
businesses, such as residential development and timberlands, which are dependent on
consumer confidence and the employment outlook.
The broad investment landscape faced significant challenges during the course of 2010,
as the global economic recovery progressed at an uneven pace. Threats emerged from all
corners of the globe, with the sovereign debt crisis in Europe, continued weakness in u.S.
labour markets and policy intervention in China weighing on growth and sentiment. however,
despite these negative pressures, the capital markets proved to be resilient.
As compared to a few years ago, good businesses which require capital can now access it at
reasonable costs. This fact, combined with continued action by the Federal Reserve as well
as preliminary signs of returning economic strength, caused investor confidence to increase
as the year progressed. As a result, markets around the world experienced strong gains for
the year, including the S&p 500, which rose 15%.
And though Europe has many issues to deal with, its problems now seem to be in the open.
These problems may not all be addressed in the near term, but at least they are being
discussed. The reorganization of the European union will take time but ultimately our belief
is that the positive global growth factors in the world will outweigh the negative factors that
are currently depressing most countries in Europe, with the exception of Germany, which
continues to show its industrial strength.
overall investment performance
In the context of the above events, our share price increased 53% in 2010. This came on top of
the 51% increase in 2009, although despite these gains, we now know all too well how many
increases it takes to recover from a year like 2008.
After taking 2010 into account, the 10-year compound annual return for shareholders was
26%, or 18% over the past 20 years. This compares favourably to most other investments and
as stated before, we will be pleased if we can compound returns on a per share basis in
excess of 12% to 15% in the future.
4 BRookfield Asset MAnAgeMent
Annualized Total Return
1
5
10
20
Brookfield
(nySE)
53%
11%
26%
18%
S&p 500
15%
2%
1%
9%
TSx
18%
7%
7%
9%
Gold
30%
22%
18%
7%
10-year
Treasuries
8%
5%
5%
7%
In addition, most of our listed affiliates recovered significant value in the stock market over
the last year, delivering performances close to that of Brookfield. The performance of our
private equity investment funds was also strong in 2010, with nearly every fund meeting
its target returns. Investment performance of our listed public securities funds exceeded
benchmarks, led by our global listed infrastructure long-only strategy that achieved a 17.2%
return in 2010. The strong performance of these entities has enabled us to add assets under
management in both our private equity business and our traditional listed mandates.
intrinsic share value
Our most important objective is to increase the intrinsic value of a Brookfield common share
at a rate of 12% to 15% per annum when measured over the long term. To us, the intrinsic value
of our company consists of three principal components. The first is the tangible value of our
equity, which is derived primarily from our audited financial statements and totalled $30.96
per share at year end. The second is the value of our asset management business, which
is derived from the magnitude of capital under management for others and the associated
potential fee streams, and which we estimate was approximately $6.50 per share at year end.
The sum of these two components represents an intrinsic value of $37.45 per share. The third
component of value, which we have not quantified, is the additional value that we can add and
compound as a result of the quality of our people and operating platforms, our global reach,
execution capabilities and relationships developed over decades.
Furthermore, we believe our business strategies should enable the value of each one of your
shares to compound at a rate of 12% to 15% on this amount, which adds approximately $4.00
to $5.00 to the intrinsic value of the shares on an annual (although irregular) basis. While
many companies will attempt to exceed these returns, our goal is to take moderate risk with
your capital with the goal of compounding attractive returns over the very long term while at
the same time protecting your capital from permanent impairment.
This is one reason why we were pleased that we did not have to issue common stock at an
inopportune time in 2008 and 2009, thereby enabling these values and cash flows to continue
to compound away on virtually the same number of shares of the company. As a result, we
should be able to achieve higher growth on a per share basis than would otherwise have been
possible. And, while we did recently choose to issue shares at less than their intrinsic value,
we did this because we believe we were able to purchase close to equivalent value in what we
invested in, with the added benefit of establishing a more meaningful position in a leading
u.S. retail real estate franchise, a new investment which should offer us exceptional growth
opportunities.
2010 AnnuAl RepoRt 5
investment themes
While continuing to run each of our businesses, we dedicate our excess resources (capital
and people) to opportunities on a selective basis, based on more macro themes. The past five
years have been dedicated to investing in Australia, Brazil and Canada. This strategy has
seen us make major investments in each of these three countries, and we have benefitted
substantially as these economies outpaced most others in the world and their currencies
outperformed. We now have exceptional businesses in these countries which should allow
us to capitalize on organic growth opportunities over the next decade as the dynamics of the
expanding middle class in the developing world plays out.
Five years ago, after assessing how best to invest in Asia, we decided to pursue a strategy of
participating in the growth of economies such as China and India through countries such as
Australia, which stood to gain from selling products to Asia, and where we were comfortable
owning and operating long-life assets. Consistent with our investment philosophy, we have
accepted gains at a more measured pace than if we had invested directly into Asian countries,
but without the socio-political issues.
As a result of these initiatives, approximately 50% of our capital is deployed in Australia, Brazil
and Canada, and we are therefore benefitting from the positive conditions of these export-
oriented economies, in particular when compared to the u.S. This also means that we are also
now more directly exposed to the Chinese economy than we have been in the past, both through
the businesses we own and through revenues we earn in currencies of countries which rely
in part on China for their growth. While acknowledging the short-term fluctuations which may
occur, we believe this exposure has been, and still is, a prudent diversification for Brookfield,
and over the longer term will continue to be an excellent place for our capital.
More recently, in the past two years, we have focused our efforts on restructurings, primarily
in the u.S. We have done this at a time when distress in the united States economy reduced
the valuations of even the highest quality assets.
In this regard, we invested substantial amounts of capital, at distress prices, to acquire a
variety of u.S. assets, from shopping malls to multi-family apartments, office properties and
wind power projects. Our thesis continues to be that we are buying assets at large discounts
to their replacement costs, and we believe that the $14 trillion u.S. economy will recover over
the medium to longer term.
In addition to the acquisition-based growth strategies underlying these broad themes, each
of our established global businesses features opportunities for Brookfield to organically
expand our operations and achieve our goals for return on capital. Our access to funds and
global scale allow us to put substantial amounts of capital to work in each of our businesses
at highly attractive returns. Recent organic growth initiatives include building a signature
900,000 square foot office building in perth that is primarily leased to Bhp Billiton, extension
of our rail lines to accommodate iron-ore clients in Western Australia, building residential
and office condominiums in Brazil, and expansion of our power business through new-build
hydro developments in Brazil, and through wind projects in Ontario and California. Even more
exciting, we continue to see a broad array of similar opportunities to add to our operations at
highly attractive long-term returns.
6 BRookfield Asset MAnAgeMent
general growth
General Growth properties (“GGp”) emerged from bankruptcy in november with our
consortium owning approximately 30%. Shortly thereafter, GGp completed a $2.2 billion
secondary capital raise at $14.75 per share, more than 50% higher than the price of the capital
we invested in the reorganization, and the shares of GGp currently trade in excess of this
value. The share issue was extremely well received in the market by a high quality group of
shareholders, and GGp was able to boost its cash position by $700 million.
Early in 2011, we increased our holding in GGp to approximately 40% through the purchase of
$1.7 billion of GGp shares held by Fairholme Fund, our partner in the recapitalization of GGp.
Fairholme agreed to take a 4.5% ownership stake in our company, with the balance funded
through a $578 million offering of equity. This enables us to remain in a very liquid situation,
and therefore able to pursue other opportunities as they come along.
GGp is one of the few great retail franchises in the united States. GGp has more than 180
regional shopping malls – approximately 20% of the regional malls in the u.S. – and the
majority of its properties rank among the highest quality u.S. retail centres.
GGp recently hired a new CEO and GGp is committed to re-energizing the operating platform,
opportunistically refinance approximately $13 billion of mortgages (many of which fortuitously
have no make-whole provisions), sell non-core assets, lease vacancies and convert its short-
term occupancies to permanent leases, and increase rents as the economy recovers and
consumer spending improves.
We are very positive on the long-term prospects for GGp and intend to assist the company in
every way we can.
infrastructure operations
During the fourth quarter, we closed the merger of Brookfield Infrastructure with its 40%
owned Australian-listed affiliate. With this transaction, Brookfield Infrastructure increased
its capitalization to approximately $3.5 billion and took direct ownership of a world-class
group of infrastructure assets, including electricity transmission lines, natural gas pipelines,
rail lines, and cargo and bulk shipping terminals.
The combination should also augment our ability to distribute additional cash flow from
Brookfield Infrastructure to investors. In this regard, and in conjunction with the closing of
the transaction, distributions were increased by 13%. The benefits of the merger should also
enable us to revisit the distribution again once the operations are fully integrated.
We achieved the final close for three private infrastructure funds with total equity capital
raised of $3.5 billion. These funds are currently about 10% invested with the balance expected
to be deployed over the next few years in our core areas of focus in north and South America.
Clients in these funds represent a premier group of global institutional investors, who we feel
privileged to have as partners.
In addition to a robust number of acquisition alternatives, we have a solid pipeline of organic
expansion opportunities within our existing infrastructure holdings, which should be very
positive to our operating results.
2010 AnnuAl RepoRt 7
global property Reorganization
We reorganized our office business to create a global leader in office properties by selling our
premier office assets in Australia to our 50%-owned Brookfield Office properties (“BpO”).
Our goal in doing this was to have all of our premier office property operations conducted by one
entity. Our office business is focused on providing high quality space to global corporations
in major gateway cities. We have a strategic advantage as we have deep relationships
with major corporations, and our reputation is for providing quality environments for their
employees.
Furthermore, we believe that over the next five years as this strategy plays out, BpO will
become a premier public security in the capital markets for those who wish to invest in the
office business, as a result of BpO owning the highest quality office portfolios in each of the
u.S., Canada, Australia and the uK.
Our Brazilian residential homebuilder, Brookfield Incorporações, is on track to achieve its
best year ever as the real estate market in that country continues to prosper. Meanwhile,
here in north America, we expect to shortly complete the combination of BpO’s residential
business with Brookfield homes to form Brookfield Residential, which will contain all of our
north American residential operations. Our thesis is that when the residential markets in the
u.S. improve over the next few years, this combined entity will have the scale to compete with
a select group of large-scale developers. In the short term we will be able to integrate these
businesses and benefit from best-in-class operating skills across the operations.
Agricultural land operations
As a small subset of our real estate business, we have invested in agricultural lands in Brazil
for over 25 years. More recently we have increased the resources dedicated to this business,
as the economics are extremely compelling. Agriculture is receiving considerably more
investment attention in institutional circles as food prices increase and shortages loom. We
are fortunate to be one of the few global asset managers with expertise in this sector, which
is a rapidly emerging asset class.
Recently, we closed a fund dedicated to the agriculture business in Brazil, with commitments
of uS$330 million to acquire agricultural lands for conversion into higher and better uses over
time (principally soya beans and sugar cane). We intend to expand our agricultural activities
in Brazil through this fund, as the general managing partner and as a 30% equity participant.
Our present agricultural operations comprise approximately 400,000 acres of agricultural land,
some planted with sugar for ethanol production and others in earlier stages of development.
We are one of the largest owners of prime agricultural land in Brazil today, and deployment of
these new funds will certainly put us into the top ranks of owners of land in the world’s new
agricultural super power.
Our land conversion strategy is to acquire land in strategic areas (including the Brazilian
savannah region known as the Cerrado) which have traditionally been used for cattle
ranching. We assemble land in clusters in order to entice ethanol producers to locate their
facilities on or near our land holdings. Once an ethanol producer has established a facility
in close proximity to our land, we can then plant sugar cane (the feedstock for Brazilian
ethanol) and dramatically improve the cash flow realized from the land. The multiples on
this conversion from ranching to sugar cane plantations can often increase the value of the
land from three to five times. In the interim, while aggregating clusters of land to attract an
ethanol facility, we typically plant soya beans or other high value crops, which are lucrative
based on the costs of land in Brazil and world prices of food commodities.
8 BRookfield Asset MAnAgeMent
Given the expected growth in the world’s population and consumption habits, and given that
these grasslands can be transformed into some of the most productive agricultural lands on
the planet, we see substantial long-term upside from owning these operations.
Balance sheet strength
We believe that companies such as ours should operate with investment-grade financing
secured by assets, and only modest amounts of debt at the corporate level. We believe that
cross-collaterized financings are a risky proposition, despite usually being cheaper, and most
of the time, more flexible. Instead, we believe that each asset in a company like ours should
be financed with minimal support from other assets, and without corporate guarantees. This
ensures that no one asset, investment, or entity can ever compromise our core operations,
which is obviously paramount to the success of any great long-term business.
As a result, we focus our attention on capital structure to ensure that we always have a
strong balance sheet. We may sacrifice short-term cash flows to achieve this, as we believe
that in our business, the number one focus should always be the balance sheet, as it will also
lead to greater stability of operating cash flows.
This attention to balance sheet strength instead of short-term cash flows is one of the
reasons we were able to maintain our focus and execute our strategies over the past few
years and emerge in a strong position to grow our business. We believe this company-wide
strategy will continue to safeguard our asset values in the future.
fundraising and Assets under Management
In total in 2010, we closed on approximately $18 billion of third-party capital for investment.
This included $7.5 billion of private institutional and public capital market fundraisings,
including the final close of our $5.5 billion real estate consortium with a $2.6 billion single
investment fund for our GGp investment, three infrastructure funds totalling $3.5 billion of
equity capital and $330 million for our Agricultural Fund. These commitments came from
clients in Australasia, Europe, the Middle East, north America and South America and position
us to continue to acquire assets while competitive bidding is still relatively restrained.
(MILLIOnS)
power and infrastructure
private fundraisings
public market issuances (three placements)
Debt issuances
property
private fundraisings
public market issuances (three placements)
Debt issuances
special situations
private fundraisings
Various
corporate and other
public market issuances
Debt issuances
Other
Third-party Capital
$
1,800
1,600
3,000
900
700
5,500
300
600
2,200
600
900
$ 18,100
2010 AnnuAl RepoRt 9
Furthermore, we expect the positive trend in raising private capital to continue, as both our
track record and our strategies are further understood by institutional clients, and as the
broader fundraising market for private capital continues to grow.
strategy and goals
Our business strategy is to provide world-class asset management services on a global basis,
focused on real assets such as property, renewable power and infrastructure. Our business
model is to utilize our global reach to identify and acquire high quality assets at favourable
valuations, finance them prudently, and then enhance the cash flows and values of these
assets through our leading operating platforms to achieve reliable attractive long-term total
returns for the benefit of our clients and the company.
Our primary long-term goal remains achieving 12% to 15% compound annual growth in the
underlying value of our business measured on a per share basis. This increase will not occur
consistently each year, but we believe we can achieve this objective over the longer term by:
• Operating a world-class asset management firm by offering a focused group of products
on a global basis to our investment partners.
•
Focusing our investments on high quality, long-life, cash-generating real assets that
require minimal sustaining capital expenditures and have some form of barrier to entry,
and characteristics that lead to appreciation in the value of these assets over time.
• Differentiating our investing by utilizing our operating experience, our global platform,
our scale and our extended investment horizons to generate greater returns over the long
term for our shareholders and partners.
• Maximizing the value of our 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 a large initial capital investment, have relatively low variable
operating costs, and can be financed on a long-term, low-risk basis, even a small increase
in the top-line performance typically results in a much more meaningful contribution to
the bottom line.
• Actively managing our capital. Our strategy of operating our businesses as discrete
business units provides us with opportunities from time to time to enhance value by
buying or selling parts of a business. In addition to the underlying value being created
in the business, this strategy allows us to re-allocate this capital in order to achieve the
optimal overall returns.
outlook
We enter 2011 with a greater level of confidence than we possessed one year ago. While the
global economic recovery remains fragile and may not progress smoothly, the threat of a
double dip recession has faded. Investor and consumer confidence is returning, as all sectors
of the capital markets continue to re-open. Although threats to this positive momentum
persist, we believe a slow, but sustainable, economic rebound will be achieved.
While we begin 2011 with renewed optimism in the capital markets, risks to our outlook
remain. unemployment remains stubbornly high and consumers are cautious, even as they
begin to increase spending. Furthermore, rising inflation, particularly rising commodity
prices, could pressure margins, as the current economic environment is not supportive of
escalating retail pricing.
10 BRookfield Asset MAnAgeMent
Although we are unable to control these risks or forecast their resolution with complete
accuracy, we will continue to focus on limiting their potential impact. We have a deep and
talented team of investment professionals that have managed through numerous market
cycles in the past and look forward to meeting the new challenges that await in the years
ahead.
We believe we can continue to successfully grow our global asset management business,
because underlying fundamentals continue to be very positive for asset management,
particularly within the property and infrastructure areas. Our investment partners have
made substantial commitments to our fund products, and we are confident that our lower-
risk, lower-volatility assets should become even more appealing over time, as investors seek
yield that offers superior inflation-protected returns to cash holdings, without the risk that
comes with owning longer duration government investments.
summary
The past three years have reinforced our confidence in our strategy of owning and operating
high quality real assets. We remain committed to being a world-class asset manager, and
investing capital for you and our investment partners in high-quality, simple-to-understand
assets which earn a solid cash-on-cash return on equity, while emphasizing downside
protection of the capital employed.
The primary objective of the company continues to be generating increased cash flows on a
per share basis, and as a result, higher intrinsic value over the longer term.
And, while I personally sign this letter, I respectfully do so on behalf of all of the members of
the Brookfield team, who collectively generate the results for you. please do not hesitate to
contact any of us, should you have suggestions, questions, comments, or ideas.
J. Bruce Flatt
Chief Executive Officer
February 18, 2011
2010 AnnuAl RepoRt 11
Statement Regarding Forward-Looking Statements
This Report to Shareholders contains forward-looking information within the meaning of Canadian provincial
securities laws and other “forward-looking statements” within the meaning of certain securities laws including
Section 27A of the U.S. Securities Act of 1933, as amended, Section 21E of the U.S. Securities Exchange Act
of 1934, as amended, “safe harbour” provisions of the United States Private Securities Litigation Reform
Act of 1995 and in any applicable Canadian securities regulations. We may make such statements in the report,
in other filings with Canadian regulators or the SEC or in other communications. See “Cautionary Statement
Regarding Forward-Looking Statements” beginning on page 154.
Basis of Presentation
Use of non-ifrs Accounting Measures
This Report, including the Management’s Discussion and Analysis (“MD&A”), makes reference to Cash Flow
from Operations, Net Tangible Asset Value and Intrinsic Value, all on a total and per share basis. Management
uses these metrics as key measures to evaluate performance and to determine the net asset value of its
businesses. These measures are not generally accepted measures under International Financial Reporting
Standards (“IFRS”) and may differ from definitions used by other companies.
We derive operating cash flow from the information contained in our consolidated financial statements,
which are prepared in accordance with IFRS. We define operating cash flows (which we use interchangeably
with cash flow from operations) as net income prior to such items as fair value changes, depreciation and
amortization, future income tax expense and certain non-cash items that in our view are not reflective of the
underlying operations. We also incorporate most of the elements in net income that are not included in cash flow
from operations, along with components of other comprehensive income, in determining our intrinsic and net
tangible asset values.
We measure invested capital based on net tangible asset value unless otherwise stated, using the procedures
and assumptions that we follow in preparing our financial statements under IFRS. These values are reported on
a pre-tax basis, meaning that we have not reflected adjustments that we expect to make in our IFRS financial
statements to reflect the difference between carrying values of assets and their tax basis. We do this because
we do not expect to liquidate the business and, until any such taxes become payable, we have the ability
to invest this capital to generate cash flow and value for shareholders. We have also included adjustments to
revalue certain assets and businesses that are not otherwise carried at fair value in our financial statements.
Intrinsic value includes both net tangible asset value and our estimate of the value of our asset management
business franchise.
We provide additional information on how we determine Intrinsic Value, Net Tangible Asset Value and Operating
Cash Flow in the balance of this document. We provide a reconciliation between Operating Cash Flow and
Net Income and both Intrinsic Value and Net Tangible Value to Common Equity in the Reconciliation Between
Consolidated and Segmented Financial Information on pages 67 to 70.
information regarding the report
Unless the context indicates otherwise, references in this 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 and consolidated entities.
Much of the information in the MD&A is presented on a deconsolidated basis and organized by operating
platform. This is consistent with how we review performance internally and, in our view, represents the most
straightforward approach. Again, we reconcile this basis of presentation to our financial statements in Part 3
of the MD&A.
The IFRS-related disclosures and values in this document have been prepared using the standards and
interpretations currently issued and effective at December 31, 2010 which is the end of our first annual IFRS
reporting period.
The U.S. dollar is our functional and reporting currency for purposes of preparing our consolidated financial
statements, given that we conduct more of our operations in that currency than any other single currency.
Accordingly, all figures are presented in U.S. dollars, unless otherwise noted.
The Report and additional information, including the Corporation’s Annual Information Form, are available on
the Corporation’s web site at www.brookfield.com and on SEDAR’s web site at www.sedar.com.
12 Brookfield Asset MAnAgeMent
finAnCiAl inforMAtion And AnAlYsis
MANAgEMENT’S DISCUSSION AND ANALySIS OF FINANCIAL RESULTS
PART 1
Financial Review
PART 2
Review of Operations
PART 3
Analysis of Consolidated Financial Statements
PART 4
Operating Strategies, Environment and Risks
PART 5
Supplemental Information
14
23
53
72
86
Five-yeaR FinanciaL Review
As At And for the YeArs ended deCeMBer 31
(Millions, eXCept per shAre AMoUnts; UnAUdited)
Per common Share (fully diluted)
Book value
intrinsic value1
net tangible asset value2
Cash flow from operations
net income
Market trading price – nYse
dividends paid
Common shares outstanding
Basic
diluted
Total (millions)
2010
iFRS
2009
CgAAp
2008
CgAAp
2007
CgAAp
2006
CgAAp
$
22.09
$
11.58
$
8.92
$
11.64
$
9.37
37.45
30.96
2.37
2.33
33.29
0.52
577.6
616.1
34.20
28.45
2.43
0.71
22.18
0.52
572.9
607.8
31.72
26.56
2.33
1.02
15.27
1.453
572.6
600.3
—
—
3.11
1.24
35.67
0.47
583.6
611.0
—
—
2.95
1.90
32.12
0.39
581.8
610.8
total assets under management2,4
$ 121,558
$ 108,342
$ 89,753
$ 94,340
$ 71,121
Consolidated balance sheet assets
Corporate borrowings
Common equity
intrinsic value1
net tangible asset value2
revenues
operating income
Cash flow from operations
net income
78,131
2,905
12,795
22,261
18,261
13,623
4,511
1,463
1,454
61,902
2,593
6,403
20,154
16,654
12,082
4,515
1,450
454
53,597
2,284
4,911
18,599
15,499
12,909
4,616
1,423
649
55,597
2,048
6,644
—
—
9,343
4,356
1,907
787
40,708
1,507
5,395
—
—
6,897
3,653
1,801
1,170
1.
2.
represents tangible asset value (see note 2) plus the estimated value of the company’s asset management franchise
reflects carrying values on a pre-tax basis prepared in accordance with procedures and assumptions utilized to prepare the company’s ifrs
financial statements, adjusted to reflect asset values not recognized under ifrs (see Management’s discussion and Analysis of financial results)
includes Brookfield infrastructure special dividend of $0.94 and regular dividends of $0.51 per share
3.
4. Assets under management for 2006 through 2009 reflect the combination of fair values and Canadian gAAp carrying values
2010 AnnUAl report 13
PART 1
finAnCiAl review
OveRview
Brookfield is a global asset manager, with a focus on property, renewable power and infrastructure. Our
business model is simple: utilize our global reach to identify and acquire high quality real assets at favourable
valuations, finance them on a long-term, low-risk basis, and enhance the cash flows and values of these assets
through our leading operating platforms to earn reliable, attractive long-term total returns for the benefit of
our partners and ourselves.
We create value for shareholders in the following ways:
• As an owner-operator, we aim to increase the value of the assets within our platforms and the cash flows
they produce through our operating expertise, development capabilities and effective financing capabilities;
• As an investor and capital allocator, we strive to invest at attractive valuations, particularly in distress
situations that create opportunities for superior valuation gains and cash flow returns, or by monetizing
assets at appropriate times to realize value; and
• As an asset manager, by performing the foregoing activities not just with our own capital, but also with that
of our clients. This enables us to increase the scale of our operations, which differentiates us from others,
and enhances our financial returns through the receipt of base management fees, and performance-based
income.
Our primary financial objective is to increase the intrinsic value of Brookfield, on a per share basis, at a rate in
excess of 12% when measured over the longer term. Our intrinsic value has three main components:
• The net tangible asset value of our equity. This is based on the appraised value of our net tangible assets
as reported in our audited financial statements, with adjustments to eliminate deferred income taxes and
revalue the assets which are not otherwise carried at fair value in our financial statements. We refer to this
as Net Tangible Asset Value and use this basis of presentation throughout the MD&A;
• The value of our asset management franchise. Asset management franchises are typically valued
using multiples of fees or assets under management. We have provided an assessment of this value,
based on our current capital under management, associated fees and potential growth. We refer to
this as Asset Management Franchise Value. This value, together with Net Tangible Asset Value, forms
what we call Intrinsic Value. We provide a number of key metrics to assist in valuing this component
of our intrinsic value; and
• The overall business franchise, which to us represents our ability to maximize values based on our extensive
operating platforms and global presence, our execution capabilities, and relationships which have been
established over decades. This value has not been quantified and is not reflected in any of our values but
may be the most valuable of them all.
Cash flow from operations is another important metric for us, as it serves as an important benchmark for valuing
many of our assets and our operational efficiency. We provide additional information on how we determine
Intrinsic Value, Net Tangible Asset Value and Operating Cash Flow in the balance of this document. We provide
a reconciliation between Operating Cash Flow and Net Income and both Intrinsic Value and Net Tangible Value
to Common Equity in the Reconciliation Between Consolidated and Segmented Financial Information on
pages 67 to 70.
14 Brookfield Asset MAnAgeMent
Statement of affairs
The following table summarizes the assets that we manage for ourselves and our clients along with the intrinsic
value of our invested capital and our share of net operating cash flows on a segmented basis:
As At And for the YeArs ended deCeMBer 31
(Millions, eXCept per shAre AMoUnts)
2010
2009
2010
2009
2010
2009
Asset management and other services
$ 22,999
$ 25,386
$ 1,800
$ 1,053
$
348
$
298
Assets
Under Management
Brookfield’s
invested Capital
net operating
Cash flow1
operating platforms
renewable power generation
Commercial properties
infrastructure
development activities
private equity and finance
Cash and financial assets
other assets
less: Corporate borrowings/interest
Contingent swap accruals
Accounts payable and other/expenses
preferred shares and capital securities
net tangible asset value of common equity
Asset management franchise value
intrinsic value
– per share
15,835
46,392
16,404
9,351
7,528
1,850
1,199
15,866
31,847
15,388
9,010
7,730
1,996
1,119
$ 121,558
$ 108,342
7,492
6,909
1,905
3,184
2,155
1,543
919
25,907
(2,905)
(858)
(1,556)
(2,327)
18,261
4,000
8,468
4,841
1,646
3,153
2,031
1,607
1,014
23,813
(2,593)
(779)
(2,011)
(1,776)
16,654
3,500
548
364
130
192
181
311
—
2,074
(178)
(99)
(298)
(36)1
1,463
n/a
720
309
62
69
112
370
—
1,940
(151)
(84)
(271)
(32)1
1,402
n/a
$ 22,261
$ 37.45
$ 20,154
$ 34.20
$ 1,4631
$ 1,4021
$
2.37
$
2.34
1.
shown prior to preferred share dividends of $75 million (2009 – $43 million) which have been deducted in per share results
Total Return and intrinsic value
The following table summarizes our intrinsic value by segment and the components of total return during 2010:
As At And for the YeAr ended deCeMBer 31
(Millions, eXCept per shAre AMoUnts)
operating
Cash flow
fair value
Changes
recorded
gains1
total
return
opening
intrinsic
value
total
return
Capital
Allocation
Closing
intrinsic
value
Components of total return
Continuity of intrinsic values
Asset management and other services
$
renewable power
Commercial properties
infrastructure
development
private equity and finance
Cash and financial assets
total invested capital
Corporate obligations
net tangible asset value
Asset management franchise
348
548
364
130
192
181
311
2,074
(686)2
1,388
—
$
450
$ — $
798
$ 2,247
$
798
$
(326)
$ 2,719
(916)
1,087
195
156
59
4
1,035
(104)
931
500
(291)
(38)
—
—
(85)
—
(414)
—
(414)
—
(659)
1,413
325
348
155
315
2,695
(790)
1,905
500
8,468
4,841
1,646
3,153
2,031
1,607
23,993
(7,339)
16,654
3,500
(659)
1,413
325
348
155
315
2,695
(790)
1,905
500
(317)
655
(66)
(317)
(31)
(379)
(781)
483
(298)
—
7,492
6,909
1,905
3,184
2,155
1,543
25,907
(7,646)
18,261
4,000
intrinsic value of common equity
$ 1,388
$ 1,431
– per share
$
2.37
$
2.21
$
$
(414)
$ 2,405
$ 20,154
$ 2,405
(0.81)
$
3.77
$ 34.20
$
3.77
$
$
(298)3 $ 22,261
(0.52)
$ 37.45
1.
2.
3.
represents gains that are recorded in equity for ifrs purposes, as opposed to net income
includes preferred share dividends of $75 million
represents common share dividends
note: the foregoing tables exclude accounting provisions for future tax liabilities and include management estimate of the value of items not otherwise
carried at fair value in our financial statements.
2010 AnnUAl report 15
PeRFORmance highLighTS
We recorded solid financial and operational performance during 2010, and achieved a number of important
growth objectives. The following is a summary of the more important highlights from 2010, with a particular
emphasis on those that impacted our financial results and which may be likely to influence our future
performance:
• Operating cash flow was $2.6 billion on a consolidated basis, of which $1.5 billion accrues to Brookfield
common shareholders. This is nearly identical to the cash flow reported in 2009 and 2008 – illustrating the
resiliency of our operations.
We achieved substantial growth in our commercial property, infrastructure and residential development
cash flows, which more than offset the impact of unusually low water levels on our renewable power
business and a lower level of investment gains. We also recorded a substantially higher contribution from
our asset management activities.
• We achieved a total return of $3.77 per share, or 11.9%, consistent with our objective of 12%+ growth.
This increase reflects the cash flow generated within the business, increases in the net tangible value of
our assets, and appreciation in the value of our asset management business. We distributed $0.52 per share
as common share dividends and the balance will continue to compound in the business for you.
• We increased the value of our asset management franchise as measured by capital under management, base
management fees and performance-based returns.
We secured over $4 billion of new commitments during the year, increasing capital under management for
clients to $50 billion. Annualized base management fees exceeded $190 million at year-end, representing
seven-fold growth over the past five years and we generated $249 million of performance-based income. The
growth in the current year and the potential for future expansion resulted in an increase in our assessment
of the value of this component of our business to $4.0 billion, or $6.49 per share.
• We invested nearly $6 billion of our own capital, alongside clients, into new opportunities during 2010,
including $1.7 billion in the first six weeks of 2011.
Capital investment during the year included approximately $1 billion of our capital as part of the $2.6 billion
cornerstone investment by us and our clients into the restructuring of general growth Properties (“ggP”).
We invested an additional $1.7 billion in ggP common shares during early 2011, increasing our combined
interest in ggP to nearly 40% and our direct interest to approximately 20%. We also acquired the remaining
60% of a global infrastructure portfolio for approximately $1.1 billion. This is in addition to $2.5 billion
invested in a variety of other acquisitions and development activities during the year.
• We completed $18 billion of capital raising initiatives, including $2 billion in the first six weeks of 2011.
These activities enhanced our liquidity, funded investment initiatives and enabled us to extend our debt
maturity profile at a low cost of capital. One result is the extension of the corporate maturity profile at
each of Brookfield Asset Management and our renewable power business to eight years and ten years,
respectively, with an average rate on new debt issues of 5.2%.
• We advanced several transactions to simplify our structure and better position key operating companies to
create enhanced value for shareholders.
We established our flagship commercial office company, Brookfield Office Properties, as a global pure
play office company by merging our interests in our Australian office portfolio. We are also in the process
of merging our U.S. residential operations with Brookfield Office’s Canadian residential business to create
a unique North American residential company. In addition, the merger of Brookfield Infrastructure and its
partially owned Australian infrastructure subsidiary (the “Prime Acquisition”) simplifies the ownership
structure and establishes Brookfield Infrastructure as a global leader in infrastructure with a $3.5 billion
market capitalization.
16 Brookfield Asset MAnAgeMent
• Our operating teams completed a number of important initiatives to increase the values and cash flows of
our assets.
We signed 7.2 million square feet of new commercial office leases, secured long-term contracts for
900 gigawatt hours of annual power generation, received approval to increase the rate base of our Australian
Coal Terminal and entered into contractual arrangements supporting $0.5 billion of infrastructure upgrades.
We also completed $0.5 billion of renewable energy projects and launched $1.8 billion of new condominium
projects in Brazil.
• We are working on a number of attractive growth opportunities, including expansion of our existing
operations and potential acquisitions.
Our property, renewable power and infrastructure teams expect to expand their businesses and future
cash flows with internal initiatives that include substantial extensions to our Australian rail network and a
new wind farm in Ontario, while our financial strength allows us to consider a number of transactions that
promise attractive long-term returns.
cash Flow from Operations
The following table sets out our operating cash flows on a segmented basis:
for the YeArs ended deCeMBer 31
(Millions, eXCept per shAre AMoUnts)
operating platforms
renewable power generation
Commercial properties
infrastructure
development activities
private equity and finance
investment and other income
operating platforms and corporate assets
Asset management and other services
Unallocated costs:
interest expense
operating costs
Current income taxes
operating cash flow
– per share
2010
2009
$
548
364
130
192
181
311
1,726
348
2,074
(313)
(277)
(21)
$
720
309
62
69
112
370
1,642
298
1,940
(267)
(268)
(3)
$
$
1,463
2.37
$
$
1,402
2.34
Cash flow from operations was approximately $1.46 billion in 2010 compared to $1.40 billion in 2009. These
results included realization gains of approximately $400 million in both years from sales of partial interests in
our operations.
Asset management fees and the contribution from other services increased to $348 million. This excludes
$224 million of performance-based income that accumulated during the year but is deferred for accounting
purposes. Base management fees were higher as a result of new funds and increased third-party capital under
management. Our construction services businesses expanded their operating margins and activity levels and
new contract procurement is benefitting from increased economic activity. Unallocated interest and operating
costs increased in line with the expansion of our operations.
Renewable power operations contributed net operating cash flow and realization gains of $548 million,
compared to $720 million last year. We recorded realization gains of $291 million and $369 million, respectively,
in 2010 and 2009 on the sale of interests in our Canadian renewable power business. Our reduced interest in
these operations, together with low hydrology levels in Ontario, Quebec and New york, resulted in lower cash
flows; however this was partially offset by higher price contracts and an increase in cash flow from new wind
and other generating facilities. Reservoirs were 6% above average levels at year-end, reflecting stronger water
flows in the fourth quarter. This positions us well going into 2011 and we have recently benefitted from higher
electricity prices due to colder winter weather.
2010 AnnUAl report 17
The contribution from our commercial office business reflects a 4% increase in rents on a “same property”
basis and $12 million of additional cash flow from newly acquired or developed properties. We also received
a $26 million dividend from our investment in Canary Wharf group and recorded a higher level of realization
gains. We leased 7.2 million square feet, maintaining our lease profile at 95% occupancy with a 7.2 year average
term. The average rent in the portfolio increased to $28 per square foot, which continues to be approximately
10% below market rents.
Infrastructure cash flows more than doubled, due to a contribution of $74 million from the global portfolio
acquired in the fourth quarter of 2009. Our other existing businesses, excluding timber, contributed $5 million
more than last year. These businesses are largely regulated or contractual in nature, providing for stable
operating results that increase with inflation and the investment of additional capital. Our timber business,
which is more correlated with the economic cycle, contributed $23 million compared to $10 million last year,
well below its potential, due to continued low level of economic activity in North America. Despite higher prices
due to Asian shipments, we continue to harvest at reduced levels and are building standing timber inventories
in expectation of improving lumber prices.
Our development activities include residential real estate and opportunistic property investments, both of which
are focused primarily on the acquisition and then subsequent sale of assets, as opposed to our power, property
and infrastructure businesses, which have a much longer ownership timeframe. The combined contribution
from these activities increased by $123 million to $192 million. Residential development contributed $77 million
of the increase and the other $46 million related to our opportunity property investments. Residential results
benefitted from an increased number of project completions in Brazil and improved margins in North America.
Private equity and finance results benefitted from improved operating results at a number of the companies
held within our distress investment and private equity portfolios, reflecting a better operating environment and
restructuring initiatives carried out over the past several years. These results included $80 million of disposition
gains.
Investment and other income totalled $311 million in the year compared to $370 million in 2009, reflecting a
lower level of investment and currency gains in 2010. Unallocated costs, including corporate interest expense,
increased by $73 million reflecting the impact of higher cost term debt issued during 2009 and an expanded
operating base.
Total Return
We increased our intrinsic value by $2.4 billion, or $3.77 per share during 2010. The components of the increase
are set forth in the following table and include operating cash flow, increases in the values of our net tangible
assets and appreciation in the value of our asset management franchise based on continued growth in capital
under management and associated fees.
for the YeArs ended deCeMBer 31 (Millions, eXCept per shAre AMoUnts)
operating cash flow
less: preferred shares
operating cash flow for common shares
fair value changes
recognized in ifrs statements
Unrecognized value
Asset management franchise
less: gains recorded in cash flow
total return ($)
total return (%)
2010
Total
$
1,463
Per
Share
2009
total
per
share
$
2.371
$
1,402
$
2.341
(75)
1,388
(269)
1,200
500
1,431
(414)
n/a
2.37
(0.65)
2.06
0.80
2.21
(0.81)
(43)
1,359
(46)
550
400
904
(410)
n/a
2.34
(0.06)
0.88
0.64
1.46
(0.80)
$
2,405
$
3.77
$
1,853
$
3.00
11.9%
11.0%
10.0%
9.5%
1.
preferred share dividends are reflected in operating cash flow per share for consistency
The largest contributor to our total return was our operating cash flow of $1.5 billion, most of which was
retained in the business.
18 Brookfield Asset MAnAgeMent
Valuation and appraisal gains related to our net tangible assets totalled $1.0 billion during the year of which
$414 million was included in operating cash flow. The valuation and appraisal gains are based on year-end
appraisals and valuations and include the gains recorded in our IFRS financial statements as well as management
estimates for certain assets that are not revalued in our financial statements. The increase reflects lower
discount rates, and the impact of higher exchange rates on assets in Australia, Brazil and Canada, partly offset
by a reduction in the energy prices that we expect to realize within our renewable power operations over the
next few years.
Our assessment of the value of our asset management franchise increased by $0.5 billion to $4.0 billion at year-
end. This value reflects the current capital under management for our clients and the associated fees as well
as the potential growth in capital and fees over the next 10 years.
intrinsic value
The intrinsic value of our common equity totalled $22.3 billion at year-end, or $37.45 per share. The increase
of $2.1 billion is due to the total return of $3.77 per share presented on the previous page, less dividends to
common shareholders of $0.52 per share. The following table shows the components of intrinsic value:
for the YeArs ended deCeMBer 31 (Millions, eXCept per shAre AMoUnts)
net tangible asset value
Asset management franchise value
intrinsic value
2010
Total
Per
Share
2009
total
per
share
$ 18,261
$
30.96
$ 16,654
$
28.45
4,000
6.49
3,500
5.75
$ 22,261
$
37.45
$ 20,154
$
34.20
The assumptions used in valuing our tangible assets are based on market conditions prevalent at the end of 2010
and assuming normal transaction circumstances. We believe that these values would be lower on a liquidation
basis (which we have no intention of undertaking) and higher if assessed in the context of a strategic sale over
a period of time. Furthermore, we believe that disciplined owners can extract additional value by selling assets
primarily when market imbalances result in premium valuations and usually exceed appraisal valuations as a
result of this.
We estimate that a 100-basis point decrease in the discount rates used to value our two largest asset classes,
commercial office properties and renewable power generating facilities, would increase our values by
$3.9 billion, in aggregate, or $6.33 per share. A corresponding 100-basis point increase would have the opposite
effect on our values. Key valuation assumptions are presented in Section 2 of the MD&A.
asset management and Other Services
The following table summarizes fee revenues earned from clients for our asset management and other service
businesses:
for the YeArs ended deCeMBer 31 (Millions)
Asset management and other fees1
less: deferred perfomance-based income2
Asset management, net of deferred revenue
property services and construction services3
operating Cash flow
2010
452
(224)
228
120
348
$
$
2009
238
(29)
209
89
298
$
$
1.
2.
3.
revenues
performance-based income that has been deferred until clawback periods expire
net of direct expenses
We achieved significant growth in asset base management fees and performance-based income, in line with
our objective of expanding our asset management operations. Base management fees increased to $167 million
from $131 million in 2009 and now exceed $190 million on an annualized basis. This represents seven-fold
growth over the past five years. In addition, we generated performance-based income of $249 million during
the year, of which $25 million was recognized in our financial statements and $224 million is deferred until
expiry of any clawback provisions. This income represents our participation in the value that we have created
for our clients.
2010 AnnUAl report 19
capital managed For Third Parties
The following table illustrates the capital managed for third parties which totalled $49.9 billion at December
31, 2010. This includes $41.7 billion of capital that is currently invested as well as allocations of capital to
specific funds totalling $8.2 billion that have yet to be invested:
As At deCeMBer 31 (Millions)
institutional real asset funds
Managed listed issuers
public securities
other listed entities
2010
2009
2008
$ 16,859
$ 13,934
$
7,783
5,425
22,284
21,069
6,580
4,196
18,130
23,787
5,737
2,255
10,038
18,040
3,851
$ 49,933
$ 47,654
$ 31,929
We increased the capital allocated by clients to our institutional real asset funds by $2.9 billion, which includes
$2.2 billion additional commitments to our infrastructure funds and $0.6 billion to our real estate opportunity
funds. We returned $0.5 billion of capital to our clients from our private equity and finance funds following the
monetization of invested assets.
The growth in co-investor capital in our managed listed issuers increased by $1.2 billion due to the issuance of
$1.1 of additional equity from our listed global infrastructure fund, our Canadian Renewable Power Fund and
our Canadian listed REIT, along with increased valuations of all three entities.
We are currently working on a number of fundraising initiatives. We expect to have seven funds in the market
over the next eighteen months for which we will be seeking more than $4 billion of third-party capital,
in addition to our own commitment to these funds. This capital and the management arrangements give us the
opportunity to generate additional performance returns and carried interests that we earn from our clients,
typically once our returns exceed a pre-determined hurdle return.
capital Deployed
We invested $7.9 billion of capital for ourselves and our clients through acquisitions and development activities
during 2010 and early 2011. The major items are highlighted in the following table:
(Millions)
Commercial properties
renewable energy
infrastructure
private equity
total
Brookfield
$
5,900
$
4,200
300
1,200
500
300
1,200
200
$
7,900
$
5,900
We invested over $4.3 billion in general growth Properties during 2010 and early 2011 as part of our sponsorship
and recapitalization of the company. Our consortium partners contributed $1.7 billion with the balance provided
by us. We invested $1.0 billion into office properties and development sites in America and the United Kingdom
and bought debt previously issued by our U.S. Office Fund. In our renewable power business we are developing
wind facilities in Canada and the United States and hydro facilities in Brazil. Our infrastructure operations
have a significant development pipeline and expanded the business during the year by acquiring 100% of Prime
Infrastructure for approximately $1.1 billion.
invested capital
Our capital continues to be invested primarily in (i) renewable hydroelectric power plants in North America
and Brazil; (ii) commercial office properties in central business districts of major international centres; and
(iii) a global portfolio of regulated infrastructure assets. These segments, together with cash and financial
assets, represent approximately 70% of our invested capital and contribute to the strength and stability of
our capitalization, operating cash flows and net asset values. Approximately 20% of our invested capital is
deployed in more cyclical activities, such as residential development activities and our private equity and
finance groups, with commensurately higher long-term return expectations. The remaining 10% of capital is
deployed in working capital and carrying values associated with our service businesses.
20 Brookfield Asset MAnAgeMent
The allocation of invested capital is shown in the following table:
Brookfield’s invested Capital1
% of Capital
As At deCeMBer 31 (Millions)
operating platforms
2010
2009
2008
renewable power generation
$ 7,492
$ 8,468
$ 8,678
2010
29%
27%
7%
12%
8%
7%
6%
4%
2009
2008
36%
20%
7%
13%
9%
4%
7%
4%
39%
21%
6%
10%
8%
3%
9%
4%
Commercial properties
infrastructure
development activities
private equity and finance
Asset management and other services
Cash and financial assets
other assets
invested capital
1. At net tangible asset value
6,909
1,905
3,184
2,155
1,800
1,543
919
4,841
1,646
3,153
2,031
1,053
1,607
1,014
4,702
1,274
2,176
1,722
784
1,903
871
$ 25,907
$ 23,813
$ 22,110
100%
100%
100%
Invested capital increased by $2.1 billion to $25.9 billion representing a 9% increase. This is due to retained
cash flow, increases in asset values and the impact of higher exchange rates on non-U.S. assets. Approximately
$0.3 billion of the increase was funded by increases in corporate obligations while the balance of $1.6 billion
accrued to our common equity.
The capital invested in commercial properties increased by $2.1 billion due to an investment of nearly
$1 billion in general growth Properties and increases in the appraised values of our commercial office
portfolios. Renewable power operations declined by $1.0 billion due to a reduction in power prices impacting
the revaluation of our portfolio and the monetization of a portion of our interests in our Canadian portfolio.
Financing activities and Liquidity
We completed $16.1 billion of financings during 2010 and a further $2 billion in the first six weeks of 2011 to
supplement our liquidity, finance growth activities and extend our maturity profile, as shown in the following
table:
(Millions)
Borrowings
Unsecured
Asset specific
Construction
Common shares
preferred shares
equity/asset sales
Unlisted funds
proceeds
rate
term
$ 2,600
5,900
900
1,500
1,500
2,800
2,900
$ 18,100
5.34%
6.59%
6.85%
5 years
4 years
2 years
n/a
perpetual
5.30%
perpetual
n/a
n/a
perpetual
12 years
The refinancing activities have enabled us to extend or maintain our average maturity term at favourable
rates. The current steepness in the yield curve and prepayment terms on existing debt continues to reduce the
attractiveness of pre-financing a number of our maturities, however we are aggressively pursuing refinancing
short dated maturities and longer-dated maturities when these are economical. Our objective is to lock-in the
current lower yield interest rate environment and, more importantly, to extend term to match fund our long-life
assets.
Core liquidity, which represents cash and financial assets and undrawn credit facilities at the Corporation
and our principal operating subsidiaries, was approximately $4.3 billion at year-end, unchanged from the
end of 2009. This includes $2.6 billion at the corporate level and $1.7 billion at our principal operating units.
We maintained an elevated level of liquidity as we continue to see a substantial number of highly promising
investment opportunities. We also have capital allocations from our clients of an additional $8.2 billion to
finance acquisitions.
2010 AnnUAl report 21
capitalization
We continue to finance our operations on an investment-grade basis. The high quality and stable profile of our
asset base and the strength of our financial relationships has enabled us to refinance maturities in the normal
course even during the more difficult stages of the recent recession and credit crisis. The average term to
maturity of our corporate debt is eight years and we have no maturities in 2011.
The following table summarizes our corporate capitalization at the end of the past three years, based on net
tangible equity value:
As At deCeMBer 31 (Millions)
Corporate borrowings
Contingent swap accruals
Accounts payable and other
preferred shares and capital securities
Common equity
net tangible equity
Corporate Capitalization
% of Capitalization
2010
2009
2008
$ 2,905
$ 2,593
$ 2,284
858
3,763
1,556
2,327
18,261
20,588
779
3,372
2,011
1,776
16,654
18,430
675
2,959
2,239
1,413
15,499
16,912
$ 25,907
$ 23,813
$ 22,110
2010
11%
3%
14%
9%
71%
80%
100%
2009
11%
3%
14%
7%
70%
77%
100%
2008
10%
3%
13%
7%
70%
77%
100%
Corporate borrowings and contingent swap obligations represented a 14% debt-to-net tangible capital ratio
while equity securities totalled nearly 80% of our deconsolidated capitalization, consistent with prior years. On
a proportionately consolidated basis, reflecting our pro rata share of borrowing in our operating platforms, this
ratio is 44% (2009 – 44%). We issued $1.7 billion of common and preferred equity in early 2011 in connection
with the acquisition of a further $1.7 billion of general growth Properties’ common shares, which decreased
our deconsolidated and proportionately-consolidated ratios to 14% and 43%, respectively.
net income
We do not utilize net income on its own as a key metric in assessing the performance of our business because,
in our view, it does not provide a consistent measure of the ongoing performance of the underlying operations.
For example, net income includes fair value adjustments in respect of our commercial properties, timber
and financial assets but not our renewable power, utility and development assets which currently represent
approximately 50% of our invested capital. Nevertheless we recognize that others may wish to utilize net income
as a key measure and therefore provide a discussion of net income and a reconciliation to operating cash flow
below and in Part 3 of our MD&A. Furthermore, we incorporate most of the elements of net income that are not
included in operating cash flow, along with components of other comprehensive income, in determining our
intrinsic values and total return.
The following table reconciles operating cash flow and gains to net income for 2010 and 2009:
for the YeArs ended deCeMBer 31
(Millions, eXCept per shAre AMoUnts)
revenues
operating cash flow gains
less: realization and disposition gains1
other items
fair value changes
depreciation and amortization
deferred income taxes
net income (loss) attributable to common shareholders
– per share (diluted)
1.
represents gains that are recorded in equity for ifrs purposes, as opposed to net income
2010
iFRS
2009
ifrs
$ 13,623
$ 11,218
2009
CgAAp
$ 12,082
1,463
(414)
1,049
1,129
(693)
(31)
$ 1,454
$
2.33
1,402
(410)
992
(1,502)
(573)
247
$
(836)
$ (1.54)
1,450
(410)
1,040
128
(693)
(21)
454
0.71
$
$
22 Brookfield Asset MAnAgeMent
PART 2
review of operAtions
OuR BuSineSS
Strategy
We focus on “real assets” and businesses that form the critical backbone of economic activity, whether they
generate reliable clean electricity, provide high quality office space in major urban markets, or transport goods
and resources to or from key locations.
• These assets and businesses typically benefit from some form of barrier to entry, regulatory regime or
other competitive advantage that provides stability in cash flows, strong operating margins and value
appreciation over the longer term.
We operate as an asset manager, and raise capital from our clients that is invested in assets we own, alongside
our own capital.
• This approach adds further value to the company by providing us with additional capital to grow the business
and compete for larger transactions. This also generates an increasing stream of base management and
performance-based income that adds incremental value to our franchise.
We are active managers of capital.
• We strive to add value by judiciously and opportunistically reallocating capital among our businesses to
continuously increase returns.
We maintain leading operating platforms (with over 18,000 employees world-wide) in order to maximize the value
and cash flows from our assets.
• Our track record shows that we can add meaningful value and cash flow through “hands-on” operational
expertise, through the negotiation of property leases, energy contracts or regulatory agreements, asset
development, operations and other activities.
We finance our operations on a long-term, investment-grade basis, with most of our operations financed on
a stand-alone asset-by-asset basis with minimal recourse to other parts of the organization. We also strive to
maintain excess liquidity at all times in order to be in a position to respond to opportunities.
• This provides us with considerable stability and enables our management teams to focus on operations
and other growth initiatives. It also enables us to weather financial cycles and provides the strength and
flexibility to react to opportunities.
We prefer to invest in times of distress and in situations which are time consuming.
• We believe these situations provide much more attractive valuations than competitive auctions and we
have considerable experience in this specialized field.
We maintain a large pipeline of attractive development and expansion investment opportunities.
• This provides us flexibility in deploying growth capital, as we can invest in both acquisitions and organic
development, depending on the relative attractiveness of returns.
2010 AnnUAl report 23
Principal Business activities
Asset Management and other service
We manage $50 billion of capital for clients that is invested alongside our own capital across all of our operations
described below. We earn fees and performance income for managing this capital and, as noted on the previous
page, we also receive other benefits that are reflected in our operating returns from our various platforms. We
also provide a broad array of investment banking, construction and property services to our customers.
renewable power generation
We have one of the largest privately owned hydroelectric power generating portfolios in the world, located on
river systems in the U.S., Canada and Brazil. We have chosen to focus on hydroelectric generation because
of the long-life, exceptional reliability and low operating costs of these facilities. As at December 31, 2010,
we owned and managed 167 hydroelectric generating stations which generate on average approximately
14,500 gigawatt hours of electricity each year. We also own and operate two wind farms with 240 megawatts
of capacity as well as two natural gas-fired plants. Overall, our assets have 4,306 megawatts of generating
capacity, enough to power 1.4 million homes.
office properties
We own and manage one of the highest quality commercial office portfolios in the world located in major
financial, energy and government centre cities in North America, Australasia and Europe. 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 in order
to maximize the value of our tenant relationships. At December 31, 2010, our portfolio consisted of 126 properties
containing approximately 88 million square feet of commercial office space.
retail properties
We own interests in 213 retail shopping centres in the U.S., Canada, Australia, Brazil and the United Kingdom.
These properties encompass approximately 178 million square feet of retail space. Our largest investment is a
dominant portfolio of U.S. super-regional shopping mall properties held through our consortium’s nearly 40%
ownership of general growth Properties, which we acquired during 2010 and in February 2011, subsequent to
year-end.
infrastructure
During 2010, we completed a transaction that significantly expanded the scale of our infrastructure
operations. Our infrastructure group now manages approximately $16 billion of total assets in the following
sectors: transportation (ports, rail lines); utilities (electrical and natural gas transmission); and timberlands.
Our strategy is to acquire and operate high quality assets and operations that provide essential services or
products and which generate cash flows that are supported by regulatory regimes or some form of barrier to
entry.
development Activities
We develop commercial properties on a selective basis, and are active in residential development throughout
North America, Australasia, Brazil and the United Kingdom. We also develop agricultural lands in Brazil.
These activities encompass 27 million square feet of developable commercial space, 81 million square feet
of residential condominiums, 122,000 lots for residential land and 370,000 acres of agricultural land. We also
conduct development activities within our renewable power generation and timberland activities.
private equity and finance
We conduct a wide range of restructuring, real estate finance and bridge lending activities through investment
funds with total committed capital of $4.4 billion. Total invested capital at year-end was $3.5 billion of which our
share was $1.7 billion. We also hold a number of investments that are mostly temporary in nature and will be
sold once value is maximized or integrated into our core operations or new fund strategies.
24 Brookfield Asset MAnAgeMent
Organization Structure and Financial Profile
We organize our business into a number of specialized operating platforms that are responsible for managing
the assets in each of our principal segments as set forth on the preceding page. Our MD&A is organized by
these segments. As an asset manager, we have established a number of listed and unlisted entities through
which our clients can invest in these assets. These consist of unlisted institutional funds, listed entities that
are externally managed by us, and listed internally managed entities in which we own major interests. We
consolidate many of these entities and, accordingly, our financial statements include cash flows and net income
that accrue to our capital as well as our clients, as well as assets in which we share ownership with others. The
interests of our clients and co-investors are presented throughout the MD&A as “co-investor interests” and are
deducted in determining at the net invested capital and net operating cash flows that accrue to Brookfield.
Total assets under management throughout our funds and operating platforms were $122 billion at year-end
and represent assets managed on behalf of our clients, as well as on our own. These include the physical
assets and working capital held by the various listed and unlisted entities and investees within our various
operations as well as the debt and equity securities that we manage on an advisory basis through our public
securities operations. This metric provides an indication of the scale of our operations, and while it is not a
direct indicator of our profitability, we believe our global scale provides a valuable competitive advantage.
Approximately $76 billion of these assets are consolidated for accounting purposes and are therefore presented
on our consolidated balance sheet. The balance of $46 billion includes $21 billion of public fixed income and
equity securities managed for clients and $25 billion of assets that are held within equity accounted investees.
The $122 billion of assets are financed with a combination of debt, most of which is secured by specific assets
or groups of assets on a stand-alone basis, and equity capital provided by Brookfield and by clients and other
investors in our listed and unlisted funds. The following charts illustrate the composition of the total assets
under management and the associated sources of capital:
ASSETS UNDER MANAGEMENT
Total - $122 billion
SOURCES OF CAPITAL
Total - $122 billion
Cash, Financial
Assets and Other
$6 billion
Development
Activities
$9 billion
Private Equity
and Finance
$8 billion
Public Securities
$21 billion
Renewable
Power
$16 billion
Infrastructure
$16 billion
Unlisted
Fund Equity
$17 billion
Commercial Properties
$46 billion
Listed
Issuer Equity
$12 billion
Public Securities
$21 billion
Brookfield’s
Invested Capital
$26 billion
Working Capital
$6 billion
Debt Financing
$40 billion
At year-end, approximately 70% of the assets consisted of real return assets such as renewable power generating
facilities, commercial office properties and various other infrastructure assets. These assets provide relatively
stable cash flows that tend to increase over time with economic growth as well as operational improvements
and we target an unlevered pre-tax return that typically ranges between 10% and 14% and an average of 12%.
The remaining 20% was invested in higher return and more cyclical operations such as private equity and
finance, and residential development. We target overall returns of 20% from the capital invested in these
businesses.
We have smaller amounts of capital invested in our asset management and other service activities and
maintain a portfolio of cash and financial assets. These balances, together with working capital, represent the
remaining 10%.
2010 AnnUAl report 25
In addition to operating cash flow, we also report the impact of fair value changes on our net invested capital.
Together these two items make up Total Return on invested capital. Fair value changes include appraisal gains,
foreign currency variances and other items that determine the intrinsic value of our common shares. The
following charts illustrate the $26 billion capital invested by Brookfield in our operating platforms, as well as
how we fund the capital that we have invested in the operations:
BROOKFIELD’S INVESTED CAPITAL
Total - $26 billion
DECONSOLIDATED CAPITALIZATION
Total - $26 billion
Renewable Power
$8 billion
Shareholders’
Equity
77%
Cash, Financial Assets
and Other
$2 billion
Asset Management
and Other Services
$2 billion
Private Equity
and Finance
$2 billion
Commercial
Property
$7 billion
Development
Activities
$3 billion
Infrastructure
$2 billion
Borrowings
14%
Accounts Payable
and Other
6%
Capital
Securities
3%
Over 70% of our capital is invested in our major real asset categories of renewable power, commercial properties
and infrastructure. This capital is funded primarily with common and preferred equity, with a modest amount
of financial leverage to enhance shareholder returns.
The value and composition of the capital invested in our operations, together with our share of the underlying
cash flows, are important determinants of the intrinsic value of our company. Accordingly, throughout our MD&A
we focus primarily on “Net Invested Capital,” which is the capital that we have invested in our operations and
“Net Operating Cash Flow,” which is our share of the underlying cash flow of these operations, after deducting
liabilities and co-investor interests.
The following sections contain analysis and review of our net invested capital and net operating cash flows, as
well as the operating results of our asset management activities. We reconcile net operating cash flow to net
income as presented in our IFRS financial statements in Part 3. We also reconcile our consolidated balance
sheet to our various segmented balance sheets in the same section.
Our intrinsic value consists of the pre-tax equity as presented in our IFRS balance sheet, together with
adjustments to present balances at fair value that are not otherwise carried at fair value in our IFRS balance
sheet (which we call “unrecognized values”) and an assessment of the value of our asset management business.
We provide an analysis of these values on a segmented basis in this section and a full reconciliation to our IFRS
balance sheet in Part 3.
26 Brookfield Asset MAnAgeMent
RenewaBLe POweR geneRaTiOn
highlights:
• Realized prices benefitted from long-term contracts signed in 2009, and increased 11% over the prior
year from $73 per megawatt hour (MWh) to $81 per MWh as a result of a higher amount of contracted
generation. This partially offset the impact of generation that was 10% below long-term average hydrology
levels, and 9% below 2009 generation;
• Advanced development of five hydroelectric facilities and three wind facilities in North America and Brazil.
The hydroelectric facilities are designed to have installed capacity of 117 megawatts (MW) and expected
annual generation of 439 gWh for an estimated project cost of $489 million. The wind facilities are designed
to have installed capacity of 370 MW, expected annual generation of 1,072 gWh and a total project cost of
approximately $1 billion. The facilities are expected to be commissioned between 2011 and 2013;
• Commissioned a 26 MW hydroelectric facility in Brazil and a 51 MW wind project in southwestern Ontario,
adding 300 gigawatt hours of expected annual generation. The facility in Brazil is protected from volume
risk by virtue of the “assured energy” market in that region and our wind farm provides renewable energy
to the province of Ontario through a 20-year power purchase agreement with the government of Ontario.
We also acquired a 50% interest in a 30 MW hydroelectric facility located in California for $16 million;
• Secured contracts for 1,300 gWh of annual generation from new developments; arranged 6,700 gWh of
financial contracts covering 2011 and 2012; and extended a power sale agreement covering 554 gWh per
annum until 2016, increasing stability of revenues;
• Sold 17.2 million units of our Renewable Power Fund, in which we continue to own 34%, for gross proceeds
of $341 million and a gain of $291 million; and
• Completed $1.1 billion of financings, including preferred equity, unsecured notes and secured project
financings, extending our maturity profile and decreasing our average cost of debt.
The following table presents certain key metrics that we consider in assessing the performance of our power
business:
As At And for the YeArs ended deCeMBer 31
realized price (per Mwh)
Annual generation (gwh)
long-term average generation (gwh)
% of contracted revenue for following year
– total
– long-term contracts only
duration of long-term contracts (years)
debt to capitalization
$
2010
81
14,454
16,130
93%
70%
13
40%
$
2009
73
15,838
15,599
84%
70%
14
38%
$
2008
77
15,930
14,993
80%
50%
12
34%
The following table summarizes the capital invested in our renewable power operations and our share of the
operating cash flows:
As At And for the YeArs ended deCeMBer 31 (Millions)
hydroelectric generation
other forms of generation
facilities under development
Corporate assets and capitalization
realization gains
Brookfield’s ifrs values
values not recognized under ifrs
Brookfield’s invested capital
net invested Capital
net operating Cash flow
2010
2009
$
5,709
$
6,709
$
231
239
713
—
6,892
600
145
233
931
—
8,018
450
$
7,492
$
8,468
$
2010
308
44
—
(95)
291
548
—
548
2009
417
$
19
—
(85)
369
720
—
720
$
2010 AnnUAl report 27
We own a 100% majority of our U.S. and Brazil operations, with the exception of a few joint ventures. Our
Canadian operations are owned through our 34% owned Brookfield Renewable Power Fund.
Operating Results
Variances in our cash flows are primarily the result of changes in the level of water flows, which determine the
amount of electricity that we can generate from our hydroelectric facilities, and the prices we realize for power
that is not sold under long-term contracts and ancillary revenues such as capacity payments. The following
table sets out the variances in operating cash flows:
for the YeArs ended deCeMBer 31 (Millions)
hydroelectric generation
2010
2009
net
Operating
income
interest
expense
and Other
co-investor
interests
net
Operating
cash Flow
net
operating
income
interest
expense
and other
Co-investor
interests
net
operating
Cash flow
United states
$
$
192
$
Canada
Brazil
wind energy
pumped storage and co-generation
Corporate capitalization and cash taxes
realization gains
operating cash flow
370
134
192
696
40
35
—
771
291
$
138
$
64
79
281
17
—
95
393
—
40
63
4
107
14
—
—
121
—
7
109
308
9
35
(95)
257
291
548
411
189
153
753
30
12
—
795
369
$
135
$
59
53
247
15
—
85
347
—
39
45
5
89
8
—
—
97
—
97
$
237
85
95
417
7
12
(85)
351
369
720
$
$ 1,062
$
393
$
121
$
$ 1,164
$
347
$
The principal operating variances included:
• A decline of $109 million in the net operating cash flow from hydroelectric facilities to $308 million, reflecting
lower generation, primarily in Ontario and Québec, and a reduced interest in our Canadian operations. This
was partially offset by higher realized prices;
• An increase of $23 million in the contribution from pumped storage and co-generation facilities, due
primarily to the impact of lower gas prices on margins in our cogeneration facility; and
• Realization gains of $291 million on the sale of interests in our Canadian renewable power business
compared to $369 million of similar gains in 2009.
realized prices – hydroelectric generation
The following table illustrates revenues and operating costs for our hydroelectric facilities:
2010
2009
for the YeArs ended deCeMBer 31
(gigAwAtt hoUrs And $ Millions)
United states
Canada
Brazil
total
per Mwh
Production
(gwh)
Realized
Revenues
Operating
costs
6,222
3,557
3,143
12,922
$
513
254
278
$ 1,045
$
81
$
$
$
143
120
86
349
27
net
Operating
income
$
$
$
370
134
192
696
54
production
(gwh)
realized
revenues
operating
Costs
net
operating
income
6,881
4,723
2,879
14,483
$
544
283
225
$ 1,052
$
73
$
$
$
133
$
94
72
299
21
$
$
411
189
153
753
52
Operating cash flow on a per MWh basis increased to $54 per MWh in 2010 from $52 per MWh in 2009. Per unit
revenues benefitted from the higher prices realized under a long-term contract covering our Ontario generation
that took effect in late 2009.
A higher proportion 72% of our generation occurred in the United States and Brazil, which are higher priced
markets, compared to 67% during 2009. Realized prices also include revenues from selling capacity reserves
28 Brookfield Asset MAnAgeMent
and from re-contracting power sales into higher priced markets, which were higher in the current year on a per
unit basis.
Operating costs are largely fixed in our hydro operations and accordingly increase on a per megawatt hour
basis when generation levels are low, as was the case in the current year. This had a particularly notable effect
in Ontario. Revenues and expenses in Canada and Brazil also reflected higher average currency exchange
rates during the year.
generation
The following table summarizes generation during 2010 and 2009:
Actual production
long-term Average
variance of results
Actual vs. long-term
Average
Actual vs.
prior Year
2010
2009
2010
2009
2010
2009
2010
for the YeArs ended deCeMBer 31
(gigAwAtt hoUrs)
hydroelectric generation
United states
Canada
Brazil
6,222
3,557
3,143
6,881
4,723
2,879
6,178
5,077
3,105
6,035
5,003
2,791
44
(1,520)
38
total hydroelectric operations
12,922
14,483
14,360
13,829
(1,438)
wind energy
Co-generation and pump storage
total generation
% variance
499
1,033
14,454
433
922
15,838
506
1,264
16,130
506
1,264
(7)
(231)
15,599
(1,676)
10%
846
(280)
88
654
(73)
(342)
239
2%
(659)
(1,166)
264
(1,561)
66
111
(1,384)
9%
Hydroelectric generation was 1,561 gWh or 11% below production levels in 2009 and 1,438 gWh or 10% below
long-term averages. The decrease reflects below average rainfall in Ontario and Quebec. Precipitation levels
have recovered in most regions with the result that reservoir levels are slightly above average levels for this
time of year. U.S. generation was in line with long-term averages but 10% below the above average generation
experienced in 2009.
generation in Brazil is subject to a market stabilization feature that provides “assured” energy levels based
on long-term average generation rather than actual generation produced, mitigating the impact of changing
water levels.
year-over-year variances benefitted from the completion and acquisition of new facilities which contributed an
additional 390 gWh during 2010.
invested capital
The following table presents the capital invested in our renewable power operations by major geographic
region and asset class based on net asset values:
2010
2009
consolidated
assets
consolidated
Liabilities
co-investor
interests
net invested
capital
Consolidated
Assets
Consolidated
liabilities
Co-investor
interests
net invested
Capital
As At deCeMBer 31 (Millions)
hydroelectric
United states
Canada
Brazil
other generation
facilities under development
working capital and other
$ 4,914
$ 1,873
$
220
$ 2,821
$ 5,845
$ 1,893
$
5,194
2,319
617
239
1,301
2,318
1,5601
677
368
—
588
70
18
—
—
1,316
1,572
231
239
713
5,011
2,115
411
233
1,402
2,593
607
266
—
540
158
878
57
7
—
—
Brookfield’s ifrs values
$
14,584
$ 5,824
$ 1,868
6,892
$ 15,017
$ 5,899
$ 1,100
values not recognized under ifrs
Brookfield’s invested capital
600
$ 7,492
1.
includes $250 million of non-participating preferred shares issued by our renewable power fund
$ 3,794
1,540
1,451
138
233
862
8,018
450
$ 8,468
2010 AnnUAl report 29
Net invested capital declined by $1.0 billion during the year. This reflected operating cash flow, net of gains, a
reduction in appraisal values and a net capital distribution of approximately $0.4 billion. Changes in consolidated
assets and net invested capital since last year relate primarily to the revaluation of the assets at year-end as
well as investments in additional capacity. Consolidated liabilities were unchanged overall while co-investor
interests increased with the sale of common and preferred shares of our listed Renewable Power Fund.
Co-investor interests in our Canadian operations consist primarily of interests held by public investors in our
34%-owned Renewable Power Fund, including units sold during the year for proceeds of $341 million. We record
the pro-rata interests of these investors as a reduction in our net operating cash flow and the market value of
these interests as a reduction in our net invested capital, consistent with their treatment under IFRS. These
interests also include $250 million of preferred shares issued by the Fund during 2010.
We reduced the value of our renewable power operations by $0.6 billion. This included: a $660 million reduction
due to the impact of lower energy prices on uncontracted generation, offset by lower discount rates and currency
appreciation; a $150 million increase in the value of development projects due to contract procurement and an
increase in the market value of units held by investors in our listed Renewable Power Fund.
The key valuation metrics of our hydro and wind generating facilities at the end of 2010 and 2009 are summarized
below. The valuations are impacted primarily by the discount rate and long-term power prices. A 100-basis
point change in the discount and terminal capitalization rates and a 5% change in long-term power prices will
impact the value of our net invested capital by $2.1 billion and $0.5 billion, respectively.
United states
Canada
Brazil
Dec. 31, 2010
dec. 31, 2009
Dec. 31, 2010
dec. 31, 2009
Dec. 31, 2010
dec. 31, 2009
discount rate
terminal capitalization rate
exit date
7.7%
7.9%
2030
8.2%
8.4%
2029
6.1%
7.1%
2030
7.3%
7.9%
2029
10.8%
11.0%
2029
11.0%
11.0%
2029
The discount and terminal capitalization rate decreased in both the United States and Canada due to improved
economic outlook and lower risk-free rates. The discount rate in Canada also benefitted from an increase in the
proportion of power that is projected to be sold under existing long-term contracts.
contract Profile
We increased the percentage of expected power generation sold under power sales agreements and
financial contract in 2011 from 67% to 93%. Approximately 70% of the expected generation is hedged with
long-term contracts that have an average term of 13 years while 23% of our revenue for 2011 is hedged
with shorter-term financial contracts.
The following table sets out the profile of our contracts over the next five years for generation from our existing
facilities, assuming long-term average hydrology:
generation (gwh)
Contracted
power sales agreements
hydro
wind
gas and other
financial contracts
total contracted
Uncontracted
long-term average generation
Contracted generation – as at december 31, 2010
% of total generation
price ($/Mwh)
30 Brookfield Asset MAnAgeMent
Years ended december 31
2011
2012
2013
2014
2015
10,172
782
396
11,350
3,758
15,108
1,077
16,185
93%
77
9,113
1,196
398
10,707
2,946
13,653
2,967
16,620
82%
78
8,900
1,196
398
10,494
—
10,494
6,363
16,857
62%
88
8,272
1,196
134
9,602
—
9,602
6,991
7,709
1,196
—
8,905
—
8,905
7,554
16,593
16,459
58%
85
54%
86
The average contracted price fluctuates from period to period as existing contracts roll off and new contracts
are entered into and as a result of changes in currency exchange rates for contracts in Brazil and Canada. We
have been able to increase the overall contract level in the first two years of our contract profile because of
the higher portion of long-term contracts, which do not typically expose us to any volume risk, while limiting
financial contracts to less than 80% of our otherwise uncontracted generation.
cOmmeRciaL PROPeRTieS
highlights:
• Sponsored the recapitalization of general growth Properties (“ggP”) with our consortium now owning
close to 40% of the company;
• Merged our Australian commercial office properties into Brookfield Office Properties, creating a global
pure-play office property group;
• Reorganized our directly held Canadian office portfolio into a public REIT and monetized a portion of the
equity for proceeds of $150 million;
• Completed $4.6 billion of financings including preferred shares, corporate debt and secured mortgages;
• Leased 7.2 million square feet globally during 2010, almost three times the amount that was rolling over,
maintaining overall occupancy at 95% and average term at 7.2 years;
• Advanced numerous development activities, including our premier City Square office development in Perth,
Australia which is 72% pre-leased to BHP Billiton and scheduled for completion in 2012, and acquired an
interest in a prime redevelopment site in the city of London;
• Acquired undervalued properties in Washington D.C. and Houston encompassing 2.1 million square feet
for total consideration of $435 million; and
• Sold two properties in each of Washington and Edmonton for proceeds of $296 million.
The following table summarizes the capital invested by us in our commercial properties operations and our
proportional share of the operating cash flows:
As At And for the YeArs ended (Millions)
office properties
office development properties
retail properties
Brookfield’s invested capital
values not recognized under ifrs
net invested Capital
net operating Cash flow
2010
2009
$
4,810
$
3,798
$
168
1,6061
6,584
325
497
546
4,841
—
$
6,909
$
4,841
$
2010
365
—
(1)
364
—
364
2009
289
$
—
20
309
—
309
$
1.
subsequent to year-end a further $1.7 billion was invested into retail properties
Office Properties
The following table presents key performance metrics relating to our commercial office properties operations:
As At deCeMBer 31
occupancy
Average lease term (years)
Average “in-place” rental rate (per sq. ft.)
Average financing term (years)
debt to capitalization
2010
95%
7.2
2009
95%
7.2
2008
97%
7.2
$
27.71
$
26.84
$
23.42
4.3
50%
4.4
57%
6.8
62%
We own our U.S., Canadian and most of our Australian properties through 50%-owned Brookfield Office
Properties. Brookfield Office in turn operates a number of unlisted and listed entities through which public
and institutional investors participate in our portfolios. This gives rise to co-investor interests in the invested
capital, operating cash flows and fair value changes that accrue to these investors.
2010 AnnUAl report 31
operating Cash flows
The following table shows the sources of operating cash flow by geographic region, isolating the impact of
currency exchange rates:
for the YeArs ended deCeMBer 31 (Millions)
existing properties
2010
2009
net
Operating
income
interest
expense
and Other
co-investor
interests
net
Operating
cash Flow
net
operating
income
interest
expense
and other
Co-investor
interests
net
operating
Cash flow
$
222
$
150
$
107
$
United states - direct
$
United states - U.s. office fund1
Canada
Australasia
United kingdom
Acquired, developed or
sold properties
dividend from Canary wharf
office property cash flows
investment and other income
Corporate capitalization
Unallocated costs
Currency variance
realization gains
operating cash flow
1.
equity accounted under ifrs
479
170
210
162
32
1,053
114
26
1,193
124
—
—
65
1,382
38
—
63
116
29
430
42
—
472
—
76
93
40
681
—
85
80
20
—
335
37
—
372
55
(33)
(34)
14
374
—
85
67
26
3
476
150
206
156
32
288
1,020
35
26
349
69
(43)
(59)
11
327
38
46
—
1,066
74
—
—
—
1,140
69
$
230
$
138
$
108
—
52
84
32
398
15
—
413
—
88
107
—
608
—
86
83
19
—
326
8
—
334
36
(36)
(47)
—
287
25
64
71
53
—
296
23
—
319
38
(52)
(60)
—
245
44
$ 1,420
$
681
$
374
$
365
$ 1,209
$
608
$
312
$
289
Net operating income generated by existing office properties over the past three years (i.e. those held through-
out the period) is presented in the following table on a constant exchange rate, using the 2009 average exchange
rate for all three years. This table illustrates the stability of these cash flows that arises from the high occupancy
levels and long-term lease profile.
for the YeArs ended deCeMBer 31 (Millions)
United states
Canada
Australia
United kingdom
U.s. office fund1
% of occupancy
Average per square foot
1.
equity accounted under ifrs
$
$
2010
479
210
162
32
883
170
$
2009
476
206
156
32
870
150
$
1,053
$
1,020
$
95%
95%
2008
466
202
150
32
850
147
997
97%
$
27.71
$
26.84
$
23.42
Occupancy over the past three years has remained constant throughout our portfolio ensuring stable cash
flows which have increased by 4% on a total basis. Rents in the United States increased by 3% reflecting
inflationary increases in our primary markets. Rents in Canada increased by 4% as most of our leases contain
contractual step-ups. Re-leasing efforts in our U.S. Office Fund have resulted in a strong performance of that
portfolio.
32 Brookfield Asset MAnAgeMent
invested Capital
The following table presents the capital invested in our office properties by region:
2010
2009
consolidated
assets
consolidated
Liabilities
co-investor
interests
net
invested
capital
Consolidated
Assets
Consolidated
liabilities
Co-investor
interests
net
invested
Capital
As At deCeMBer 31 (Millions)
north America
United states
$ 8,956
$ 5,640
$ 1,902
$ 1,414
$ 8,214
$ 5,433
$ 1,641
$ 1,140
Canada
U.s. office fund
Australia
europe
4,185
1,805
4,883
1,385
1,672
—
2,861
635
1,456
903
1,335
—
1,057
902
687
750
3,645
792
3,658
1,114
1,302
—
2,395
674
1,321
1,022
396
463
—
396
800
440
$ 21,214
$ 10,808
$ 5,596
$ 4,810
$ 17,423
$ 9,804
$ 3,821
$ 3,798
Net invested capital increased by $1.0 billion during 2010, to $4.8 billion at year-end. The increase reflects
operating cash flow net of gains of $0.3 billion, and fair value gains of $0.7 billion. The fair value gains reflect
increases in the appraised values of properties due to a combination of higher projected cash flows, lower
discount rates, as well as currency appreciation of our Australian and Canadian portfolios.
Specific major variances include the following:
• The carrying values of our North American operations increased during the year due primarily to increases
in appraised values. In addition, we acquired buildings in Washington and Houston as well as benefitted
from a strengthening Canadian dollar;
• The carrying value of the U.S. Office Fund, which is held through our 50%-owned office property
subsidiary, and is equity accounted under IFRS, increased by $1 billion to $1.8 billion at December 31, 2010.
Approximately $520 million of the increase relates to the purchase of debt issued by the Fund and the
balance relates to increased valuations of the underlying properties. One half of the $1.0 billion increase
accrues to the minority shareholders in our office property subsidiary;
• Total assets in our Australian operations increased by approximately $1.3 billion. Approximately $500 million
relates to currency appreciation, $400 million to the consolidation of assets within a fund that we acquired
control of during the year, and the balance relates to the transfer of a property from office development
properties upon completion;
• We transferred a full ownership interest in 16 of our Australian properties with net invested capital of
$1.65 billion to 50%-owned Brookfield Office Properties. This gave rise to an increase in co-investor interest
of approximately $875 million, representing the 50% effective interest in these properties that now accrues
to the minority shareholders in Brookfield Office Properties. The remaining increase in co-investor interest
in Australian properties since year-end is due largely to currency appreciation and the consolidation of two
property funds; and
• Total assets and net invested capital in Europe increased primarily due to the acquisition of an additional
7% ownership interest in Canary Wharf group, increasing our ownership to 22%.
The key valuation metrics of our commercial office properties are presented in the following table. The
valuations are most sensitive to changes in the discount rate. A 100-basis point change in the discount rate
and terminal capitalization rate results in an aggregate $1.6 billion change in our common equity value after
reflecting the interests of minority shareholders.
United states
Canada
Australia
Dec. 31, 2010
dec. 31, 2009
Dec. 31, 2010
dec. 31, 2009
Dec. 31, 2010
dec. 31, 2009
discount rate
terminal capitalization rate
investment horizon (years)
8.1%
6.7%
10
8.8%
6.9%
10
6.9%
6.3%
11
7.4%
6.7%
10
9.1%
7.4%
10
9.3%
7.8%
10
Discount and capitalization rates declined meaningfully in all of our principal regions, giving rise to appraisal gains.
2010 AnnUAl report 33
leasing profile
Our total worldwide portfolio occupancy rate in our office properties at the end of 2010 was 95% and the average
term of the leases was seven years, both unchanged from the beginning of the year.
As At deCeMBer 31, 2010
north America
United states
Canada
Australia
United kingdom
total/Average
percentage of total
%
leased
Average
term
94%
96%
98%
100%
95%
7.1
7.6
6.9
10.0
7.2
net
rental
Area
44,106
17,161
8,862
556
70,685
100%
expiring leases (000’s sq. ft.)
Currently
Available
remainder
2011
2012
2013
2014
2015
2016
2017 &
Beyond
2,649
2,915
2,879
687
200
—
3,536
5.0%
572
676
—
4,163
5.9%
6,994
3,266
336
—
925
350
—
4,154
5.9%
10,596
15.0%
2,952
452
715
262
4,381
6.2%
4,257
2,480
938
—
7,675
10.9%
2,313
1,561
1,039
—
4,913
6.9%
19,147
7,218
4,608
294
31,267
44.2%
Average in-place net rents across the North American portfolio approximate $25 per square foot compared to
$24 per square foot at the end of 2009. We leased 6.9 million square feet in 2010 at rents 10% higher than expiring
in-place leases and also benefitted from the higher Canadian dollar. Net rents continue to be at a discount of
approximately 11% to the average market rent of $28 per square foot and are firming in several key markets.
This gives us confidence that we will be able to maintain or increase our net rental income in the coming years
and, together with our high overall occupancy, to exercise patience in signing new leases.
Average in-place rents in our Australian portfolio are A$47 per square foot, which approximate market rents.
The occupancy rate across the portfolio remains high at 98% and the weighted average lease term is
approximately seven years. Our twenty largest tenants have a weighted average lease life of eight years and
account for approximately 75% of our leasable area. These tenants have an average rating profile of AA.
Office Development Properties
The following table presents capital invested in our office development activities by region:
December 31, 2010
december 31, 2009
consolidated
assets
consolidated
Liabilities
co-investor
interests
net
invested
capital
Consolidated
Assets
Consolidated
liabilities
Co-investor
interests
net
invested
Capital
(Millions)
Australia
City square, perth
$ 597
$ 203
$ 197
$ 197
$ 247
$
45
$ —
$ 202
other
north America
Manhattan west, new York
U.s. office fund
other
United kingdom
Unsecured development debt
271
280
28
181
74
—
112
227
—
—
—
356
—
27
14
90
37
—
159
26
14
91
37
(356)
490
286
153
183
—
—
217
227
—
—
—
175
—
29
77
92
—
—
273
30
76
91
—
(175)
$ 1,431
$ 898
$ 365
$ 168
$ 1,359
$ 664
$ 198
$ 497
In Australia, we continued development of the City Square project in Perth, which has a total projected
construction cost of approximately A$935 million, is 72% pre-leased to BHP Billiton with leases pending for
the balance of the space. The project is scheduled for completion in August 2012. This project was merged into
50%-owned Brookfield Office Properties during the third quarter, giving rise to a 50% co-investor interest in the
net capital invested in the project.
We own development rights on Ninth Avenue between 31st Street and 33rd Street in New york City which
entitles 5.4 million square feet of commercial office space. We expect that this will be one of the first sites for
office development in Manhattan once new office properties become economic to build.
34 Brookfield Asset MAnAgeMent
In the United Kingdom, we acquired a 50% joint venture interest in 100 Bishopsgate, a development property in
central London with approximately 0.8 million square feet of developable office space.
In addition to the foregoing, the decrease in net invested capital also reflects the completion of development
projects in the United States and Australia which were then transferred to our office property portfolios.
Retail Properties
As At And for the YeArs ended deCeMBer 31 (Millions)
north America
Brazil
Australia/Uk
values not recognized under ifrs
Brookfield’s invested capital
net invested Capital
net operating Cash flow
$
$
2010
982
206
418
1,606
325
$
1,931
$
2009
—
200
346
546
—
546
2010
2009
$
$
—
(7)
6
(1)
—
(1)
$
$
—
20
—
20
—
20
In late 2010 we successfully led general growth Properties (“ggP”) out of Chapter 11 with a $2.6 billion
cornerstone investment, which represented a 27% interest in ggP at that time. Our share of the investment
was approximately $1 billion with the balance provided by partners in our global Real Estate Turnaround
Investment Protocol. In February 2011 we acquired a further 10% interest in ggP for approximately $1.7 billion,
increasing our collective interest to approximately 40% with a stock market value of $5.5 billion. With the recent
purchase, our direct interest consists of 191 million common shares and warrants to acquire a further 19 million
common shares with an exercise price of $10.75 per share with an estimated market value of $3.1 billion
($1.3 billion at year-end).
ggP is the second largest retail mall owner in the United States with a portfolio of more than 180 properties
that include some of the highest quality and most profitable malls in America. We have three seats on ggP’s
board of directors and our Chief Executive Officer serves as the Chair of ggP’s board of directors. We look
forward to working closely with ggP to further enhance the value of the company for all shareholders.
We equity-account our investment in ggP, which under IFRS requires us to recognize our pro rata share of the
company’s earnings and equity each quarter. In addition, we will disclose our share of the company’s reported
funds from operations each quarter and include it as a component of our cash flow from operations. We have
included our share of the excess market value over book value as part of the “values not recognized under IFRS.”
Our Brazil operations are conducted through the Brookfield Retail Real Estate Partners Fund (“BRREP”), which
is an institutional fund with $800 million of capital. We have funded 25% of the capital and our partners have
contributed the remaining 75%. BRREP owns a portfolio of 12 high quality retail malls comprising 3.6 million
square feet. Retail sales increased by 20% within our portfolio during 2010, leading to an increase of 17% in
our net operating income. The current high interest rates in Brazil have absorbed the increase in net operating
income, such that the net operating cash flow is negative $7 million. Furthermore, a meaningful portion of the
portfolio continues to be redeveloped and is not contributing cash flow. We expect, however, continued growth
in net operating income and lower interest rates over time to result in favourable total returns for BRREP.
Net invested capital of our commercial retail interests increased by $1.4 billion during the year. This includes
fair value changes in our share of ggP’s common equity following the restructuring as well as the difference
between the equity under IFRS and the stock market price of $15.48 per share at year-end.
2010 AnnUAl report 35
inFRaSTRucTuRe
highlights:
• Completed a $1.1 billion merger with Prime Infrastructure, simplifying the ownership structure of Brookfield
Infrastructure Partners and increasing third-party capital under management. As a result of the merger, our
ownership interest in Brookfield Infrastructure decreased from 41% to 28% and Brookfield Infrastructure’s
interest in Prime increased from 40% to 100%, leading to an overall increase in our effective interest in the
underlying operations of Prime;
• Completed fundraising for $3.1 billion of funds, including a $2.7 billion flagship Brookfield Americas
Infrastructure Fund and a $440 million fund to invest in Peru;
• Received regulatory approval to increase the rate base of our Australian coal terminal, further enhancing
the cash flows in the business and confirmed new agreements for our North American natural gas pipeline
operations, providing greater certainty for future cash flows;
•
Invested $0.4 billion into expansion projects during 2010 and advanced six significant capital projects in
our Western Australian rail business to upgrade and expand the capacity of our network by 50% and deploy
a further $600 million of capital at favourable returns; and
• Completed $2.2 billion of financings on our transmission, rail and ports assets.
The following table summarizes the capital we have invested in our infrastructure operations as well as our
share of the operating cash flows:
As At And for the YeArs ended deCeMBer 31 (Millions)
Utilities
transport and energy
timber
Corporate and other costs
Brookfield's ifrs value
values not recognized under ifrs
Brookfield’s invested capital
net invested Capital
net operating Cash flow
$
$
2010
523
433
824
—
1,780
125
$
2009
537
196
813
—
1,546
100
$
1,905
$
1,646
$
2010
2009
83
37
23
(13)
130
—
130
$
$
52
5
10
(5)
62
—
62
We own our various infrastructure businesses through several managed investment funds, including our two
flagship entities: Brookfield Infrastructure Partners LP, which is publicly listed; and the Brookfield Americas
Infrastructure Fund, which is privately held by institutional investors. We also operate a number of smaller
listed and unlisted funds with specialized investment strategies. We consolidate all of our managed entities
and most of the underlying operating businesses, although some investments held by our funds are equity
accounted.
Operating cash flow more than doubled, due largely to improved performance and increased ownership
following the Prime Acquisition. Net invested capital increased by $0.3 billion, reflecting the operating cash
flow of $130 million and fair value gains of $110 million.
utilities
Our utilities business is comprised of regulated businesses which earn a pre-determined return on their asset
base as well as businesses with long-term contracts designed to generate a specified return on capital over
the life of the contract. They are generally uniquely positioned to provide critical backbone services in their
respective markets which typically allows for stable cash flow and growth from capital expenditures.
36 Brookfield Asset MAnAgeMent
The following table presents the cash flows associated with our utility operations:
for the YeArs ended
deCeMBer 31 (Millions)
south America
Australasia/europe
north America
net
Operating
income
$
61
98
27
2010
2009
interest
expense
co-investor
interests
net
Operating
cash Flow
net
operating
income
interest
expense
Co-investor
interests
$ —
$
10
10
20
$
22
51
10
83
$
$
39
37
7
83
$
$
70
11
29
$ 110
$
11
—
8
19
$
$
23
6
10
39
net
operating
Cash flow
$
$
36
5
11
52
$ 186
$
Utilities operations contributed $83 million of net operating cash flow in 2010, after deducting carrying charges
and co-investor interests, compared with $52 million during 2009. This represents an 11% return on the rate
base and a 16% yield on invested capital.
The contribution from our Chilean transmission operations, which we equity account, was $39 million in 2010,
compared with $34 million in 2009. The increase is primarily due to the impact of ongoing inflation indexation
and growth capital expenditures.
Net operating cash flows in Australasia and Europe includes $25 million from our Australian coal terminal
operations. These operations have been equity accounted since their acquisition in late 2009 and consolidated
since we acquired the remaining ownership interests in late 2010. The terminal charges a capacity toll on a
take-or-pay basis to coal producers to transport coal onto ships destined for the export markets in Asia giving
us certainty on revenue irrespective of the level of shipments.
Virtually 100% of the net operating income from these assets is supported by regulated or contractual revenues.
Accordingly, we expect this segment to produce stable revenues and cash flows that should increase with
inflation and operational improvements. We also expect to achieve continued growth by investing additional
capital into our existing operations.
The following table presents the capital invested in our utilities segment:
2010
2009
As At deCeMBer 31
(Millions)
south America
Australasia/europe
north America
consolidated
assets
consolidated
Liabilities
co-investor
interests
net
invested
capital
Consolidated
Assets
Consolidated
liabilities
Co-investor
interests
$ 372
$ —
$ 171
$ 201
$ 360
$ —
$ 140
3,641
272
2,372
163
992
64
277
45
532
228
1
124
274
44
net
invested
Capital
$ 220
257
60
$ 4,285
$ 2,535
$ 1,227
$ 523
$ 1,120
$ 125
$ 458
$ 537
Following the Prime Acquisition in late 2010, we consolidated a number of the underlying operations, resulting
in an increase in consolidated assets and liabilities compared to 2009.
The valuation of our transmission operations is based on an independent valuation of our Chilean transmission
business and an internal valuation of our Northern Ontario operations. The valuation of our Chilean
transmission business is based on a weighted average real discount rate of 11.2% and terminal capitalization
rate of 9.2% (2009 – 8.1%) and a terminal valuation date of 2025. Our Australasian and European operations were
valued based on fair values attributed in connection with the Prime merger.
2010 AnnUAl report 37
Transport and energy
The following table presents the cash flows associated with our transport and energy operations:
2010
2009
for the YeArs ended
deCeMBer 31 (Millions)
north America
Australia
europe
consolidated
assets
consolidated
Liabilities
co-investor
interests
Consolidated
Assets
Consolidated
liabilities
Co-investor
interests
$
35
30
67
$ —
$
3
26
29
$
21
17
28
66
$
4
2
9
$ —
$
—
2
2
$
2
1
5
8
$ 132
$
$
15
$
net
invested
capital
$
$
14
10
13
37
net
invested
Capital
$
$
2
1
2
5
Our transport and energy businesses are capital intensive businesses that provide transportation, storage
and handling of energy, freight and bulk commodities. These businesses typically benefit from high barriers
to entry, such as locational advantages and regulatory restrictions, which enables us to negotiate long-term
contracts with customers that are subject in many cases to a regulatory framework. Approximately 70% of
our expected cash flows are subject to long-term contracts that govern price but not volume. As a result,
any operating variances that arise are usually due more to fluctuations in volume and, to a lesser degree,
changes in prices on uncontracted revenues. We believe these operations are well positioned to benefit from
increases in commodity demand and the global movement of goods.
Our North American operations include a gas transmission business which is the largest natural gas pipeline
servicing the Chicago and Northern Indiana area, which we include as an equity accounted investment. Our
Australian operations is comprised predominantly of our railroad operations, which is the sole provider of rail
services in the south west area of Western Australia, the operations of which are consolidated. We also operate
20 ports across the UK, Europe and in China.
These operations contributed $37 million of net operating cash flow which represents our proportionate share
of the underlying cash flow, after deducting carrying charges and co-investor interests, representing a 15%
return on our invested capital. These operations were acquired in late 2009 and accordingly contribution to
cash flow during 2009 was limited. Results in the latter part of 2010 were negatively impacted by lower volumes
in our railroad operations due to the impact of a drought on grain harvest, as well as a decrease in permitted
revenues at our North American gas transmission business, offset by improved volumes in our port operations.
The capital invested in these operations is as described in this table:
2010
2009
As At deCeMBer 31 (Millions)
consolidated
assets
consolidated
Liabilities
co-investor
interests
net
invested
capital
Consolidated
Assets
Consolidated
liabilities
Co-investor
interests
net
invested
Capital
north America
$ 382
$ —
$ 274
$ 108
$ 185
$ —
$ 110
$
Australia
europe
1,429
1,030
637
632
561
304
231
94
140
865
—
608
83
193
75
57
64
$ 2,841
$ 1,269
$ 1,139
$ 433
$ 1,190
$ 608
$ 386
$ 196
We began consolidating our interests in most of these operations following the Prime Acquisition in late 2010,
which increased consolidated assets and liabilities. The increase in net invested capital reflects the increased
interest as well as valuation gains. The carrying values are based on fair values attributed in connection with
the Prime merger.
38 Brookfield Asset MAnAgeMent
Timber
The following table sets out the cash flows in our timber operations over the past two years:
for the YeArs ended
deCeMBer 31 (Millions)
north America
western
eastern
Brazil
2010
2009
net
Operating
income
interest
expense
co-investor
interests
net
Operating
cash Flow
net
operating
income
interest
expense
Co-investor
interests
net
operating
Cash flow
$ 113
$
8
2
$ 123
$
86
—
1
87
$
$
13
—
—
13
$
14
$
8
1
$
23
$
66
6
11
83
$
$
85
—
1
86
$ (16)
$
(3)
—
3
6
7
$ (13)
$
10
Net operating cash flow remains below expected long-term results because we continue to operate at reduced
harvest levels until prices recover. In particular, domestic North American demand remains weak given the
depressed levels of U.S. homebuilding activity. We have increased our shipments to Asia in response to more
attractive pricing in these markets, which received nearly 40% of our sales for the year, up from 11% in 2009.
We sold 5.8 million cubic metres during 2010, which was consistent with 2009 levels as an increase in our
Western North American operations was offset by a decline in sales in Brazil. In our Western North American
operations we sold 4.0 million cubic metres during 2010, which was an increase of 20% over 2009, reflecting an
improvement in market conditions which enabled us to realize a 10% increase in average log prices.
The following table sets out the assets and liabilities deployed in our timber segment:
As At deCeMBer 31 (Millions)
north America
western
eastern
Brazil
working capital
2010
2009
consolidated
assets
consolidated
Liabilities
co-investor
interests
net invested
capital
Consolidated
Assets
Consolidated
liabilities
Co-investor
interests
net invested
Capital
$ 3,119
$ 1,471
$ 1,118
$ 530
$ 3,092
$ 1,468
$ 992
$ 632
123
288
749
—
18
641
—
207
—
123
63
108
115
161
701
—
7
667
—
122
—
115
32
34
$ 4,279
$ 2,130
$ 1,325
$ 824
$ 4,069
$ 2,142
$ 1,114
$ 813
Consolidated assets and net invested capital held within our timber operations were relatively unchanged
during the year. Co-investor interests reflect direct interests of others in our timber operations as well as in
Brookfield Infrastructure, through which a portion of these businesses are held.
The increase in co-investor interests arose on the issuance of equity from Brookfield Infrastructure, through
which we invest in most of these operations, as part of the Prime Acquisition.
The carrying values are based on external appraisals that are completed annually. Key valuation assumptions
include a weighted average discount and terminal capitalization rate of 6.6% (2009 – 6.5%) and an average
terminal valuation date of 75 years. Timber prices were based on a combination of forward prices available in
the market and the price forecasts of each appraisal firm.
2010 AnnUAl report 39
DeveLOPmenT acTiviTieS
highlights:
• Contracted sales in our Brazilian residential business increased by over 60%;
• A merger between our Canadian and U.S. homebuilding and development businesses to simplify ownership
and create a pure-play North American residential development company was announced, and is expected
to be completed in early 2011; and
• Opportunity Fund sold 26 properties at returns exceeding our underwritten returns.
The following table summarizes the capital we have invested in our development activities as well as our share
of the operating cash flows:
As At And for the YeArs ended deCeMBer 31 (Millions)
residential development
opportunity investments
development land
Brookfield's ifrs value
values not recognized under ifrs
Brookfield’s invested capital
Residential Development
net invested Capital
net operating Cash flow
$
2010
921
244
1,144
2,309
875
2009
$
1,296
$
262
845
2,403
750
$
3,184
$
3,153
$
2010
116
79
(3)
192
—
192
2009
26
33
10
69
—
69
$
$
The net operating cash flows attributable to each of these business units are as follows:
for the YeArs ended deCeMBer 31 (Millions)
net
Operating
income
interest
expense
co-investor
interests
net
Operating
cash Flow
net
operating
income
interest
expense
Co-investor
interests
net
operating
Cash flow
2010
2009
Brazil
Canada
United states
Australia and Uk
revaluation items
$ 180
$ 106
$
140
17
13
—
—
(3)
21
—
44
70
(4)
—
—
$
30
70
24
(8)
—
$
15
$
114
(17)
2
(28)
45
—
(22)
20
(11)
$
(7)
$ (23)
57
(9)
—
(13)
57
14
(18)
(4)
26
$ 350
$ 124
$ 110
$ 116
$
86
$
32
$
28
$
The majority of Brazil sales and associated profits in this business are not recorded until substantial completion
of a residential or office project. Accordingly, reported results are highly dependent on how many condominium
and office projects reach substantial completion in a particular period and individual project completions have
a larger impact on results than our development businesses in other regions which involve a greater number of
discrete single family unit sales.
There were a relatively small number of closings compared to ongoing sales volumes, in both 2010 and 2009.
As a result, the operating cash flow after deducting general and administrative and interest expenses was
$31 million. The operating margin on condominium projects, prior to unallocated costs, averaged 30% during
2010 compared to 26% in 2009.
Two important operating metrics in our opinion are launches, which represent the opening of new projects
for sale and future construction, and contracted sales which will give rise to closings once the project is
completed and the units can be delivered to the purchasers. Contracted sales increased to R$3,621 million in
2010 representing a 60% increase in local currency terms from R$ 2,260 million in 2009 and combined launches
of new projects totalled R$2,981 million (2009 – R$2,675 million), up 11%.
40 Brookfield Asset MAnAgeMent
The Canadian operations contributed $70 million of net operating cash flow in 2010, compared to $57 million in
2009. The increase in cash flows is due primarily to increased home sales from 648 units in 2009 to 1,025 units
in 2010.
Our U.S. operations generated $24 million of cash flows during 2010, compared with $14 million in 2009. The gross
margin from housing sales increased to approximately 17%, compared with 13% last year, however, closings
declined to 575 units during 2010 (2009 – 703 units). The average selling price was $511,000 (2009 – $488,000) and
the backlog at the end of 2010 was 85 units compared to 187 units in 2009.
The Australian and UK operations recorded $8 million of net cash outflow in 2010 compared with $18 million in
2009, due to improved sales and margins in the UK.
The following is a breakout of our invested capital in residential development:
As At deCeMBer 31 (Millions)
consolidated
assets
consolidated
Liabilities
co-investor
interests
net invested
capital
Consolidated
Assets
Consolidated
liabilities
Co-investor
interests
net invested
Capital
2010
2009
Brazil
Canada
United states
Australia
United kingdom
$ 3,679
$ 2,849
$
476
$
354
$ 2,819
$ 1,996
$
773
798
145
37
609
283
75
—
82
137
—
—
82
378
70
37
789
850
459
192
327
335
232
110
434
233
146
—
—
$
389
229
369
227
82
$ 5,432
$ 3,816
$
695
$
921
$ 5,109
$ 3,000
$
813
$ 1,296
The capital deployed in these activities was relatively unchanged since the end of 2009. We have continued to
reduce the level of capital deployed in Australia and the United Kingdom through increased sales activity. We
recently announced a transaction whereby we will merge our Canadian and United States operations into a
single publicly listed entity, whereas they are currently held through two separate public companies. This will
simplify our ownership structure and create a well positioned North American residential business.
Opportunity investments
We operate two niche real estate opportunity funds with $535 million of invested capital. Our current
investment in the funds is $244 million and our share of the underlying cash flow during 2010 was $79 million
(2009 – $33 million). Cash flows included $44 million of gains from the sale of 26 properties during the year.
Development Land
The following table presents the capital invested by us in longer-term development land. The values of
residential lots in this table are based on historical book values consistent with both IFRS and Canadian gAAP,
whereas rural development lands held for agricultural purposes are carried at net asset values under IFRS.
As At deCeMBer 31 (Millions)
residential lots
north America
Brazil
Australia and Uk
rural development lands
Brazil
2010
2009
consolidated
assets
consolidated
Liabilities
co-investor
interests
net invested
capital
Consolidated
Assets
Consolidated
liabilities
Co-investor
interests
net invested
Capital
$
799
805
477
433
$ —
$
279
275
2
403
411
—
—
$
396
115
202
431
$
797
691
371
384
$ —
$
277
369
2
399
351
—
—
$ 2,514
$
556
$
814
$ 1,144
$ 2,243
$
648
$
750
$
$
398
63
2
382
845
2010 AnnUAl report 41
PRivaTe equiTy anD Finance
Summarized Financial Results
The following table presents the net asset value of the capital invested in our Private Equity and Finance
activities, together with our share of the operating cash flows:
net invested Capital
net operating Cash flow
As At And for the YeArs ended (Millions)
restructuring
real estate finance and lending
other investments
Brookfield's ifrs value
values not recognized under ifrs
Brookfield’s invested capital
$
2010
681
435
589
1,705
450
$
2009
613
436
582
1,631
400
$
2,155
$
2,031
$
2010
109
$
52
20
181
—
181
2009
32
33
47
112
—
112
$
$
Net invested capital was largely unchanged. Carrying values are based on the amortized cost for loans and fair
value for owned properties. A number of investments are carried at historical book value and depreciated for
IFRS purposes, and have an incremental unrecognized value as reflected by publicly available share prices and
comparable valuations. We include these incremental amounts as “values not recognized under IFRS.”
Restructuring
We operate three restructuring funds with total invested capital of $1.4 billion and uninvested capital
commitments from clients of $370 million. Our share of the net invested capital is $681 million.
The portfolio consists of nine investments in a diverse range of industries. Our average investment is $62 million
and our largest single exposure is $225 million. We concentrate our investing activities on businesses with
tangible assets and cash flow streams in order to better protect our capital. We sold our investment in Concert
Industries (“Concert”) in the first quarter of 2010 to a strategic purchaser and recognized a $36 million gain.
Our share of the operating cash flow produced by these businesses during 2010 excluding the Concert
disposition gain was $73 million, compared to $32 million in 2009. Profitability improved within our portfolio
companies due to restructuring initiatives and improved economic circumstances which have led to higher
volumes. In particular, we have made significant efforts to improve the cost structure and optimize inventory
levels in these businesses and we are seeing the benefit of that in the results.
These operating improvements, combined with increased acquisition activity and comparable transaction
values imply unrealized fair value gains of approximately $275 million above carried costs, which in most cases
reflect depreciated historical book values and distress acquisition prices. These values are consistent with
those presented to our investors and included in the financial statements of our funds.
Real estate Finance and Bridge Lending
We operate two real estate finance funds with total committed capital of approximately $1.3 billion. We also
originate and manage bridge loans in a variety of industries for institutional clients and ourselves. Our share of
capital invested in these operations was $435 million at December 31, 2010 (December 31, 2009 – $436 million).
These activities contributed $52 million of net operating cash flow and gains during 2010 compared to $33 million
during 2009. We recorded net disposition and revaluation gains of $14 million during the year.
net invested Capital
net operating Cash flow
As At And for the YeArs ended deCeMBer 31 (Millions)
2010
2009
total real estate finance investments
$
2,709
$
2,790
$
less: borrowings
less: co-investor interests
Bridge lending
net investment in real estate finance funds
42 Brookfield Asset MAnAgeMent
(1,507)
(828)
374
61
435
$
(1,699)
(755)
336
100
436
$
$
2010
162
(55)
(75)
32
20
52
2009
67
(25)
(22)
20
13
33
$
$
We have been careful to structure our financing arrangements to provide sufficient duration and flexibility to
manage our investments with a longer-term horizon. We have matched terms in respect of asset and liability
positions with an overall asset and liability duration of two years. In addition, both our asset returns and net
corresponding liabilities are subject to changes in short-term floating rates.
Other investments
We own a number of investments which will be sold once value has been maximized or integrated into our core
operations. Although not core to our broader strategy, we occasionally make investments of this nature while
divesting more mature assets.
The net operating cash flow and gains from these investments in 2010 totalled $20 million, compared
to $47 million for 2009. The 2010 results include an $85 million gain related to the disposition of 8.7 million
common shares of Norbord Inc. (“Norbord”) offset by operating losses and a restructuring charge in respect of
under-performing industrial businesses. The 2009 results reflect a $65 million gain related to the disposition of
10 million common shares of Norbord.
As At And for the YeArs ended deCeMBer 31 (Millions)
industrial and forest products
infrastructure
Business services
property and other
net invested Capital
net operating Cash flow
2010
265
83
173
68
589
$
$
2009
256
81
174
71
582
$
$
2010
2009
$
$
17
6
(6)
3
20
$
$
40
6
6
(5)
47
Our largest industrial investment is a 63% fully diluted interest in Norbord, which is the lowest cost
manufacturer of oriented strand board in North America. The market value of our investment in Norbord
at year-end was approximately $465 million based on stock market prices, exceeding our carrying value of
$237 million by approximately $230 million (2009 – $280 million).
aSSeT managemenT anD OTheR SeRviceS
highlights:
•
Increased third-party capital under management to $50 billion;
• Raised $4 billion of new capital commitments for our unlisted and listed funds;
•
Increased annualized base management fees to $190 million annually; and
• generated $249 million of performance-based income.
capital under management
The following table summarizes capital managed for clients and co-investors at the end of the past two years:
As At deCeMBer 31 (Millions)
Unlisted funds and managed listed issuers
2010
2009
core
and
value added
Opportunity
and
Private equity
Core
and
value Added
opportunity
and
private equity
Total
total
renewable power generation
$ 1,428
$ —
$ 1,428
$
995
$ —
$
995
Commercial properties
infrastructure
development
private equity and finance
public securities
other listed entities
3,704
8,292
—
2,244
15,668
—
—
5,176
229
281
930
6,616
—
—
8,880
8,521
281
3,174
22,284
21,069
6,580
3,479
4,937
—
3,098
12,509
—
—
4,600
69
291
661
5,621
—
—
8,079
5,006
291
3,759
18,130
23,787
5,737
$ 15,668
$ 6,616
$ 49,933
$ 12,509
$ 5,621
$ 47,654
2010 AnnUAl report 43
Unlisted funds and Managed listed issuers
Third-party capital commitments to these funds increased by $4.2 billion during the year to $22.3 billion,
reflecting $2.9 billion of additional capital committed to unlisted infrastructure funds, real estate turnaround
opportunities and to our private equity and finance funds and increased valuations. We added $1.1 billion of
listed capital in December with the merger of Brookfield Infrastructure and Prime Infrastructure and $0.6 billion
on the issuance of capital in renewable energy and property funds.
The amounts in the table above include $8.2 billion of capital (2009 – $6.7 billion) that has not been invested
to date but which is available to pursue acquisitions pursuant to each fund’s specific mandate. Of the total
uninvested capital, $3.1 billion relates to our global real estate turnaround consortium and $3.1 billion relates
to our infrastructure funds.
public securities
We specialize in fixed income and equity securities with a particular focus on real estate and infrastructure,
including high yield and distress securities. Our clients are predominantly pension funds and insurance
companies throughout North America and Australia.
The following table summarizes client assets under management within these operations. We typically do not
invest our own capital in these strategies as the assets under management tend to be securities rather than
physical assets:
As At deCeMBer 31 (Millions)
public securities
fixed income
equity
other listed entities
2010
2009
$ 13,862
$ 17,589
7,207
6,198
$ 21,069
$ 23,787
We have established a number of our business units as listed public companies to allow other investors to
participate and provide us with additional capital to expand these operations. This includes common equity
held by others in Brookfield Office Properties, Brookfield Homes and Brookfield Incorporações among others.
Operating Results
The following table summarizes fee revenues earned from clients for our asset management services as well as
the net contribution (i.e. net of direct expenses) earned from our construction and property services businesses:
for the YeArs ended deCeMBer 31 (Millions)
Base management fees1
performance-based income1
less: deferred recognition2
investment banking and transaction fees1
Asset management and other fees
Construction and property services3
net operating Cash flow
2010
167
249
(224)
36
228
120
348
$
$
2009
131
$
(7)
29
56
209
89
298
$
revenues
1.
2. deferred into future years or from prior years, until clawback periods expire
3.
net of direct expenses
44 Brookfield Asset MAnAgeMent
Asset Management fees
We are typically compensated with base management fees and performance-based fees consistent with the
parameters outlined in the following table:
AverAge fee strUCtUre
Core and value added
opportunistic and private equity
weighted average
1.
Basis points
Base fee
(bps)1
100-150
150-200
125-150
Carried
interest
17%
20%
18%
return
hurdle
9%
12%
10%
Base management fees increased to $167 million, reflecting the contribution from new funds launched during
the past two years and an increase in the capital committed to existing mandates. Annualized base management
fees on existing funds and assets under management increased to $190 million at year-end (December 31,
2009 – $140 million) due principally to increases in the capital managed within our infrastructure funds. The
weighted average term of these fees is eight years, and our goal is to increase the level of base management
fees as we continue to expand our asset management activities.
The following table includes performance returns from third parties that have accumulated based on
performance to date and year-end valuations, but are not included in our reported results:
for the YeArs ended deCeMBer 31 (Millions)
Accumulated-beginning of year
net accumulation/(reduction) during the year
less: recorded in operating cash flow
Accumulated-end of year
2010
36
249
(25)
260
$
$
2009
65
(7)
(22)
36
$
$
We generated $249 million of performance-based income during the year based on 2010 activity; however,
accounting guidelines require us to defer recognition of $224 million of this amount until any clawback periods
have expired.
We estimate that approximately $11 million of direct expenses will arise on the realization of the returns that
have accumulated to date. The average period of time over which these accumulated returns may be realized is
five years, based on the terms of the relevant contracts. We expect that the ultimate receipt of these amounts
will not result in any meaningful cash taxes.
Our investment banking services are provided by teams located in the United States, Canada, Australia and
Brazil. The group advised on merging and acquisitions, financing and other transactions totalling $7.5 billion in
value during 2010, and secured a number of prominent mandates.
Transaction fees include investment fees earned in respect of financing activities and include commitment
fees, work fees and exit fees. The 2009 results included $25 million in fees from the expansion of our real estate
brokerage network.
Construction and property services
The following table summarizes the operating results from our construction and property services operations
during the past two years:
for the YeArs ended deCeMBer 31 (Millions)
Construction services
Australia
Middle east
United kingdom
property services
net operating Cash flow
2010
2009
$
$
43
49
10
102
18
120
$
$
18
46
7
71
18
89
2010 AnnUAl report 45
The results from our Australian business increased significantly due to a higher level of activity and the release
of contingency reserves following the completion of several projects on or under budget. Operating margins in
these regions averaged 9% in 2010, prior to 10% of unallocated general and administrative costs.
The remaining work-in-hand totalled $4.3 billion at the end of December 31, 2010 (December 31, 2009 –
$3.3 billion) and represented approximately three years of scheduled activity. We secured over $2.9 billion
of new projects in Australia and the UK, including hospitals, hotels and commercial office towers which is
more than work performed and project completions during the year, whereas the work-in-hand declined in the
Middle East due to a number of completions. We continue to pursue a number of new projects which should
position us well for future growth.
The following table summarizes the work-in-hand at the end of the year:
As At deCeMBer 31 (Millions)
Australia
Middle east
United kingdom
2010
2009
$
2,681
$
1,167
677
960
1,075
1,081
$
4,318
$
3,323
Property services fees include property and facilities management, leasing and project management and a
range of real estate services. Results were consistent between 2010 and 2009.
asset management Franchise value
Over the past ten years we have globalized our asset management operations to the point where we have
substantial capital for investment from clients. The value of this franchise is derived from both the cash flows
it generates, and the scale of capital it allows us to operate with. This size enables us to compete where few
others can, and therefore offers us a competitive advantage in generating greater returns for our clients. On
the other hand, global asset management franchises are generally valued at very high multiples of income, in
particular those in areas where substantial growth in assets under management is expected to be achieved.
As we provide valuations of our tangible assets through our financial statements, and given the growing
value of this “intangible” business, we felt that we should also attempt to produce an estimate of the
current value of our operation based on the existing capital under management and the franchise we have.
Our estimate is approximately $4 billion, or approximately $7 per share, and we have included this value in our
estimate of the intrinsic value of our common equity.
While we have specific assumptions and plans on how we derive this value in each of our operations, the
following is a high level analysis:
• growth in capital under management in our unlisted funds and managed listed issuers growing at a 10%
growth rate over the next 10 years;
• Annualized gross margin of 150 basis points, as we can add meaningfully to managed capital without a
commensurate increase in expenses; and
• Capitalizing the resultant annualized return at a 15 times multiple.
We will continue to provide information to enable readers to assess our progress and consider these values and
assumptions.
cORPORaTe caPiTaLizaTiOn anD LiquiDiTy
We continue to maintain elevated liquidity levels because we believe that there will continue to be attractive
opportunities to invest. As at December 31, 2010, our consolidated core liquidity was approximately $4.3 billion,
consisting of $2.6 billion at the corporate level and $1.7 billion within our principal operating subsidiaries. Core
liquidity consists of cash, financial assets and undrawn committed credit facilities. In addition to our core
liquidity, we have $8.2 billion of uninvested capital allocations from our investment partners that is available to
fund qualifying investments. These levels are very similar to the end of 2009.
46 Brookfield Asset MAnAgeMent
cash and Financial assets
As At And for the YeArs ended deCeMBer 31 (Millions)
financial assets
government bonds
Corporate bonds
other fixed income
high-yield bonds and distressed debt
preferred shares
Common shares
loans receivable/deposits
total financial assets
Cash and cash equivalents
deposits and other liabilities
net investment
net invested Capital
net operating Cash flow
2010
2009
2010
2009
$
628
194
66
98
267
328
212
1,793
57
(307)
$
547
290
115
694
282
167
(167)
1,928
30
(351)
$
1,543
$
1,607
$
$
369
—
(58)
311
$
$
409
—
(39)
370
Net cash and financial asset balances declined by $64 million to $1.5 billion since the end of 2009 with most
of the decrease occurring during the fourth quarter of 2010. We tendered our holdings of general growth
Properties debt at par value as part of the restructuring of that company, resulting in a lower balance of high
yield bond and distressed debt positions at year-end. government and corporate bonds include short duration
securities for liquidity purposes and longer dated securities that match fund insurance liabilities.
In addition to the carrying values of financial assets, we hold total return swaps and credit default swaps
with a notional value of $75 million (December 31, 2009 – $440 million). The carrying value of these derivative
instruments reflected in our financial statements at December 31, 2010 was negligible (December 31, 2009
– gain of $3 million). Deposits and other liabilities include broker deposits and a small number of borrowed
securities that have been sold short.
Operating cash flow includes disposition gains, mark to market gains on our ggP warrants and realized and
unrealized gains or losses on other capital markets positions including fixed income, and equity, securities,
credit investments, foreign currency and interest rates.
corporate capitalization
We endeavour to maintain a strong, flexible and conservative capitalization that provides stable support for
our operations. Our overall capitalization is characterized by: investment-grade financings that have minimal
recourse to the Corporation; an emphasis on match funding our long-term assets with long-term, fixed rate,
local currency financings; broad access to a diverse range of capital markets; and relatively low levels of
corporate debt.
Our objective is to enhance returns for common shareholders while maintaining a prudent leverage profile. The
weighted average cost of our corporate borrowings, capital securities and preferred shares during 2010 was
5.17%.
2010 AnnUAl report 47
Our corporate capitalization consists of financial obligations issued or guaranteed by the Corporation, and is
set forth in the following table:
As At And for the YeArs ended deCeMBer 31 (Millions)
Corporate borrowings
net invested Capital
net operating Cash flow2
2010
2009
2010
2009
Bank borrowing and commercial paper
$
199
$
388
$
term debt
Contingent swap accruals
Accounts payable and other accruals/expenses
Capital securities
shareholders’ equity
preferred equity
Common equity1
2,706
2,905
858
1,556
669
1,658
18,261
19,919
2,205
2,593
779
2,011
632
1,144
16,654
17,798
17
161
178
99
298
36
75
1,388
1,463
$
21
130
151
84
271
32
43
1,359
1,402
total corporate capitalization
$ 25,907
$ 23,813
$
2,074
$
1,940
debt to capitalization
interest coverage
fixed charge coverage
1.
2.
includes unrecognized values under ifrs
includes $413 million realization gains in 2010 (2009 - $410 million)
14%
14%
6x
5x
7x
5x
Our deconsolidation capitalization increased by $2.1 billion to $25.9 billion at year-end. Shareholders’ equity
increased by $2.1 billion due to operating cash flow and valuation gains, corporate debt increased by $0.3 billion
due to the issuance of long-term bonds and other liabilities decreased by $0.3 billion due to the settlement of
liabilities related to our insurance operations.
Corporate Borrowings
Corporate debt levels increased due to the issuance of long-term debt to capitalize on low interest rates
and changes in foreign exchange on Canadian dollar-denominated borrowings, offset by lower short-term
commercial paper borrowings.
Commercial paper and bank borrowings represent shorter-term borrowings pursuant to or backed by
$1,445 million of committed revolving term credit facilities. Approximately $174 million (December 31,
2009 – $125 million) of the facilities were also utilized for letters of credit issued to support various business
initiatives at quarter-end. The facilities are periodically renewed and extended for three to four-year periods.
Currently, $325 million of the facilities are scheduled to expire in 2011 and $1,120 million of the facilities are
scheduled to expire in 2012.
Term debt consists of public bonds and private placements, all of which are fixed rate and have maturities
ranging from 2012 until 2035. These financings provide an important source of long-term capital and an
appropriate match to our long-term asset profile. During October, we issued C$350 million ($340 million) of
10-year notes with a coupon of 5.30%.
Our corporate borrowings have an average term of eight years (December 31, 2009 – eight years) and all of
the maturities extend into 2012 and beyond. The average interest rate on our corporate borrowings was 6% at
December 31, 2010, consistent with the end of 2009.
As At deCeMBer 31, 2010 (Millions)
Commercial paper and bank borrowings
term debt
Maturity
Average
term
1
9
8
2011
$ —
—
$ —
2012
199
425
624
$
$
2013
2014 & After
$ —
75
75
$
$ —
2,206
$ 2,206
total
$
199
2,706
$ 2,905
48 Brookfield Asset MAnAgeMent
Contingent swap Accruals
We entered into interest rate swap arrangements with AIg Financial Products (“AIg-FP”) in 1990, which include
a zero coupon swap that was originally intended to mature in 2015. Our financial statements include an accrual
of $858 million in respect of these contracts, which represents the compounding of amounts based on interest
rates from the inception of the contracts. We have also recorded an amount of $214 million in accounts payable
and other liabilities which represents the difference between the present value of any future payments under the
swaps and the current accrual. We believe that the financial collapse of American International group (“AIg”)
and AIg-FP triggered a default under the swap agreements, thereby terminating the contracts with the effect
that we are not required to make any further payments under the agreements, including the amounts which
might, depending on various events and interest rates, otherwise be payable in 2015. AIg disputes our assertions
and therefore we have commenced legal proceedings seeking a declaration from the court confirming our
position. We recognize this may not be determined for a considerable period of time, and therefore will continue
to account for the contracts as we have in prior years until we receive clarification.
Capital securities
Capital securities are preferred shares that are classified as liabilities because the holders of the preferred
shares have the right, after a fixed date, to convert the shares into common equity based on the market price
of our common shares at that time unless previously redeemed by us. The dividends paid on these securities
are recorded in interest expense.
The carrying values of capital securities increased to $669 million from $632 million at the end of 2009 due
to an increase in the value of the Canadian dollar, in which most of these securities are denominated. The
average distribution yield on the capital securities at December 31, 2010 was 6% (December 31, 2009 – 6%)
and the average term to the holders’ conversion date was three years as at December 31, 2010 (December 31,
2009 – four years).
shareholders’ equity
As At deCeMBer 31 (Millions)
preferred equity
Common equity
1.
2.
pre-tax basis, including unrecognized values under ifrs
Based on ifrs financial statements
net invested Capital1
Book value2
2010
2009
2010
2009
$
1,658
$
1,144
$
1,658
$
1,144
18,261
16,654
12,796
11,809
$ 19,919
$ 17,798
$ 14,454
$ 12,953
As At deCeMBer 31 (Millions, eXCept per shAre AMoUnts)
2010
Total
Per Share
2009
total
Common equity per ifrs financial statements
$ 12,795
$
22.09
$ 11,809
2,216
3,250
18,261
4,000
3.60
5.27
30.96
6.49
2,795
2,050
16,654
3,500
$ 22,261
$
37.45
$ 20,154
$
34.20
per share
$
20.47
4.60
3.38
28.45
5.75
Add back: deferred income taxes
values not recognized under ifrs
net tangible asset value
Asset management franchise value
total intrinsic value
unrecognized values
Certain assets and cash flows under IFRS are not reflected at fair value and as a result, we have provided an
estimate of the incremental value of these items over their carried values to arrive at a more complete and
consistent determination of net asset value. These items include items carried at historical book values such
as the values for our property services businesses, renewable power and infrastructure development projects,
assets acquired at distressed values that are not otherwise revalued and development land carried at the lower
of cost or market.
We do not include the incremental value attributable to our asset management and business franchise
in this analysis, even though we believe these activities will contribute to additional cash flow growth and
enhancement of our existing and future business activities.
2010 AnnUAl report 49
The following table presents the unrecognized values by operating platform:
As At deCeMBer 31 (Millions)
Asset management and other services
2010
775
$
2009
250
$
2008
250
$
operating platforms
renewable power generation
Commercial properties
infrastructure
development activities
private equity and finance
Cash and financial assets
other assets
600
325
125
875
450
—
100
450
—
100
750
400
—
100
200
—
—
750
200
—
100
$
3,250
$
2,050
$
1,500
The additional value attributed to our service businesses includes a value of $230 million for our property and
construction services businesses, based on a multiple of cash flows, and $260 million of accrued performance-
based income that we would be entitled to based on current valuations, but which will not be recorded in our
financial statements until the applicable clawback or determination period has expired.
Renewable power generation includes increases in valuation of development projects that are carried at
historical cost until completion. The incremental value typically arises at key stages of the development process
such as regulatory approvals and, in particular, the procurement of long-term power sales agreements.
Our development businesses are carried primarily at historical cost, or the lower of cost and market,
notwithstanding the length of time that some of our assets have been held and the value created through the
development process. Accordingly, we look to metrics such as stock market valuations and financing appraisals
to determine a more current value for these businesses and reflect any excess value as “unrecognized values.”
Our private equity and finance investments include a number of investments in industrial businesses that are
carried at depreciated cost because they are consolidated or equity-accounted. In circumstances where the
investment is in a publicly listed entity we will typically record the difference between the carried value and the
market value as “unrecognized value.”
asset management Franchise value
The value of our asset management franchise is discussed on page 46.
interest Rates and currencies
interest rates
The majority of our borrowings are fixed rate long-term financings. Accordingly, changes in interest rates
have minimal short-term impact on our cash flows. We do not record changes in the value of our long-term
financings, with very limited exceptions. Changes in short-term interest rates will, however, impact the cash
flows required to pay interest on floating rate borrowings.
As at December 31, 2010, our net floating rate liability position on a proportionate basis was $4.1 billion
(2009 – liability position of $4.1 billion). As a result, a 10-basis point increase in interest rates would decrease
operating cash flow by $4 million. We utilize interest rate contracts to manage our overall interest rate profile.
We are required to record certain financial instruments 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 $1 million before tax and vice versa, based on our year-end positions.
50 Brookfield Asset MAnAgeMent
Currencies
The global scale of our operations means that we deploy capital in multiple currencies, the largest being
the United States dollar, which is our functional and reporting currency, with most of the remaining capital
denominated in Australian, Brazilian and Canadian currencies. We hedge most of our assets through match
funding with local borrowings. Our risk management policies do not require us to hedge the remaining net
capital invested in non-U.S. operations, due to the long-term ownership profile of our assets. We will, however,
enter into hedging arrangements from time-to-time if we believe currency valuations are misaligned and to
protect shorter-term capital flows.
As at December 31, 2010, the major components of net tangible asset value invested in non-U.S. currencies
consisted of: Australia – $2.7 billion (15%); Brazil – $3.9 billion (21%); and Canada – $2.3 billion (13%). The
impact of changes in the value of these currencies is typically recorded through Other Comprehensive Income
and included in the Fair Value Change component of our Total Return calculations.
working capital
other Assets
The following is a summary of Other Assets:
As At deCeMBer 31 (Millions)
Accounts receivable
restricted cash
intangible assets
goodwill
prepaid and other assets
net invested Capital
2010
222
132
28
194
343
919
$
$
$
2009
260
207
45
181
321
$
1,014
Other assets include working capital balances employed in our business that are not directly attributable to
specific operating units, and are relatively unchanged from the prior year.
other liabilities
The following is a summary of Other Liabilities:
As At deCeMBer 31 (Millions)
Accounts payable
insurance liabilities
other liabilities
net invested Capital
$
2010
163
482
911
$
2009
71
721
1,219
$
1,556
$
2,011
Other liabilities include $214 million of fair value adjustments in respect of contingent swap accruals. We
continue to reduce the level of activity in our insurance business resulting in lower liabilities. Other liabilities
include a lower level of forward currency agreement liabilities than the prior year.
unallocated Operating costs
Operating costs include the costs of our asset management activities as well as corporate costs which are not
directly attributable to specific business units.
for the YeArs ended deCeMBer 31 (Millions)
operating costs
Cash income taxes
2010
277
21
298
$
$
net
$
2009
268
3
$
271
variance
$
$
9
18
27
2010 AnnUAl report 51
Outlook
A large portion of our operating cash flow is generated by our renewable power, commercial office and
retail and infrastructure businesses which we manage for ourselves and our clients. The revenues in all of
these businesses are largely contracted through leases, power sales agreements and regulated rate base or
operating agreements. This provides stability to the cash flows. In addition, these businesses are also financed
largely with long-term asset specific borrowings which provides for additional stability. Our asset management
contracts provide for base management fees earned on capital committed to our funds, many of which have
initial terms of 10 years or more.
These cash flows are supplemented by earnings from businesses that are more closely correlated with the
economic cycle. Some of these are producing results that are significantly below normalized levels as a result
of the recent recession, but are expected to produce increased cash flows as areas of the economy such as
U.S. home building recovery.
We also record disposition gains from time-to-time. These are, by their nature, difficult to predict with certainty
but the breadth of our operations and active management of our assets have resulted in a meaningful amount
of gains being realized in most periods.
Our businesses are located in a number of regions, including substantial presences in the United States,
Australia, Brazil and Canada. Accordingly, cash flows will vary with changes in the applicable foreign exchange
rates. Other factors that could impact our performance in 2011, both positively and negatively, are reviewed in
Part 4 of this report.
We believe Brookfield is well positioned for continued growth through 2011 and beyond. This is based on the
stability and growth potential of our operating businesses, the strength of our capitalization and liquidity, our
execution capabilities and our expanded relationships, as discussed elsewhere in this MD&A.
52 Brookfield Asset MAnAgeMent
PART 3
AnAlYsis of ConsolidAted finAnCiAl stAteMents
This section contains a review of our consolidated financial statements which are prepared in accordance with
IFRS. It contains information to assist the reader in reconciling the basis of presentation in our consolidated
financial statements to that employed in the MD&A, as well as a review of certain balances that are not
reviewed elsewhere in the MD&A.
cOnSOLiDaTeD STaTemenTS OF incOme
The following table summarizes the major components of net income on a total basis and also the proportionate
amounts that accrue to Brookfield:
for the YeArs ended deCeMBer 31 (Millions)
operating cash flow
less: deferred gains2
other items
fair value changes
depreciation and amortization
deferred income taxes
non-controlling interests
net income (loss) attributable to Brookfield shareholders
non-controlling interests in net income
– operating cash flow
– other items
net income (loss) attributable to non-controlling interests
net income (loss) as presented in
consolidated financial statements
total
2010
$ 1,463
(414)
1,049
1,865
(795)
(43)
(622)
1,454
1,119
622
1,741
2009
$ 1,402
(410)
992
(2,268)
(656)
287
809
(836)
669
(809)
(140)
2010
$ 1,463
(414)
1,049
1,129
(693)
(31)
—
1,454
—
—
—
net1
2009
variance
$ 1,402
$
(410)
992
(1,502)
(573)
247
—
(836)
—
—
—
61
(4)
57
2,631
(120)
(278)
—
2,290
—
—
—
$ 3,195
$ (976)
$ 1,454
$ (836)
$ 2,290
net of non-controlling interests
1.
2. disposition gains that are recorded in equity for ifrs purposes, as opposed to net income
Consolidated net income for 2010 was $3.2 billion, of which $1.45 billion was attributable to our shareholders
and $1.74 billion was attributable to clients and co-investors in consolidated funds and subsidiary operations,
which is presented as “non-controlling interests.”
Deferred gains
IFRS generally precludes the recognition of disposition gains on the sale of interests in controlled subsidiaries
if we continue to consolidate the investment after the sale; the gains are recorded directly into equity as
opposed to the statement of operations. We consider these gains to be an important component of performance
measurement and accordingly include them in the determination of operating cash flow and gains. As such,
they become a reconciling item between net income and operating cash flow.
2010 AnnUAl report 53
Fair value changes
Fair value changes for each principal operating segment is summarized in the following table:
for the YeArs ended
deCeMBer 31 (Millions)
operating assets
operating segment
2010
2009
2010
2009
variance
total
net1
investment property
Commercial properties
$
1,199
$
(1,707)
$
624
$
(1,128)
$
1,752
standing timber
and agriculture
infrastructure
infrastructure
and development
infrastructure
other items
interest rate contracts
Corporate
power contracts
renewable power
redeemable units
renewable power
other
various
less: recognized in operating cash flow
1.
net of non-controlling interests
11
405
1,615
(58)
588
(159)
41
412
2,027
(162)
(143)
—
(1,850)
74
3
(244)
(201)
(368)
(2,218)
(50)
(8)
113
729
(58)
588
(159)
115
486
1,215
(86)
(53)
—
(1,181)
74
3
(244)
(129)
(296)
(1,477)
(25)
45
113
1,910
(132)
585
85
244
782
2,692
(61)
$
1,865
$
(2,268)
$
1,129
$
(1,502)
$
2,631
The net impact of fair value gains in the year totalled $1.1 billion versus a loss of $1.5 billion in 2009 due
principally to changes during each year in the value of operating assets.
Investment property values, which include our commercial office and retail properties, improved due to lower
discount rates as discussed in the Commercial Property Review in Part 2. The prior year’s loss was primarily
the result of a decline in the valuation of our commercial office properties due to decreased rent assumptions
and higher discount rates attributed to future cash flows.
The fair value gain for infrastructure represents a one-time revaluation of the underlying assets on completion
of the Prime Acquisition.
Changes in the value of the property, plant and equipment employed in our renewable power and infrastructure
business are recorded annually through equity, as opposed to net income. Aggregate fair value changes
through both net income and equity are summarized on pages 68, 70 and 71.
Interest rate contracts are intended to provide an economic hedge against the impact of increases in long-
term interest rates on the values of our long duration interest sensitive physical assets but which are revalued
through earnings even if the corresponding assets are not. The U.S. 10-year treasury rate declined from 3.84%
to 3.29% during 2010, which led to a $58 million decrease in the net value of these contracts.
The revaluation of certain contracts for the sale of power is recorded through income. The decline in power
prices has increased the value of these contracts and partially offset the downward adjustment to the carrying
value of the associated facilities which are recorded through equity.
The carrying value of units held by minority shareholders in our renewable power fund are recorded at their
quoted stock market value and changes are recorded as fair value changes through net income.
54 Brookfield Asset MAnAgeMent
Depreciation and amortization
Depreciation and amortization for each principal operating segment is summarized in the following table:
for the YeArs ended deCeMBer 31 (Millions)
renewable power generation
infrastructure
development activities
private equity and finance
Asset management and other
1.
net of non-controlling and minority interests
total
2010
488
$
2009
379
$
2010
488
$
31
7
185
84
795
$
16
2
183
76
656
$
12
4
115
74
693
$
net1
2009
379
$
7
2
118
67
573
$
variance
$
109
5
2
(3)
7
$
120
Depreciation relates mostly to our renewable power generating operations, with smaller amounts arising from
infrastructure operations and industrial businesses held within our private equity and finance operations. We
do not recognize depreciation or depletion on our commercial office and retail properties, standing timber, and
agricultural assets respectively, as each of these asset classes are revalued on a quarterly basis in net income
as part of “fair value changes.”
The increase in depreciation expense compared to 2009 is due to a higher valuation of our renewable power
business at the beginning of 2010, the impact of higher exchange rates on our Brazilian and Canadian operations
and the development of new facilities. Depreciation in our other operating segments was largely unchanged.
Deferred income Taxes
Deferred income tax items typically relate to differences between the current tax liability and the tax liability
that would otherwise be incurred based on the company’s net income. For example, dividends are generally
not taxable, we operate in jurisdictions with different tax rates, and some items such as depreciation may be
deducted at different rates and at different times. In addition, deferred income taxes will reflect changes in
the value of the our tax pools such as accumulated tax losses and the difference between the carrying value
of balance sheet items and their tax bases.
Revenues
for the YeArs ended deCeMBer 31 (Millions)
Asset management and other services
renewable power generation
Commercial properties
infrastructure
development activities
private equity and finance
Cash, financial assets and other
2010
2009
$
2,521
$
1,762
1,161
2,086
867
2,713
3,802
473
1,150
2,090
420
1,881
3,473
442
$ 13,623
$ 11,218
Asset management and other services revenues increased due to higher volumes in our construction services
business, as well as a higher level of base management and transaction fees. The increase in infrastructure
revenues is attributable primarily to infrastructure businesses acquired in late 2009. Development revenues
reflect higher activity levels in Brazil including a larger number of project completions.
Currency appreciation contributed to increases in revenues in all segments.
2010 AnnUAl report 55
cOnSOLiDaTeD BaLance SheeTS
assets
We review changes in our financial position on a segmented basis in Part 2 – Review of Operations and reconcile
this basis to our consolidated balance sheets on pages 67 and 69 in this section. We also provide an analysis in
this section of the major balances that differ from those utilized in our segmented review.
Total consolidated assets increased to $78.1 billion as at December 31, 2010 from $65.0 billion at the end of 2009
as shown in the following table:
As At deCeMBer 31 (Millions)
assets
Cash and cash equivalents
other financial assets
Accounts receivable and other
inventory
investments
property, plant and equipment
investment properties
timber
intangible assets
goodwill
deferred income tax
Book value
2010
2009
$
1,713
$
1,309
4,419
7,869
5,849
6,629
18,148
22,163
3,206
3,805
2,546
1,784
5,146
4,709
5,560
4,466
16,723
19,219
2,968
1,048
2,363
1,454
$ 78,131
$ 64,965
The carrying values of our assets increased during 2010, reflecting currency appreciation, increased appraisal
values of our commercial office properties, the consolidation of Prime Infrastructure and other investments,
ongoing sustaining capital expenditures and investment activities. These increases were partially offset by
depreciation and amortization and a reduction in the valuation of our renewable power generation facilities.
other financial Assets
Other financial assets include our 22% common share investment in Canary Wharf group, which is included in
our commercial office property operations in our segmented analysis at a carried value of $698 million.
56 Brookfield Asset MAnAgeMent
investments
Investments represent equity accounted interests in partially owned entities as set forth in the following table,
which are discussed further within the relevant business segments in Part 2 – Review of Operations:
(Millions)
renewable power generation
Bear swamp power Co. llC
other renewable power generation
Commercial properties
U.s. office fund
general growth properties
245 park Avenue
other commercial properties1
infrastructure
natural gas pipeline company
transelec s.A.
powerco
euroports
prime infrastructure2
other
total
ownership interest
Carrying value
Dec. 31, 2010 dec. 31, 2009 Dec. 31, 2010 dec. 31, 2009
50%
23-50%
$
70
196
$
50%
50%
47%
10%
51%
47%
—
51%
20-51%
20-51%
26%
28%
42%
40%
—
—
28%
—
—
40%
25-50%
25-45%
1,806
1,014
580
1,421
384
373
280
115
—
390
119
157
934
—
616
1,101
—
348
—
—
656
535
$ 6,629
$ 4,466
1. other commercial properties include investments in darling park trust, e&Y Centre sydney and four world financial Center
2.
the company acquired a controlling interest in prime and commenced consolidation at december 8, 2010
The increase in the carrying value of Investments reflects our investment during the year in general growth
Properties, higher values of the commercial office properties held within our U.S. Office Fund and the
investment of additional capital to purchase debt issued by the Fund at a discount.
Accounts receivable and other
As At deCeMBer 31 (Millions)
Accounts receivable
prepaid expenses and other assets
restricted cash
Book value
2010
2009
$
3,860
$
2,991
3,222
787
1,077
641
$
7,869
$
4,709
These balances 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. The increase in accounts receivable
and other assets reflects a substantial increase in balances due and fair value adjustments on contracts to
sell power at rates that are higher than current prices and forecasts. The increase in prepaid expenses and
other assets reflects the consolidation of Prime Infrastructures $1.9 billion of assets which are classified as
held-for-sale. 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.
Increases in accounts receivable and other also reflect the impact of higher exchange rates on non-U.S. balances.
property, plant and equipment
As At deCeMBer 31 (Millions)
renewable power generation
timber
Utilities
transport and energy
private equity and finance
other property, plant and equipment
Book value
2010
2009
$ 12,443
$ 13,166
688
723
1,727
2,497
70
737
209
298
2,114
199
$ 18,148
$ 16,723
2010 AnnUAl report 57
Property, plant and equipment are predominantly comprised of our investment in renewable hydro facilities. The
carried value of the facilities declined due to lower valuations offset by the impact of higher exchange rates on
our Canadian and Brazilian operations and the development of new facilities. The increase in utility, transport
and energy assets reflects the consolidation of several businesses arising from the Prime Acquisition as well
as higher valuations. We acquired control of several industrial businesses within our private equity operations
and therefore consolidated these assets.
intangible Assets
Intangible asset values increased by $2.8 billion over the end of 2009 which was primarily the result of foreign
exchange revaluation and the consolidation of a regulated coal terminal in Australia following the Prime
Acquisition. Under IFRS, regulated rate base assets are classified as intangible assets and are amortized over
their useful lives.
goodwill
goodwill represents purchase consideration that is not specifically allocated to the tangible and intangible
assets being acquired. goodwill increased by approximately $180 million primarily as a result of construction
services.
Liabilities and Shareholders’ equity
The following analysis of our liabilities and shareholders’ equity is based on our consolidated balance sheet, and
therefore includes the obligations of consolidated entities, including partially owned funds and subsidiaries.
We note, however, that in many cases our consolidated capitalization includes 100% of the debt of the
consolidated entities, even though in most cases we only own a portion of the entity and therefore our
pro rata exposure to this debt is much lower. For example, we have access to the capital of our clients and
co-investors through public market issuance and, in some cases, contractual obligations to contribute
additional equity. In other cases, this basis of presentation excludes some or all of the debt of partially owned
entities that are equity accounted or proportionately consolidated such as our U.S. Office Fund and several of
our infrastructure businesses.
Accordingly, we believe that the two most meaningful bases of presentation to use in assessing our
capitalization are proportionate consolidation and deconsolidation. The following table depicts the composition
of our capitalization on these bases, along with our consolidated capitalization, all based on the net asset
value of our equity and the interests of other investors:
As At deCeMBer 31 (Millions)
Corporate borrowings
non-recourse borrowings
property-specific mortgages
subsidiary borrowings1
Accounts payable and other
Capital securities
non-controlling interests
shareholders’ equity2
debt to capitalization
deconsolidated
proportionate
Consolidated
2010
2009
2010
2009
2010
2009
$ 2,905
$ 2,593
$ 2,905
$ 2,593
$ 2,905
$ 2,593
—
858
1,556
669
—
19,919
$ 25,907
15%
—
779
2,011
632
—
17,798
$ 23,813
14%
15,956
3,610
7,577
1,188
—
19,919
$ 51,155
44%
14,747
3,550
7,931
1,136
—
17,798
$ 47,755
44%
23,454
4,007
13,088
1,707
16,301
19,919
19,712
3,800
10,264
1,641
11,207
17,798
$ 81,381
$ 67,015
37%
39%
1.
2.
includes $858 million (december 31, 2009 – $779 million) of contingent swap accruals which are guaranteed by the Corporation and are accordingly
included in Corporate Capitalization
pre-tax basis, including unrecognized values under ifrs
Our deconsolidated capitalization depicts the amount of debt that is recourse to the Corporation, and the
extent to which it is supported by our deconsolidated invested capital and remitted cash flows. At year-end, our
deconsolidated debt to capitalization was 15% (December 31, 2009 – 14%) which is a prudent level in our opinion.
This reflects our strategy of having a relatively low level of debt at the parent company level and financing our
operations primarily at the asset or operating unit level with no recourse to the Corporation.
58 Brookfield Asset MAnAgeMent
Proportionate consolidation which reflects our proportionate interest in the underlying entities, depicts the
extent to which our underlying assets are leveraged, which is an important component of enhancing shareholder
returns. We believe the 44% debt-to-capitalization ratio at year-end (December 31, 2009 – 44%) is appropriate
given the high quality of the assets, the stability of the associated cash flows and the level of financings that
assets of this nature typically support, as well as our liquidity profile.
Our consolidated debt-to-capitalization ratio is 37% (December 31, 2009 – 39%). This reflects the full
consolidation of partially-owned entities, notwithstanding that our capital exposure to these entities is
limited. As noted above, it also excludes the debt of equity accounted investees, which results in a lower
debt-to-capitalization than the proportionally consolidated numbers.
The table above illustrates our use of subsidiary and property-specific financings to minimize risk. As at
December 31, 2010 only 12% of our consolidated debt capitalization is issued or guaranteed by the Corporation,
whereas 77% is recourse only to specific assets or groups of assets and 11% is issued by subsidiaries and has
no recourse to the Corporation.
We issued $1.7 billion of common and preferred equity in February 2011. On a proforma basis our deconsolidated
and proportionately consolidated debt to capitalization levels decline to 14% and 43%, respectively.
The cash flows generated within our operations provides favourable interest and fixed charge coverage ratios,
as shown in the following table:
for the YeArs ended deCeMBer 31 (Millions)
Corporate borrowings
Contingent swap accruals
property-specific borrowings
subsidiary borrowings
operating expenses
Capital securities
non-controlling interest
shareholders’ equity
preferred equity
Common equity
total cash flows
interest coverage1
fixed charge coverage2
deconsolidated
Consolidated
2010
178
$
2009
151
$
$
99
—
—
298
36
—
75
1,388
1,463
84
—
—
271
32
—
43
1,359
1,402
2010
178
99
1,266
192
514
94
1,113
75
1,388
1,463
$
2009
151
84
967
193
447
85
669
43
1,359
1,402
$
2,074
$
1,940
$
4,919
$
3,998
6x
5x
7x
5x
3x
2x
3x
2x
1.
2.
total cash flows divided by interest on borrowings and swap accruals
total cash flows divided by interest on borrowings, swap accruals and distributions on capital securities and preferred equity
Corporate Borrowings
We discuss corporate borrowings on page 48.
2010 AnnUAl report 59
subsidiary Borrowings
We capitalize our subsidiary entities to enable continuous access to the debt capital markets, usually on an
investment-grade basis, thereby reducing the demand for capital from the Corporation and sharing the cost of
financing equally among other equity holders in partially owned subsidiaries.
As At deCeMBer 31 (Millions)
subsidiary borrowings
renewable power generation
Commercial properties
infrastructure
development activities
private equity and finance
other
Contingent swap accruals 1
total
1. guaranteed by the Corporation
Average term
2010
2009
2010
2009
proportionate
Consolidated
10
1
2
3
4
1
5
5
$
1,152
$
1,144
$
1,152
$
1,144
757
40
278
488
37
858
500
—
475
541
111
779
579
148
278
955
37
858
551
—
475
739
112
779
$
3,610
$
3,550
$
4,007
$
3,800
Subsidiary borrowings were relatively unchanged on both a consolidated and proportionate basis from year-
end. The reduction in borrowings on bank lines in our Canadian residential development business was offset by
higher borrowing within our commercial property development operations.
Subsidiary borrowings have no recourse to the Corporation with only a limited number of exceptions. As at
December 31, 2010, subsidiary borrowings included $858 million (December 31, 2009 – $779 million) of contingent
swap accruals that are guaranteed by the Corporation (see page 49).
The following table presents our proportionate share of subsidiary borrowing maturities, based on our ownership
interest in the borrowing entity:
As At deCeMBer 31, 2010 (Millions)
renewable power generation
Commercial properties
infrastructure
development activities
private equity and finance
other
Contingent swap accruals
$
2011
56
314
1
2
4
37
—
$
2012
—
35
32
—
155
—
—
$
2013
—
340
5
88
87
—
—
2014
& After
proportionate
total
$
1,096
$
1,152
68
2
188
242
—
858
757
40
278
488
37
858
$
414
$
222
$
520
$
2,454
$
3,610
Maturities prior to 2014 consist primarily of shorter-term bank facilities that are renewed in the normal course.
property-specific Borrowings
As part of our financing strategy, the majority of our debt capital is in the form of property-specific mortgages
that have recourse only to the assets being financed and have no recourse to the Corporation.
Average term
2010
2009
2010
2009
proportionate
Consolidated
11
4
6
2
7
5
$
2,818
$
3,179
$
3,834
$
3,861
9,014
1,995
1,309
820
7,468
2,063
1,337
700
10,689
4,463
2,632
1,836
9,481
1,978
2,377
2,015
$ 15,956
$ 14,747
$ 23,454
$ 19,712
As At deCeMBer 31 (Millions)
renewable power generation
Commercial properties
infrastructure
development activities
private equity and finance
total
60 Brookfield Asset MAnAgeMent
Property-specific borrowings did not significantly change on a proportionate basis and increased on a
consolidated basis compared to December 2009 due to currency appreciation, the consolidation of commercial
property funds and infrastructure assets due to increases in our ownership levels during the year.
The following table presents our proportionate share of property-specific borrowings maturities, based on our
ownership interests in the borrowing entity:
As At deCeMBer 31, 2010 (Millions)
renewable power generation
Commercial properties
infrastructure
development activities
private equity and finance
$
2011
106
1,847
173
695
56
$
2012
504
1,496
128
248
196
$
2013
333
1,578
503
199
31
2014
& After
proportionate
total
$
1,875
$
2,818
4,093
1,191
167
537
9,014
1,995
1,309
820
$
2,877
$
2,572
$
2,644
$
7,863
$ 15,956
Renewable power generation and commercial properties borrowings are modest in relation to the overall
scale of the operations and continue to be refinanced on a long-term basis in the normal course of our
operations. Development activities include borrowings within our Brazilian, Canadian and U.S. residential
businesses that are largely of a working capital nature, financing the ongoing development and construction
activities, and are typically repaid as the projects, lots or homes being financed are completed and sold, and
then re-drawn against any new projects that we elect to pursue.
Accounts payable and other
As At deCeMBer 31 (Millions)
Accounts payable
other liabilities
Book value
2010
2009
$
4,581
$
3,697
5,753
4,130
$ 10,334
$
7,827
Accounts payable and other liabilities includes amounts payable by the company, deferred revenue, and mark-
to-markets on derivative contracts. The increase in accounts payable and other liabilities over the prior year is
primarily the result of the expansion of our Brazilian residential operations as well as the consolidation of Prime
Infrastructure’s balances, including $1.9 billion of other liabilities associated with assets classified as held-
for-sale. Included in other liabilities are $214 million of mark-to-market adjustments (December 31, 2009 – $122
million) in respect of contingent swap accruals, which are further described on page 49.
Capital securities
Capital securities are discussed on page 49.
As At deCeMBer 31 (Millions)
issued by the Corporation
issued by Brookfield office properties
proportionate
Consolidated
Average term
to Conversion
3
3
3
$
2010
669
519
$
2009
632
504
$
2010
669
1,038
$
2009
632
1,009
$
1,188
$
1,136
$
1,707
$
1,641
2010 AnnUAl report 61
non-controlling interests in net Assets
Interests of co-investors in net assets are comprised of three components: participating interests in subsidiary
companies, interests held by other holders in our funds, and non-participating preferred equity issued by
subsidiaries.
As At deCeMBer 31 (Millions)
participating interests in subsidiary companies
renewable power generation
Commercial properties
Brookfield office properties
property funds and other
infrastructure
timber
Utilities and transport and energy
development activities
Brookfield homes Corporation
Brookfield incorporações s.A.
Brookfield real estate opportunity funds
private equity and finance
interest of others in funds
redeemable units
limited life funds
non-participating interests
Brookfield Australia
Brookfield office properties
Brookfield renewable power fund
number of shares /% interest
Book value
2010
2009
2010
2009
various
various
$
260
$
201
253.3 / 49%
252.0 / 49%
various
various
various
various
various
various
11.3 / 38%
11.2 / 40%
251.5 / 57%
249.7 / 57%
various
various
various
various
4,730
1,795
1,118
2,366
136
887
292
1,864
13,448
1,355
207
1,562
15,010
476
562
253
1,291
3,137
1,385
992
845
146
785
251
1,656
9,398
899
122
1,021
10,419
392
396
—
788
$ 16,301
$ 11,207
The value of non-controlling interests in net assets held by other investors increased from $11.2 billion at the end
of 2009 to $16.3 billion at the end of the fourth quarter of 2010. Increases in our net asset values due to improved
valuations, earnings and currency appreciation gave rise to an increase in the non-controlling interests of a
number of our subsidiaries and funds. We also issued $1.1 billion of equity from our listed infrastructure fund to
acquire the remaining interests in Prime Infrastructure increasing the non-controlling interests shares of our
utility, transport and energy businesses. The increase in redeemable units is due to a sale of additional equity
in our Canadian renewable power business as well as an increase in the market valuation of this equity. We
issued perpetual preferred shares from Brookfield Office Properties and Brookfield Renewable Power in 2010,
resulting in an increase in non-participating interests.
62 Brookfield Asset MAnAgeMent
Contractual obligations
The following table presents the contractual obligations of the company by payment periods:
As At deCeMBer 31 (Millions)
long-term debt
property-specific mortgages
other debt of subsidiaries
Corporate borrowings
Capital securities
lease obligations
Commitments
interest expense1
long-term debt
Capital securities
interest rate swaps
payments due By period
Total
less than
one Year
2-3
Years
4-5
Years
After 5
Years
23,454
4,331
7,280
4,007
2,905
1,707
120
1,338
8,391
360
670
620
—
179
21
1,338
1,682
93
323
888
698
450
42
—
2,553
145
345
3,699
1,151
532
762
20
—
1,661
86
3
8,144
1,348
1,675
316
37
—
2,495
36
—
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
Commitments of $1.5 billion (2009 – $1.3 billion) represent various contractual obligations of the company and
its subsidiaries assumed 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 $147 million (2009 – $244 million) is included as liabilities in the consolidated balance sheets. All other
balances, with the exception of interest expense incurred in future periods, are included in our consolidated
balance sheet.
In addition, the company and its consolidated subsidiaries execute agreements that provide for indemnifications
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 officers and employees. The nature of
substantially all of the indemnification 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 significant payments in the past nor do they expect at this time to
make any significant payments under such indemnification agreements in the future.
The company periodically enters into joint venture, consortium or other arrangements that have contingent
liquidity rights in favour of the company or its counterparties. These include buy-sell arrangements, registration
rights and other customary arrangements. These agreements generally have embedded protective terms
that mitigate the risk to us. The amount, timing and likelihood of any payments by the company under these
arrangements is in most cases dependent on either future contingent events or circumstances applicable to the
counterparty and therefore cannot be determined at this time.
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 entities 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.
These entities are listed as Investments on page 57 and our proportionate share of their debt is included in the
table on page 60.
We utilize various financial instruments in our business to manage risk and make better use of our capital.
The fair values of these instruments that are reflected on our balance sheets, are disclosed in Note 5 to our
Consolidated Financial Statements and under Financial and Liquidity Risks beginning on page 78.
2010 AnnUAl report 63
Corporate dividends
The distributions paid by Brookfield on outstanding securities during the past three years are as follows:
Class A Common shares
Class A Common shares – special1
Class A preferred shares
series 2
series 4 + series 7
series 8
series 9
series 10
series 11
series 12
series 13
series 14
series 15
series 17
series 18
series 212
series 223
series 244
series 265
distribution per security
$
2010
0.52
—
$
2009
0.52
—
$
2008
0.51
0.94
0.43
0.43
0.61
1.06
1.39
1.33
1.31
0.43
1.52
0.28
1.15
1.15
1.21
1.70
1.25
0.19
0.39
0.39
0.56
0.96
1.26
1.21
1.19
0.39
1.47
0.25
1.04
1.04
1.10
0.92
—
—
0.83
0.83
1.18
1.02
1.35
1.29
1.27
0.83
3.06
0.99
1.12
1.12
0.58
—
—
—
1.
2.
3.
4.
5.
represents the book value of Brookfield infrastructure special dividend
issued June 25, 2008
issued June 4, 2009
issued January 14, 2010
issued october 29, 2010
Basic and diluted earnings per share
The components of basic and diluted earnings per share are summarized in the following table:
for the YeArs ended deCeMBer 31 (Millions)
operating cash flow/net income (loss)
preferred share dividends
Capital securities dividends1
operating Cash flow
net income
2010
2009
2010
2009
$ 1,463
$ 1,402
$ 1,454
$
(836)
(75)
1,388
—
(43)
1,359
—
(75)
1,379
36
(43)
(879)
—
operating cash flow/net income (loss) available for common shareholders
$ 1,388
$ 1,359
$ 1,415
$
(879)
weighted average – common shares
dilutive effect of the conversion of options using treasury stock method
dilutive effect of the conversion of capital securities1,2
Common shares and common share equivalents
574.9
9.6
—
584.5
572.2
7.7
—
579.9
574.9
9.6
23.0
607.5
572.2
—
—
572.2
1.
2.
subject to the approval of the toronto stock exchange, the series 10,11,12 and 21 shares, unless redeemed by the company for cash, are convertible
into Class A common shares at a price equal to the greater of 95% at the market price at the time of conversion and C$2.00, at the option of either
the company or the holder
the number of shares is based on 95% of the quoted market price at year-end
64 Brookfield Asset MAnAgeMent
issued and outstanding Common shares
The number of issued and outstanding common shares changed as follows:
for the YeArs ended deCeMBer 31 (Millions)
outstanding at beginning of year
issued (repurchased)
dividend reinvestment plan
Management share option plan
issuer bid purchases
outstanding at end of year
Unexercised options
total diluted common shares at end of year
2010
572.9
0.1
4.7
—
577.7
38.4
616.1
2009
572.6
0.2
1.6
(1.5)
572.9
34.9
607.8
In calculating our book value per common share, the cash value of our unexercised options of $813 million
(December 31, 2009 – $634 million) is added to the book value of our common share equity of $12,795 million
(December 31, 2009 – $11,867 million) prior to dividing by the total diluted common shares presented above.
Subsequent to year-end, the company issued 27.5 million Class A Shares in connection with the acquisition of
$1.7 billion of general growth Properties common shares. In addition, the company issued 17.6 million Class A
Shares for proceeds of C$578 million. As of March 23, 2011 the Corporation had outstanding 624,076,592 Class
A Limited Voting Shares (“Class A Shares”) and 85,120 Class B Limited Voting Shares.
2010 AnnUAl report 65
cOnSOLiDaTeD STaTemenTS OF caSh FLOwS
The following table summarizes the company’s cash flows on a consolidated basis:
for the YeArs ended deCeMBer 31 (Millions)
operating activities
financing activities
investing activities
increase in cash and cash equivalents
Operating activities
2010
2009
$
1,454
$
1,121
854
(1,904)
1,207
(2,188)
$
404
$
140
Cash flow from operating activities is reported on a consolidated basis in our financial statements, whereas the
operating cash flow measure utilized elsewhere in the MD&A reflects only our pro rata share of the underlying
cash flow. The following table reconciles these two measures:
for the YeArs ended deCeMBer 31 (Millions)
operating cash flow per Md&A
operating cash flow attributable to non-controlling interests
Consolidated operating cash flow
less: disposition gains
Add / less: net change in working capital balances and other
Cash flow from operating activities per financial statements
2010
2009
$
1,463
$
1,402
1,119
2,582
(414)
(714)
669
2,071
(410)
(540)
$
1,454
$
1,121
We describe the variances in operating cash flow attributable to Brookfield’s net equity elsewhere in the
MD&A. Cash flow attributable to non-controlling interests reflects the interests of other investors in the cash
flow generated by entities consolidated in our financial statements. The expansion of our activities, particularly
in our Brazilian residential business is reflected in the net change in working capital balances.
Financing activities
During the year we generated $0.9 billion of cash flow from financing activities, compared to $1.2 billion in 2009.
We raised $1.3 billion from corporate and subsidiary preferred share issuances, compared with $0.5 billion in
2009. We also issued $1.1 billion of common equity from our infrastructure subsidiary to complete the merger
with Prime Infrastructure, however this is not reflected in our cash flow statement because the transaction
was completed on a share exchange basis. Net proceeds from common share issues in 2009 includes $1.0 billion
issued by our commercial office property and infrastructure subsidiaries.
Net capital provided from non-controlling interests and fund partners totalled $0.8 billion, similar to 2009. We
utilized $0.7 billion to reduce subsidiary and property-specific borrowings, which included debt relating to
assets sold during the year. Shareholder distributions from the Corporation and consolidated entities totalled
$0.8 billion during 2010, an increase of $0.2 billion from 2009 reflecting distributions made to a larger amount of
equity issued and outstanding in our subsidiaries during the year.
investing activities
We invested $1.9 billion in 2010 compared to $2.2 billion in the prior year. Major outflows of cash in the current
year included the recapitalization of general growth Properties and the acquisition of eight commercial office
properties. We also continued to invest in the development of our commercial office development properties
and our renewable wind and hydroelectric generation facilities. We acquired $0.5 billion of debt issued by
our U.S. Office Fund at a discount to its par value. The 2009 results reflect the $1.1 billion acquisition of a
large portfolio of infrastructure businesses, our initial investment in ggP and a number of acquisition and
development initiatives completed across our operating platforms.
66 Brookfield Asset MAnAgeMent
RecOnciLiaTiOn BeTween cOnSOLiDaTeD anD SegmenTeD FinanciaL inFORmaTiOn
Balance Sheet
(Millions)
Assets
operating assets
As At deCeMBer 31, 2010
renewable
power
Commercial
properties
infrastructure
development
Activities
private equity
and finance
Cash and
financial
Assets
Asset
Management
and other
Corporate
Capitalization
Consolidated
financial
statements
property, plant and equipment
$ 12,443 $
8 $ 3,138 $
1 $ 2,497 $ — $
61 $ — $ 18,148
investment properties
timber
inventory
investments
Cash and cash equivalents
financial assets
loans and notes receivable
Accounts receivable and other
intangible assets
goodwill
deferred tax asset
Total assets
liabilities
—
—
8
267
192
55
—
1,477
125
17
19,709
—
2
4,811
349
1,219
—
818
62
347
222
2,726
46
1,271
154
(4)
—
2,216
2,904
591
14,584
27,325
13,264
154
329
431
1,071
399
5,333
188
390
(161)
1,161
81
460
45
481
194
12
1,337
1,400
23
474
9,130
263
833
314
42
7,445
109
—
—
—
26
57
1,542
225
—
—
—
1,850
—
—
—
—
21
90
—
—
1,125
377
1,075
2,749
498
—
—
—
—
—
—
—
—
—
—
—
—
22,163
3,206
5,849
6,629
1,713
2,845
1,574
7,869
3,805
2,546
76,347
1,784
$ 14,738 $ 27,654 $ 13,695 $ 9,393 $ 7,554 $ 1,850 $ 3,247 $ — $ 78,131
Corporate borrowings
$ — $ — $ — $ — $ — $ — $ — $ 2,905 $ 2,905
non-recourse borrowings
property specific mortgages
subsidiary borrowings
Accounts payable and other liabilities
deferred tax liability
interests of others in funds
Capital securities
equity
non-controlling interests
preferred equity
Common equity
3,834
1,152
838
2,723
1,355
10,689
579
1,191
558
—
—
1,038
4,463
148
2,530
1,098
207
—
2,626
278
2,149
283
—
—
1,712
955
1,168
243
—
—
513
—
7,003
3,484
1,800
1,795
—
—
—
—
130
35
4
—
—
—
138
—
—
2
897
—
—
—
6
—
—
858
23,454
4,007
1,557
10,334
65
—
669
4,970
1,562
1,707
—
14,739
1,658
1,658
4,323
6,596
1,765
2,257
1,681
1,543
2,342
(7,712)
12,795
Total liabilities and equity
$ 14,738 $ 27,654 $ 13,695 $ 9,393 $ 7,554 $ 1,850 $ 3,247 $ — $ 78,131
Common equity
deferred income taxes1
Unrecognized values
net tangible asset value
Asset management franchise value
$ 4,323 $ 6,596 $ 1,765 $ 2,257 $ 1,681 $ 1,543 $ 2,342 $ (7,712) $ 12,795
2,569
600
7,492
—
(12)
325
15
125
52
875
24
450
—
—
6,909
1,905
3,184
2,155
1,543
—
—
—
—
—
(498)
875
2,719
4,000
66
—
2,216
3,250
(7,646)
18,261
—
4,000
intrinsic value
$ 7,492 $ 6,909 $ 1,905 $ 3,184 $ 2,155 $ 1,543 $ 6,719 $ (7,646) $ 22,261
1.
net of non-controlling interests
2010 AnnUAl report 67
Results from Operations
for the YeAr ended deCeMBer 31, 2010
(Millions)
Asset
Management
renewable
power
Commercial
properties
infrastructure
development
Activities
private
equity and
finance
investment
income
gains
Corporate
financing
Charges
Consolidated
financial
statements
Asset management and other services
$ 365
$ —
$ — $ — $ — $ — $ — $ — $ 365
revenues less direct operating costs
renewable power generation
Commercial properties
infrastructure
development activities
private equity and finance
equity accounted investments
investment and other income
expenses
interest
other operating costs
Asset management expenses
Current income taxes
non-controlling interests
operating cash flow
disposition gains
cash flow from operations
less: disposition gains
net income before the following
depreciation and amortization
fair value changes
future income taxes
non-controlling interests
—
—
—
—
—
—
—
748
—
—
—
—
23
—
—
1,182
—
—
—
256
91
365
771
1,529
—
—
—
—
17
348
—
348
—
348
—
—
—
—
375
—
—
18
121
257
291
548
(291)
257
(488)
577
(61)
20
727
96
—
8
372
326
38
364
(38)
326
(57)
1,031
(70)
(534)
—
—
220
—
—
204
6
430
141
27
—
3
129
130
—
130
—
130
(33)
296
16
(244)
—
—
—
527
—
8
8
543
109
—
—
39
203
192
—
192
—
192
(8)
(94)
6
19
—
100
1
—
281
1
115
498
145
17
—
5
235
96
85
181
(85)
96
(189)
37
(6)
114
—
—
—
—
—
2
373
375
19
—
—
3
42
311
—
311
—
311
—
—
—
—
—
—
—
—
—
—
—
—
313
148
129
21
—
(611)
—
(611)
—
(611)
(20)
18
72
3
748
1,282
221
527
281
494
593
4,511
1,829
288
129
97
1,119
1,049
414
1,463
(414)
1,049
(795)
1,865
(43)
(622)
net income
$ 348
$ 305
$ 696
$ 165
$ 115
$
52
$ 311
$ (538) $ 1,454
Total Return and
change in intrinsic value
for the YeAr ended deCeMBer 31, 2010
(Millions)
Asset
Management/
other
renewable
power
Commercial
properties
infrastructure
development
Activities
private
equity and
finance
Cash and
financial
Assets
Corporate
total
Cash flow from operations
$ 348
$ 548
$ 364
$ 130
$ 192
$ 181
$ 311
$ (611)
$ 1,463
less: preferred share dividends
Cash flow from common shares
—
348
—
548
—
364
—
130
—
192
—
181
—
311
(75)
(75)
(686)
1,388
fair value changes
recorded in ifrs statements
revaluation gains/losses
depreciation and amortization
foreign currency
other
Unrecognized values
Asset management franchise
total fair value changes
less: gains recorded in operating cash flow
total return
Capital invested/distributed1
(51)
(65)
41
—
525
500
950
—
1,298
(326)
(626)
(488)
48
—
150
—
(916)
(291)
(659)
(317)
583
(9)
216
(28)
325
—
1,087
(38)
1,413
655
139
(12)
43
—
25
—
195
—
325
(66)
(15)
(4)
94
(44)
125
—
156
—
348
(317)
133
(115)
5
(14)
50
—
59
(85)
155
(31)
(7)
—
11
—
—
—
4
—
(58)
—
(107)
61
—
—
(104)
—
98
(693)
351
(25)
1,200
500
1,431
(414)
315
(790)
2,405
(379)
483
(298)
net change in intrinsic value
$ 972
$ (976)
$ 2,068
$ 259
$
31
$ 124
$ (64)
$ (307)
$ 2,107
1.
represents common share dividends
68 Brookfield Asset MAnAgeMent
Balance Sheet
(Millions)
Assets
operating assets
As At deCeMBer 31, 2009
renewable
power
Commercial
properties
infrastructure
development
Activities
private equity
and finance
Cash and
financial
Assets
Asset
Management
and other
Corporate
Capitalization
Consolidated
financial
statements
property, plant and equipment
$ 13,166 $
60 $ 1,244 $
2 $ 2,114 $ — $
137 $ — $ 16,723
investment properties
timber
inventory
investments
Cash and cash equivalents
financial assets
loans and notes receivable
Accounts receivable and other
intangible assets
goodwill
deferred tax asset
Total assets
liabilities
—
—
7
276
185
(37)
—
1,285
119
16
16,730
—
3
2,620
307
1,390
—
461
62
340
225
2,529
32
1,295
56
54
—
47
306
591
15,017
21,973
6,379
64
627
16
1,240
358
5,115
151
316
(148)
1,024
81
403
51
324
375
—
1,638
1,285
—
446
8,765
222
620
201
34
6,865
134
—
—
—
54
30
1,703
171
—
—
—
1,958
—
—
—
—
19
91
—
—
1,011
360
936
2,554
391
—
—
—
—
—
—
—
—
—
—
—
—
19,219
2,968
5,560
4,466
1,309
3,337
1,809
4,709
1,048
2,363
63,511
1,454
$ 15,081 $ 22,600 $ 6,395 $ 8,987 $ 6,999 $ 1,958 $ 2,945 $ — $ 64,965
Corporate borrowings
$ — $ — $ — $ — $ — $ — $ — $ 2,593 $ 2,593
non-recourse borrowings
property specific mortgages
subsidiary borrowings
Accounts payable and other liabilities
deferred tax liability
interests of others in funds
Capital securities
equity
non-controlling interests
preferred equity
Common equity
3,861
1,144
741
3,126
899
—
201
—
9,481
551
1,084
999
—
1,009
1,978
—
240
699
122
—
2,377
475
1,859
109
—
—
1,889
739
974
184
—
—
4,698
1,836
1,814
1,582
—
—
—
—
126
110
60
—
—
—
55
—
—
2
835
—
—
—
—
—
—
779
2,034
115
—
632
19,712
3,800
7,827
5,232
1,021
1,641
—
10,186
1,144
1,144
5,109
4,778
1,520
2,353
1,631
1,607
2,108
(7,297)
11,809
Total liabilities and equity
$ 15,081 $ 22,600 $ 6,395 $ 8,987 $ 6,999 $ 1,958 $ 2,945 $ — $ 64,965
Common equity
deferred income taxes1
Unrecognized values
net tangible asset value
Asset management franchise value
$ 5,109 $ 4,778 $ 1,520 $ 2,353 $ 1,631 $ 1,607 $ 2,108 $ (7,297) $ 11,809
2,909
450
8,468
—
63
—
26
100
50
750
—
400
—
—
4,841
1,646
3,153
2,031
1,607
—
—
—
—
—
(391)
350
2,067
3,500
138
—
2,795
2,050
(7,159) 16,654
—
3,500
intrinsic value
$ 8,468 $ 4,841 $ 1,646 $ 3,153 $ 2,031
$1,607 $ 5,567 $ (7,159) $ 20,154
1.
net of non-controlling interests
2010 AnnUAl report 69
Results from Operations
for the YeAr ended deCeMBer 31, 2009
(Millions)
Asset
Management
and other
services
renewable
power
Commercial
properties
infrastructure
development
Activities
private
equity and
finance
investment
and other
income
Corporate
financing
Charges
Consolidated
financial
statements
Asset management and other services $
298 $ — $ — $ — $ — $ — $ — $ — $
298
revenues less direct operating costs
renewable power generation
Commercial properties
infrastructure
development activities
private equity and finance
equity accounted investments
investment and other income
expenses
interest
operating costs
Asset management expenses
Current income taxes
non-controlling interests
operating cash flow
disposition gains
cash flow from operations
less: disposition gains
net income before the following
depreciation and amortization
fair value changes
future income taxes
non-controlling interests
—
—
—
—
—
—
—
777
—
—
—
—
18
—
—
1,059
—
—
—
256
47
298
795
1,362
—
—
—
—
—
298
—
298
—
298
—
—
—
—
323
—
—
24
97
351
369
720
(369)
351
(378)
(243)
133
5
607
112
—
13
340
290
19
309
(19)
290
(42)
(1,543)
268
519
—
—
95
9
—
73
24
201
100
9
—
12
25
55
7
62
(7)
55
(24)
(196)
34
100
—
—
—
147
—
3
6
156
70
—
—
—
—
—
—
111
(1)
189
299
86
7
—
(15)
(43)
59
42
27
69
(27)
42
2
(150)
(6)
9
137
112
—
112
—
112
(189)
(68)
(39)
174
—
—
—
—
—
4
417
421
27
—
—
1
11
382
(12)
370
12
382
—
—
—
—
—
—
—
—
—
—
—
—
267
123
145
3
—
(538)
—
777
1,059
95
156
111
353
683
3,532
1,480
251
145
(5)
669
992
410
(538)
1,402
—
(538)
(25)
(68)
(103)
2
(410)
992
(656)
(2,268)
287
809
net income (loss)
$
298 $
(132) $
(508) $
(31) $
(103) $
(10) $
382 $
(732) $
(836)
Total Return and
change in intrinsic value
for the YeAr ended deCeMBer 31, 2009
(Millions)
Asset
Management/
other
renewable
power
Commercial
properties
infrastructure
development
Activities
private
equity and
finance
Cash and
financial
Assets
Corporate
total
Cash flow from operations
$
298 $
720 $
309 $
62 $
69 $
112 $
370 $
(538) $ 1,402
less: preferred share dividends
Cash flow from common shares
fair value changes
recorded in ifrs statements
revaluation gains/losses
depreciation and amortization
foreign currency
other
Unrecognized values
Asset management franchise
total fair value changes
less: gains recorded in operating cash flow
total return
Capital invested/distributed1
—
298
(23)
(61)
91
—
—
400
407
—
705
287
—
720
—
309
—
62
—
69
—
112
—
370
(43)
(43)
(581)
1,359
(281)
(379)
876
—
250
—
466
(369)
817
(1,027)
(841)
(6)
408
—
—
—
(439)
(19)
(149)
288
(142)
(7)
119
—
100
—
70
(7)
125
347
13
(2)
271
—
—
—
282
(27)
324
653
(61)
(118)
144
—
200
—
165
—
277
113
—
—
—
—
—
113
12
495
(68)
(791)
1
—
(167)
6
—
—
(160)
—
(741)
13
(1,221)
(573)
1,742
6
550
400
904
(410)
1,853
(298)
net change in intrinsic value
$
992 $
(210) $
139 $
472 $
977 $
209 $
(296) $
(728) $ 1,555
1.
represents common share dividends
70 Brookfield Asset MAnAgeMent
change in intrinsic value
The following table provides an analysis of the change in our intrinsic value during the year and reconciles
this amount to Net Income, Other Comprehensive Income and other items in our Consolidated Statement of
Changes in Equity:
intrinsic value
financial statement Allocation
intrinsic value
As At And for the YeAr ended deCeMBer 31, 2010:
(Millions, eXCept per shAre AMoUnts)
total
net income
other
Comprehensive
income
shareholder
distributions other items1
operating cash flow
$ 1,463
$ 1,049
$ —
$ —
$
414
less: preferred share dividends
operating cash flow for common shares
fair value changes
revaluation gains/(losses)
depreciation and amortization
foreign currency revaluation
other
Unrecognized values3
Asset management franchise2
total fair value changes
less: gains recorded in cash flow3
total return – pre-tax4
Common share dividends
deferred income taxes4
(75)
1,388
98
(693)
351
(25)
(269)
1,200
500
1,431
(414)
2,405
(298)
n/a
—
1,049
1,215
(693)
—
(86)
436
n/a
n/a
436
—
1,485
—
(31)
—
—
(955)
—
276
—
(679)
n/a
n/a
(679)
—
(679)
—
453
(75)
(75)
—
—
—
—
—
—
—
—
—
(75)
(298)
—
total change in intrinsic value4
$ 2,107
$ 1,454
$
(226)
$
(373)
$
1. other items included in shareholders’ equity
2.
3.
4.
5. operating cash flow per share shown net of preferred share dividends
revaluation of items not reflected at fair value under ifrs
represents the portion of realization gains not included in equity under ifrs
values presented on a pre-tax basis
—
—
(162)
—
75
61
(26)
n/a
n/a
(26)
(414)
(26)
—
157
131
per share
$
2.375
n/a5
2.37
0.16
(1.31)
0.54
(0.04)
(0.65)
2.06
0.80
2.21
(0.81)
3.77
(0.52)
n/a
$
3.25
2010 AnnUAl report 71
PART 4
operAting strAtegies, environMent And risks
In this section we discuss elements of our operating strategies as they relate to the execution of our business
strategy, as well as performance measurements. This section also contains a review of certain aspects of the
business environment and risks that could affect our performance.
OPeRaTing STRaTegieS anD PeRFORmance meaSuRemenT
Operating capabilities
We believe that we have the necessary capabilities to execute our business strategy and achieve our
performance targets. We focus on disciplined and active hands-on management of assets and capital. We
strive for excellence and quality in each of our core operating platforms in the belief that this approach will
produce superior returns over the long term.
We endeavour to operate as a value investor and follow a disciplined investment approach. Our management
team has considerable capabilities in investment analysis, mergers and acquisitions, divestitures and corporate
finance that enable us to acquire assets for value, finance them effectively, and to ultimately realize value
created during our ownership.
Our operating platforms and depth of experience in managing these assets differentiate us from some
competitors that have shorter investment horizons and more of a financial focus. These high quality operating
platforms have been established over many years and are fully integrated into our organization. This has
required considerable investment in building the management teams and the necessary resources; however,
we believe these platforms enable us to optimize the cash returns and values of the assets that we manage.
We have established strong relationships with a number of leading institutions and believe we are well positioned
to continue increasing our asset management capabilities by expanding our sources of co-investment capital
and clients. We are investing in our distribution capabilities to encourage existing and potential clients to
commit capital to our investment strategies. We are devoting expanded resources to these activities, and our
efforts continue to be assisted by favourable investment performance.
The diversification within our operations allows us to offer a broad range of products and investment strategies
to our clients. We believe this is of considerable value to investors with large amounts of capital to deploy. In
addition, our commitment to transparency and governance as a well-capitalized public company listed on major
North American and European stock exchanges positions us as a desirable long-term partner for our clients.
Finally, our commitment to invest a meaningful amount of capital alongside our investors creates a strong
alignment of interest between us and our investment partners and also differentiates us from many of our
competitors. Accordingly, our strategy calls for us to maintain considerable surplus financial resources relative
to other managers. This capital also supports our ability to commit to investment opportunities on our own
account when appropriate or in anticipation of future syndications.
Financing Strategy
The strength of our capital structure and the liquidity that we maintain enable us to achieve a low cost of
capital for our shareholders and at the same time provide us with the flexibility to react quickly to potential
investment opportunities and adverse changes in economic circumstances, such as we have witnessed over
the past 18 months.
72 Brookfield Asset MAnAgeMent
The following are the key elements of our capital strategy:
• Match fund our long-life assets with long-duration mortgage financings with a diversified maturity
schedule;
• Provide recourse only to the specific assets being financed, with limited cross collateralization or parental
guarantees;
• Limit borrowings to investment-grade levels based on anticipated performance throughout a business
cycle;
• Structure our affairs to facilitate access to a broad range of capital and liquidity at multiple levels of the
organization; and
• Maintain access to a diverse range of financing markets.
Our strategy is to eventually have two flagship entities within each platform, one listed and one unlisted,
through which capital will be invested by us and our partners. For example, within our infrastructure operations,
we have established Brookfield Infrastructure Partners, a publicly listed entity that has a $3.5 billion market
capitalization, and the Brookfield Americas Infrastructure Fund, a private investment partnership with
$2.7 billion of committed capital from institutional investors. These two entities are supplemented from time-
to-time with additional listed and unlisted niche entities, such as our Latin American country-specific funds
and timber funds. This provides us with access to both listed and private equity capital.
Most of our borrowings are in the form of long-term, property-specific financings such as mortgages or project
financings secured only by the specific assets. The diversification of our maturity schedule means that financing
requirements in any given year are manageable. Limiting recourse to specific assets or business units ensures
that weak performance by one asset or business unit does not compromise our ability to finance the balance
of the operations.
Our focus on structuring financings with investment-grade characteristics ensures that debt levels on any
particular asset or business can typically be maintained throughout a business cycle, and also enables us to
limit covenants and other performance requirements, thereby reducing the risk of early payment requirements
or restrictions on the distribution of cash from the assets being financed. Furthermore, our ability to finance at
the parent, operating unit, and asset level on a private or public basis means that we are not overly dependent
on any particular segment of the capital markets or the performance of any particular unit.
To enable us to react to attractive investment opportunities and deal with contingencies when they arise, we
typically maintain a high level of liquidity at the corporate level and within our key operating platforms. Our
primary sources of liquidity, which we refer to as “core liquidity,” consist of our cash and financial assets, net
of deposits and other associated liabilities, and undrawn committed credit facilities.
We generate substantial liquidity within our operations on an ongoing basis through our operating cash flow, as
well as from the turnover of assets with shorter investment horizons and periodic monetization of our longer-
dated assets through sales, refinancings or co-investor participations. Accordingly, we believe we have the
necessary liquidity to manage our financial commitments and to capitalize on opportunities to invest capital at
attractive returns. Nevertheless, we are cognizant of the current instability in the capital markets and continue
to place a premium on liquidity and allocate capital in a cautious manner.
Key Performance Factors
Our ability to increase our intrinsic value and operating cash flows is impacted by our ability to generate
attractive returns on the capital invested on behalf of ourselves and our clients, and our ability to increase the
amount of the capital that we manage on behalf of our clients. These two criteria are linked, in that the quality of
our investment returns will encourage clients to commit capital to us, and our access to this capital will enable
us to pursue a broader range of investment opportunities.
2010 AnnUAl report 73
Investment returns are influenced by a number of factors that are specific to each asset and industry segment.
There are however, four key objectives that we focus on across the organization.
• Acquire assets “for value”: meaning that the projected cash flows and value appreciation of the asset
represent an attractive risk-adjusted return to ourselves and our co-investors.
• Optimize the cash returns and value of the asset on an ongoing basis. In most cases, this is the responsibility
of one of our operating platforms, and is evidenced by the return on asset metrics and operating margins.
• Finance assets effectively, using a prudent amount of leverage. We believe the majority of assets are well
suited to support a relatively high level of investment-grade secured debt with long maturity dates given
the predictability of the cash flows and tendency of these assets to retain substantial value throughout
economic cycles. This is reflected in our return on net capital deployed, our overall return on capital and
our cost of capital.
• Position our assets so that they can be easily monetized through a sale or refinancing. While we tend to
hold our assets for extended periods of time, we endeavour to maximize our ability to realize the value and
liquidity of our assets on short notice and without disrupting our operations.
Expanding our client relationships is impacted not only by our investment returns, as discussed above, but
also by the quality of our distribution capabilities and by maintaining a high level of ongoing client service. This
involves transparent and timely communication of results, ongoing engagement and responsiveness to client
objectives and generation of attractive investment opportunities.
Key Financial measures and Definitions
key performance Measures
Our key performance measure is total return, which is the increase in the intrinsic value of our common equity,
together with dividends, on a per share basis. Our goal is to achieve total return exceeding 12% when measured
over a long-term basis. We will revisit this target periodically in light of the operating environment at that time to
ensure it continues to be realistic and can be achieved without exposing the organization to inappropriate risk.
The amount of co-investor capital commitments is also an important measure. One of our objectives is to
expand the amount of capital committed to us by our clients because this provides us with capital to expand our
business and also entitles us to earn asset management income based on our ability to successfully invest this
capital. Asset management income is an important measure in that it is indicative of the cash flow generated
from our asset management activities, which is an important source of potential growth in our operating cash
flows.
We utilize operating cash flow as a key operating metric as opposed to net income, principally because
operating cash flow does not include certain items such as fair value changes, depreciation and amortization
expense, and future income tax expense.
For example, net income includes fair value changes in respect of our commercial properties, timber and
financial assets but changes in fair value of renewable power and other infrastructure assets are recorded
through equity. Depreciation as prescribed by IFRS, for example, implies these assets decline in value on a
pre-determined basis over time, whereas we believe that the value of most of our assets, as long as regular
sustaining capital expenditures are made, will typically increase over time. This increase in value 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 tax expense, in our case, is derived primarily from
changes in the magnitude and quality of our tax losses and the differences between the tax values and book
values of our assets, as opposed to current cash liabilities. 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 from ongoing operations.
74 Brookfield Asset MAnAgeMent
definitions
The following are definitions of the key metrics used in this MD&A to measure performance and assess our
operating profile and financial position:
Operating Cash Flow is a key measure of our financial performance. This is not a generally accepted measure
under IFRS and differs from net income, and may differ from definitions of operating cash flow used by other
companies. We define operating cash flow as net income prior to such items as depreciation and amortization,
future income tax expense and certain non-cash items that in our view are not reflective of the performance of
the underlying operations. We provide this measure to investors as a measurement tool which we believe assists
in analysis of the company, in addition to other traditional measures, which we also provide. We recognize the
importance of net income as a measure to investors and provide a full reconciliation between these measures.
Net Tangible Asset Values are prepared using the procedures and assumptions that we follow in preparing
our financial statements under IFRS. They reflect most of our tangible assets at fair value with corresponding
adjustments to non-controlling interests and shareholders’ equity. We have included adjustments to reflect the
value of certain assets not carried at fair value under IFRS such as including residential land inventories that
are carried at the lower cost or market value and investments that are carried at historical cost and designated
these amounts as “Unrecognized Values Under IFRS” in determining underlying value.
We utilize net asset values on a pre-tax basis in assessing the performance of our business. We do this because
the tax liabilities established under accounting guidelines are calculated on the basis that we were to liquidate
the business based on the same underlying values at the balance sheet date, whereas we have no intention to
do this. To the contrary, we expect to hold most of our assets for extended periods of time or otherwise defer this
liability. We note that the deferred tax liability is similar in this sense to the float in an insurance company which
is available for investment to the benefit of shareholders for an extended period of time or even indefinitely.
Intrinsic Value is equal to the sum of our Net Tangible Asset Value and the value of our asset management
franchise, which we discuss in more detail on page 46.
Total Return is equal to the change in our Intrinsic Value over a period together with any distributions to common
shares. When expressed as a percentage, the numerator is total return and the denominator is intrinsic value
at the beginning of each measurement period.
Invested Capital is the amount of capital, measured based on underlying values, that we have invested in
a particular business or asset. It is shown net of the associated financial obligations and interests of other
shareholders. We reconcile invested capital to our consolidated financial statements on pages 67 and 69 of the
MD&A.
Assets Under Management include assets managed by us on behalf of our clients, as well as our own assets.
We invest capital alongside our clients in many of our funds, and we continue to own a number of assets that
we acquired prior to the formation of our asset management operations and are therefore not part of any fund.
Assets under management are based on underlying values consistent with the balance of the MD&A values.
Assets under management also include capital commitments that have not yet been drawn. Our calculation
of assets under management may differ from that employed by other asset managers and, as a result, this
measure may not be comparable to similar measures presented by other asset managers.
Co-investor Commitments represent capital that has been committed to us to invest on behalf of the client. We
typically, but not always, earn base management fees on this capital from the time that the commitment to the
fund is effective, during the period of time until the capital is invested (commonly referred to as the investment
period) until such time as the investments are monetized and the proceeds returned to the client. In certain
cases, clients retain the right to approve individual investments before providing the capital to fund them. In
these cases, we refer to the capital as “pledged” or “allocated.” Committed capital includes invested capital
and commitments or allocations that have not yet been invested.
Uninvested Commitments represent capital available to us to invest and form part of our overall liquidity for
these purposes.
2010 AnnUAl report 75
BuSineSS enviROnmenT anD RiSKS
The following is a review of certain risks that could adversely impact our financial condition, results of
operations and the value of our common shares. Additional risks and uncertainties not previously known to the
Corporation, or that the Corporation currently deems immaterial, may also impact our operations and financial
results.
general Risks
We are exposed to the local, regional, national and international economic conditions and other events and
occurrences that affect the markets in which we own assets and operate businesses. In general, a protracted
decline in economic conditions will result in downward pressure on our operating margins and asset values as
a result of lower demand for the services and products that we provide. We believe that the long-life nature of
our assets and, in many cases, the long-term nature of revenue contracts mitigates this risk to some degree.
Each segment of our business is subject to competition in varying degrees. This can result in downward
pressure on revenues which can, in turn, reduce operating margins and thereby reduce operating cash flows
and investment returns. In addition, competition could result in scarcity of inputs which can impact certain of
our businesses through higher costs. We believe that the high quality and low operating costs of many of our
assets and businesses provide some measure of protection in this regard.
A number of our long-life assets are interest rate sensitive: an increase in long-term interest rates will, absent
all else, tend to decrease the value of the assets by reducing the present value of the cash flows expected
to be produced by the asset. We mitigate this risk in part by financing assets with long-term fixed rate debt,
which will typically decrease in value as rates increase. In addition, we believe that many conditions that lead
to higher interest rates, such as inflation, can also give rise to higher revenues which will, absent all else, tend
to increase asset values.
The trading price of our common shares in the open market cannot be predicted. The trading price could
fluctuate significantly in response to factors such as: variations in our quarterly or annual operating results
and financial condition; changes in government regulations affecting our business; the announcement of
significant events by our competitors; market conditions and events specific to the industries in which we
operate; changes in general economic conditions; differences between our actual financial and operating
results and those expected by investors and analysts; changes in analysts’ recommendations or projections;
the depth and liquidity of the market for our common shares; dilution from the issuance of additional equity;
investor perception of our business and industry; investment restrictions; and our dividend policy. In addition,
securities markets have experienced significant price and volume fluctuations in recent years that have
often been unrelated or disproportionate to the operating performance of particular companies. These broad
fluctuations have, in the past, and may, in the future, adversely affect the trading price of our common shares.
execution of Strategy
Our strategy for building shareholder value is to acquire or develop high quality assets and businesses that
generate sustainable and increasing cash flows on behalf of ourselves and our co-investors, with the objective
of achieving higher returns on our invested capital and our asset management activities over the long-term.
Our diversified business base, liquidity and the sustainability of our cash flows provide important elements of
strength.
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, with a keen focus on the preservation of capital to protect our downside risk. 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.
The successful execution of a value investment strategy requires careful timing and business judgement,
as well as the resources to complete asset purchases and restructure them as required, notwithstanding
difficulties experienced in a particular industry.
76 Brookfield Asset MAnAgeMent
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. 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 benefits. Competition from other well-capitalized investors
may significantly increase the purchase price or prevent us from completing an acquisition. We may be unable
to finance acquisitions on favourable terms, or newly acquired assets and businesses may fail to perform as
expected. We may underestimate the costs necessary to bring an acquisition up to standards established for
its intended market position or may be unable to quickly and efficiently integrate new acquisitions into our
existing operations.
We develop property, power generation and other infrastructure assets. In doing so, we must comply with
extensive and complex municipal, state or provincial, national and international regulations affecting the
development process. These regulations impose on us additional costs and delays, which may adversely
affect our business and results of operations. In particular, we are required to obtain the approval of numerous
governmental authorities regulating matters such as permitted land uses, levels of density, the installation
of utility services, zoning and building standards. We must comply with local, state and federal laws and
regulations concerning the protection of health and the environment, including laws and regulations with
respect to hazardous or toxic substances. These environmental laws and regulations sometimes result in
delays, which cause us to incur additional costs, or severely restrict development activity in environmentally
sensitive regions or areas.
Our asset management business is also subject to regulatory compliance and oversight. The advisers of
our private investment funds are registered as investment advisers with the U.S. Securities and Exchange
Commission (the “SEC”). Registered investment advisers are subject to the requirements and regulations of
the Investment Advisers Act of 1940 (the “Advisers Act”), including, among other things, fiduciary duties to
clients, maintaining an effective compliance program, record-keeping, advertising and operating requirements,
disclosure obligations and general anti-fraud prohibitions. A failure to comply with such obligations could
result in investigations, sanctions and reputational damage.
Our ability to successfully expand our asset management activities 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 principles that emphasize a constructive management culture, will enable
us to continue to develop productive relationships with institutional investors. However, competition for
institutional capital, particularly in the asset classes on which we focus, is intense. Although we seek to
differentiate ourselves, there is no assurance that we will be successful in doing so and this competition may
reduce the margins of our asset management business and may decrease the extent of institutional investor
involvement in our activities.
The decline in market value of financial instruments and other investments during the financial crisis of
2008-2009 had an adverse effect on the investment portfolios of the insurance companies, pension funds,
endowments, sovereign wealth funds and other institutional investors that we seek to partner with in our
investments. Although this situation improved due to strong capital market returns during 2010, certain of
these investors may still be managing issues that affect their ability to make new capital commitments. In
the long run, we believe that investors will be increasingly attracted to our approach to asset management
which focuses on high quality real return assets, conservative financing and an operations-based approach
to creating value.
Our executive and other senior officers have a significant role in our success. Our ability to retain our
management group or attract suitable replacements should any members of the management group leave is
dependent on the competitive nature of the employment market. The loss of services from key members of the
management group or a limitation in their availability could adversely impact our financial condition and cash
flow. Further, such a loss could be negatively perceived in the capital markets. The conduct of our business
and the execution of our growth strategy rely heavily on teamwork. Co-operation amongst our operations and
our team-oriented management structure is essential to responding promptly to opportunities and challenges
as they arise. We believe that our hiring and compensation practices encourage retention and teamwork, and
reward executives for performance over the long term in a manner that places an appropriate emphasis on risk
management, and encourages, and appropriately matches rewards, with long-term value creation.
2010 AnnUAl report 77
We participate in joint ventures, partnerships, co-tenancies and funds affecting many of our assets and
businesses. Investments in partnerships, joint ventures, co-tenancies or other entities may involve risks not
present were a third party not involved, including the possibility that our partners, co-tenants or co-venturers
might become bankrupt or otherwise fail to fund their share of required capital contributions. Additionally,
our partners, co-venturers or co-tenants might at any time have different economic or other business
interests or goals. In addition, we do not have sole control of certain major decisions relating to these
assets and businesses, including: decisions relating to the sale of the assets and businesses; refinancing;
timing and amount of distributions of cash from such entities to the Corporation; and capital expenditures.
Some of our management arrangements permit our partners to terminate the management agreement in
limited circumstances relating to enforcement of the managers’ obligations. In addition, the sale or transfer of
interests in some of our assets or entities is subject to rights of first refusal or first offer and some agreements
provide for buy-sell or similar arrangements. Although such provisions may at times work in our favour, such
rights may also be triggered at a time when we may not want to sell but may also be forced to do so because we
may not have the financial resources at that time to purchase the other party’s interest. Such rights may also
inhibit our ability to sell our interest in an entity within our desired time-frame or on any other desired basis.
Financial and Liquidity Risks
We employ debt and other forms of leverage in the ordinary course of our business in order to enhance returns
to shareholders and our co-investors. We attempt to match the profile of the leverage to the associated assets
and accordingly typically fund shorter-duration floating rate assets with shorter-term floating rate debt and
fund long-term fixed rate and equity-like assets with long-term fixed rate and equity capital. Most of the debt
within our business has recourse only to the assets or subsidiary being financed and has no recourse to the
Corporation.
Accordingly, we are subject to the risks associated with debt financing. These risks, including the following,
may adversely affect our financial condition and results of operations: our cash flow may be insufficient to
meet required payments of principal and interest; payments of principal and interest on borrowings may leave
us with insufficient cash resources to pay operating expenses; we may not be able to refinance indebtedness on
our assets at maturity due to company and market factors including, the estimated cash flow of our assets; the
value of our assets; liquidity in the debt markets; financial, competitive, business and other factors, including
factors beyond our control; and if refinanced, the terms of a refinancing may not be as favourable as the original
terms of the related indebtedness. We attempt to mitigate these risks through the use of long-term debt and
by diversifying our maturities over an extended period of time. We also strive to maintain adequate liquidity to
refinance obligations.
The terms of our various credit agreements and other financing documents require us to comply with a number
of customary financial and other covenants, such as maintaining debt service coverage and leverage ratios,
insurance coverage and, in limited circumstances, rating levels. These covenants may limit our flexibility in
our operations, and breaches of these covenants could result in defaults under the instruments governing the
applicable indebtedness even if we had satisfied our payment obligations.
If we are unable to refinance our indebtedness on acceptable terms, or at all, we may need to utilize available
liquidity, which would reduce our ability to pursue new investment opportunities, or dispose of one or more
of our assets on disadvantageous terms. Moreover, prevailing interest rates or other factors at the time of
refinancing could increase our interest expense, and if we pledge assets to secure payment of indebtedness
and are unable to make required payments, the creditor could foreclose upon such asset or appoint a receiver
to receive an assignment of the associated cash flows.
A large proportion of our capital is invested in physical assets which can be hard to sell, especially if local
market conditions are poor. A lack of liquidity could limit our ability to vary our portfolio or assets promptly
in response to changing economic or investment conditions. Additionally, financial or operating difficulties
of other owners resulting in distress sales could depress asset values in the markets in which we operate in
times of illiquidity. These restrictions could reduce our ability to respond to changes in the performance of our
investments and market conditions and could adversely affect our financial condition and results of operations.
78 Brookfield Asset MAnAgeMent
We periodically enter into agreements that commit us to acquire assets or securities. In some cases we
may enter into such agreements with the expectation that we will syndicate or assign all or a portion of our
commitment to other investors prior to, at the same time as, or subsequent to the anticipated closing. We may
be unable to complete this syndication or assignment which may increase the amount of capital that we are
required to invest. These activities can have an adverse impact on our liquidity which may reduce our ability to
pursue further acquisitions or meet other financial commitments.
We periodically enter into joint venture, consortium or other arrangements that have contingent liquidity
rights in our favour or in favour of our counterparties that may have implications for us. These include buy-sell
arrangements, put and call rights, en-bloc sale rights, registration rights and other customary arrangements.
A counterparty may seek to exercise these rights in response to their own liquidity considerations or other
reasons internal to the counterparty. Our agreements generally have embedded protective terms that mitigate
the risk to us. However, in some circumstances we may need to utilize some of our own liquidity in order to
preserve value or protect our interests.
We enter into financing commitments in the normal course of business and, as a result, may be required to
fund these commitments. Although we do not typically do so, from time-to-time we guarantee the obligations
of funds or other entities that we manage and/or invest in. If we are unable to fulfill any of these commitments,
this could result in damages being pursued against us or a loss of opportunity through default of contracts that
are otherwise to our benefit.
Our business is impacted by changes in currency rates, interest rates, commodity prices and other financial
exposures. We selectively utilize financial instruments to manage these exposures. The company’s risk
management and derivative financial instruments are more fully described in the notes to our Consolidated
Financial Statements.
We have pursued and intend to continue to pursue growth opportunities in international markets and often
invest in countries where the U.S. dollar is not the notional currency. As a result, we are subject to foreign
currency risk due to potential fluctuations in exchange rates between foreign currencies and the U.S. dollar. A
significant depreciation in the value of the foreign currency of one or more countries where we have a significant
investment may have a material adverse effect on our results of operations and financial position.
We selectively utilize credit default swaps and other derivatives to hedge financial positions and may establish
unhedged positions from time-to-time. These instruments are typically utilized as a hedge or an alternative
to purchasing or selling the underlying security when they are more effective from a capital employment
perspective. However, derivatives are also subject to their own unique set of risks, including counterparty risk
with respect to the financial well-being of the party on the other side of these transactions.
Renewable Power generating Operations
Our power generating operations, which are primarily hydroelectric generating facilities, are subject to
changes in hydrology and price, but also include risks related to equipment and dam failure, counterparty
performance, water rental costs, changes in regulatory requirements and other material disruptions.
The revenues generated by our power facilities are correlated to the amount of electricity generated, which
in turn is dependent upon available water flows. In 2010, we experienced particularly low water levels at our
North American power generating operations, which resulted in returns below expectations. Hydrology varies
naturally from year to year and may also change permanently because of climate change or other factors, and
a natural disaster could impact water flows within the watersheds in which we operate.
A significant portion of our power generating operation revenues are tied, either directly or indirectly, to the
wholesale market price for electricity in the markets in which we operate. Wholesale market electricity prices
are impacted by a number of external factors. As a result, we cannot accurately predict future electricity
prices.
A significant portion of the power we generate is sold under long-term power purchase agreements, shorter-
term financial instruments and physical electricity and natural gas contracts, some or all of which may be
above market. These contracts are intended to mitigate the impact of fluctuations in wholesale electricity
2010 AnnUAl report 79
prices. If, however, for any reason any of the counterparties are unable or unwilling to fulfill their contractual
obligations, we may not be able to replace the agreement with an agreement on equivalent terms and
conditions.
There is a risk of equipment failure or dam failure due to wear and tear, latent defect, design error or operator
error, among other things. The occurrence of such failures could result in a loss of generating capacity and
repairing such failures could require the expenditure of significant amounts of capital and other resources.
Such failures could result also in exposure to significant liability for damages.
We are required to make rental payments and pay property taxes for water rights or pay similar fees for use
of water. Significant increases in water rental costs or fees or changes in the way that governments regulate
water supply could have a material adverse effect on our financial condition.
The operation of our generation assets is subject to extensive regulation by various government agencies
at the municipal, provincial, state and federal level. As legal requirements frequently change and are
subject to interpretation and discretion, we are unable to predict the ultimate cost of compliance with these
requirements or their effect on our operations. Any new law or regulation could require additional expenditure
to achieve or maintain compliance. In addition, we may not be able to renew, maintain or obtain all necessary
licenses, permits and governmental approvals required for the continued operation or further development of
our projects.
Our power generation assets could be exposed to effects of significant events, such as severe weather
conditions, natural disasters, major accidents, acts of malicious destruction, sabotage or terrorism, which
could limit our ability to generate or sell power. In certain cases, some events may not excuse us from
performing our obligations pursuant to agreements with third parties and we may be liable for damages or
suffer further losses as a result. In addition, many of our generation assets are located in remote areas which
makes access for repair of damage difficult.
commercial Office Properties
Our strategy is to invest in high quality commercial 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 commercial
office property business.
Commercial 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 markets in which we operate), the attractiveness of the properties to tenants, competition from
other landlords 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 commercial office properties are typically 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 effectively mitigates these
risks.
Our commercial 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 long-term outlook for commercial office rents is positive, it is possible that rental rates could
decline, tenant bankruptcies could increase or that renewals may not be achieved particularly in the event of a
protracted disruption in the economy such as the onset of a recession. The company is, however, substantially
protected against short-term market conditions, since most of our leases are long-term in nature.
80 Brookfield Asset MAnAgeMent
Our commercial office portfolio is concentrated in large metropolitan areas, some of which have been or
may be perceived to be subject to terrorist attacks. Furthermore, many of our properties consist of high-rise
buildings, which may also be subject to this actual or perceived threat, which could be heightened in the event
that the United States continues to engage in armed conflict. This could have an adverse effect on our ability
to lease office space in our portfolio. Each of these factors could have an adverse impact on our operating
results and cash flows. Our commercial office property operations have insurance covering certain acts
of terrorism for up to $2.5 billion of damage and business interruption costs for our U.S. commercial office
properties, up to C$1 billion for our Canadian commercial office properties and up to $700 million for our
Australian commercial office properties. We continue to seek additional coverage equal to the full replacement
cost of our North American 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.
utilities
Our utilities infrastructure operations, which include electricity transmission systems, coal terminal
operations, and electricity and gas distribution companies, are located in Australia, Chile, Canada, Europe
and New Zealand. Our utilities operations consist of regulated businesses which earn a return on their asset
base, as well as businesses with long-term contracts designed to generate a return on capital over the life of
the contract.
Some of our utilities infrastructure operations are regulated with respect to revenues and they recover their
investment in assets through tolls or regulated rates which are charged to third parties. Current tolls and
regulated rates are reviewed by the applicable regulatory agency on a regular basis. If any of the respective
regulators in the jurisdictions in which we operate decide to change the tolls or rates we are allowed to
charge or the amounts of the provisions we are allowed to collect, we may not be able to earn a rate of return
on our businesses that we had planned or we may not be able to recover our initial investment cost. If our
utilities operations in these jurisdictions require significant capital expenditures to maintain our asset base,
we may not be able to cover such costs through the regulatory framework. In addition, we may be exposed to
disallowance risk in other jurisdictions to the extent that capital expenditures and costs are not fully recovered
through the regulatory framework.
Our utilities operations involve ongoing commitments to economic regulators, safety regulators and other
governmental agencies. This is due to the essential nature of the services provided by our utilities operations
and the fact that the services are usually provided on a monopoly or near monopoly basis. The risk that a
government will repeal, amend, enact or promulgate a new law or regulation or that a regulator or other
government agency will issue a new interpretation of the law or regulations, with a view towards enhancing
national security, can substantially affect our utilities operations or a project. In addition, a decision by a
government or regulator to regulate previously unregulated assets may significantly change the economics of
our utilities operations.
Some of our utilities operations have customer contracts as well as concession agreements in place with
public and private sector clients. There is a risk of default on those contractual arrangements by such clients.
As well, our operations with customer contracts could be materially adversely affected by any material change
in the assets, financial condition or results of operations of such customers.
Our utilities operations require large areas of land on which to be constructed and operated. The rights to use
the land can be obtained through freehold title, leases and other rights of use. Although we believe that we
have valid rights to all easements, licences and rights of way necessary for our utilities operations, not all of
our easements, licences and rights of way are registered against the lands to which they relate and may not
bind subsequent owners.
Transport and energy
Our transport and energy infrastructure operations, which include a natural gas pipeline and storage system,
port facilities and a rail operation, are primarily located in the U.S., Europe and Australia. Our transport and
energy operations consist of open access systems that provide transportation, storage and handling of energy,
freight and bulk commodities. Our transport and energy businesses are comprised of businesses with price
ceilings as a result of regulation, such as our natural gas pipeline and storage system and rail operations, as
well as unregulated businesses, such as our ports.
2010 AnnUAl report 81
general domestic and global economic conditions affect international demand for the commodities handled
by our transport and energy operations and may lead to bankruptcies or liquidations of one or more large
customers of our transport and energy operations which could reduce our revenues, increase our bad debt
expense, reduce our ability to make capital expenditures or have other adverse effects. We and our customers
are also exposed to certain uncontrollable events, such as severe weather conditions, natural disasters, major
accidents, acts of malicious destruction, sabotage and terrorism. Although we attempt to protect our revenue
through the inclusion of take-or-pay or guaranteed minimum volume provisions into our contracts, such as at
our rail operations, this is not always possible or fully effective.
Some of our transport and energy operations are subject to a review of their respective access and pricing
arrangements on a periodic basis. The terms of new access and pricing arrangements may result in changes
to the revenue or profitability of such operations.
Our transport and energy operations may require substantial capital expenditures in the future. Any failure to
make necessary capital expenditures to maintain our operations in the future could impair the ability of our
transport and energy operations to serve existing customers or accommodate increased volumes. In addition,
we may not be able to recover such investments based upon the rates our operations are able to charge.
Like some of our utilities infrastructure operations, our transport and energy operations have customer
contracts as well as concession agreements in place with public and private sector clients. There is a risk of
default on those contractual arrangements by such clients. As well, our operations with customer contracts
could be materially adversely affected by any material change in the assets, financial condition or results of
operations of such customers.
Our transport and energy operations require large areas of land on which to be constructed and operated,
similar to our utilities infrastructure operations. The rights to use the land can be obtained through freehold
title, leases and other rights of use. Although we believe that we have valid rights to all easements, licenses
and rights of way necessary for our transport and energy operations, not all of our easements, licenses and
rights of way are registered against the lands to which they relate and may not bind subsequent owners.
Timberlands
The financial performance of our timberland operations depends on the state of the wood products and pulp
and paper industries. Financial performance is therefore susceptible to adverse macro-economic conditions or
recessions in the jurisdictions in which our products are sold. Decreases in the level of residential construction
activity generally reduce demand for logs and wood products, resulting in lower revenues, profits and cash
flows for our customers. Depressed commodity prices for lumber, pulp or paper or market irregularities may
cause mill operators to temporarily or permanently shut down their mills if their product prices fall to a level
where mill operation would be uneconomic. Moreover, these operators may be required to temporarily suspend
operations at one or more of their mills to bring production in line with market demand or in response to market
irregularities. Any of these circumstances could significantly reduce the prices that we realize for our timber
as well as the volume of our timber that we may be able to sell. In addition to impacting our timber operations’
sales, cash flows and earnings, weakness in the market prices of timber products will also have an effect
on our ability to attract additional capital, the cost of that capital and the value of our timberland assets. We
endeavour to keep our harvest plans flexible so that we can reduce harvest levels when prices are low with
the objective of deferring sales until prices recover; however there is no certainty that we will be successful
in this regard.
Weather conditions, industry practices, timber growth cycles, access limitations, aboriginal claims and laws
and regulations associated with forestry practices, sale of logs and environmental matters, may restrict our
harvesting, road building and other activities on the timberlands owned by our timber operations, as may other
factors, including damage by fire, insect infestation, wind, disease, prolonged drought and other natural and
man-made disasters. Although management believes it follows best practices with regard to forest sustainability
and general forest management, there can be no assurance that our forest management planning, including
silviculture, will have the intended result of ensuring that our asset base appreciates in value over time. If
management’s estimates of merchantable inventory are incorrect, harvesting levels on our timberlands may
result in depletion of our timber assets.
82 Brookfield Asset MAnAgeMent
Residential Properties
We have residential land development and homebuilding operations located in Canada, Brazil, United States and
Australia. These operations are concentrated in areas which we believe have positive long-term demographic
and economic characteristics. Despite this, 2010 was another challenging year for the U.S. housing industry,
as the downturn in the housing market continued.
The residential homebuilding and land development industry is cyclical and is significantly affected by
changes in general and local economic and industry conditions, such as consumer confidence, employment
levels, availability of financing for homebuyers and interest rates, levels of new and existing homes for sale,
demographic trends and housing demand. Competition from rental properties and resale homes, including
homes held for sale by investors and foreclosed homes, may reduce our ability to sell new homes, depress
prices and reduce margins for the sale of new homes. Homebuilders are also subject to risks related to
availability and cost overruns. Furthermore, the market value of undeveloped land, buildable lots and housing
inventories held by us can fluctuate significantly as a result of changing economic and real estate market
conditions. If there are significant adverse changes in economic or real estate market conditions, we may have
to sell homes at a loss or hold land in inventory longer than planned. Inventory carrying costs can be significant
and can result in losses in a poorly performing project or market. Our residential property operations may be
particularly affected by changes in local market conditions in California, Virginia, Alberta and Brazil where we
derive a large proportion of our residential property revenue.
Virtually all of our homebuilding customers finance their home acquisitions through lenders providing mortgage
financing. Mortgage rates in North America have recently been at or near their lowest levels in many years.
Despite this, and given the volatility experienced in the mortgage markets in the U.S. and by many lenders,
fewer loan products and tighter loan qualification requirements have made it more difficult for borrowers to
procure mortgages.
Even if potential customers do not need financing, changes in interest rates and mortgage availability could
make it harder for them to sell their homes to potential buyers who need financing, which in the U.S. has
resulted in reduced demand for new homes. As a result, rising mortgage rates or reduced mortgage availability
could adversely affect our ability to sell new homes and the price at which we can sell them.
Private equity and Finance
Our private equity and finance operations are focused on the ownership and management of securities and
businesses that are supported by underlying tangible assets and cash flows. We are therefore subject to the
performance of these businesses and assets, which are subject to their own industry and operating risks.
The principal risks for the private equity and finance 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 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 believe 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 may protect us from
loss.
Other Risks
As an owner and manager of real property, we are subject to various federal, provincial, state and municipal
laws relating to environmental matters. These laws could hold us liable for the costs of removal and remediation
of certain hazardous substances or wastes released or deposited on or in our properties or disposed of at other
locations. The failure to remove or remediate such substances, if any, could adversely affect our ability to
sell our real estate or to borrow using real estate as collateral, and could potentially result in claims or other
proceedings against us. We are not aware of any material non-compliance with environmental laws at any
of our properties. We are also not aware of any material pending or threatened investigations or actions by
environmental regulatory authorities in connection with any of our properties or any material investigations
or actions by environmental regulatory authorities in connection with any of our properties or any material
pending threatened claims relating to environmental conditions at our properties. We have made and will
2010 AnnUAl report 83
continue to make the necessary capital expenditures for compliance with environmental laws and regulations.
Environmental laws and regulations can change rapidly and we may become subject to more stringent
environmental laws and regulations in the future. Compliance with more stringent environmental laws and
regulations could have an adverse effect on our business, financial condition or results of operation.
The ownership and operation of our assets carry varying degrees of inherent risk or liability related to
worker health and safety and the environment, including the risk of government imposed orders to remedy
unsafe conditions and/or to contravention of health, safety and environmental laws, licenses, permits and
other approvals, and potential civil liability. Compliance with health, safety and environmental laws (and
any future laws or amendments enacted) and the requirements of licenses, permits and other approvals will
remain material to our business. We have incurred and will continue to incur significant capital and operating
expenditures to comply with health, safety and environmental laws and to obtain and comply with licenses,
permits and other approvals and to assess and manage potential liability exposure. Nevertheless, from time-
to-time it is possible that we may be unsuccessful in obtaining an important license, permit or other approval
or become subject to government orders, investigations, inquiries or other proceedings (including civil claims)
relating to health, safety and environmental matters. The occurrence of any of these events or any changes,
additions to or more rigorous enforcement of, health, safety and environmental laws, licenses, permits or other
approvals could have a significant impact on operations and/or result in additional material expenditures. As a
consequence, no assurance can be given that additional environmental and workers’ health and safety issues
relating to presently known or unknown matters will not require unanticipated expenditures, or result in fines,
penalties or other consequences (including changes to operations) material to our business and operations. We
carry various insurance coverages that provide comprehensive protection for first-party and third-party losses
to our properties. These coverages contain policy specifications, limits and deductibles customarily carried for
similar properties. We also self-insure a portion of certain of these risks. We believe all of our properties are
adequately insured.
There are certain types of risks (generally of a catastrophic nature such as war or environmental contamination
such as toxic mold) which are either uninsurable or not economically insurable. Should any uninsured or under
insured loss occur, we could lose our investment in, and anticipated profits and cash flows from, one or more
of our assets or operations, and would continue to be obligated to repay any mortgage or other indebtedness
on such properties to the extent the borrowers have recourse beyond the specific asset or operations being
financed.
In the normal course of our operations, we become involved in various legal actions, including claims relating
to personal injuries, property damage, property taxes, land rights and contract and other commercial disputes.
We endeavour to maintain adequate provisions for outstanding or pending claims. The final outcome with
respect to outstanding, pending or future actions cannot be predicted with certainty, and therefore there can
be no assurance that their resolution will not have an adverse effect on our financial position or results of our
operations in a particular quarter or fiscal year. We believe that we are not currently involved in any litigation,
claims or proceedings in which an adverse outcome would have a material adverse effect on our consolidated
financial position or results.
Ongoing changes to the physical climate in which we operate may have an impact on our business. In particular,
changes in weather patterns may impact hydrology levels thereby influencing generation levels and power
generation levels. Climate change may also give rise to changes in regulations and consumer sentiment that
could impact other areas of our business.
The U.S. Investment Company Act of 1940 (the “Act”) requires the registration of any company which holds itself
out to the public as being engaged primarily in the business of investing, reinvesting or trading in securities.
In addition, the Act may also require the registration of a company that is engaged or proposes to engage in
the business of investing, reinvesting, owning, holding or trading in securities and which owns or proposes to
acquire investment securities with a value of more than 40% of the company’s assets on an unconsolidated
basis. We are not currently an investment company in accordance with the Act and we believe we can continue
to arrange our business operations in ways so as to not become an investment company within the meaning
of the Act. If we were required to register as an investment company under the Act, we would, among other
things, be restricted from engaging in certain businesses and issuing certain securities. In addition, certain of
our contracts may become void.
84 Brookfield Asset MAnAgeMent
In June 2010, the SEC enacted a new rule under the Advisers Act addressing “pay to play” practices in the
selection of investment advisers to manage the assets of U.S. state and local government entities. The rule
effectively prohibits investment advisers who advise or seek to advise government entities, as well as certain
personnel of such advisers, from making, or causing to be made, greater than de minimis political contributions
to government officials with authority or influence over the hiring of investment advisers. Contributions made
in violation of this rule will result in a two-year “time out” period following the contribution date, during which
the investment adviser will not be permitted to receive compensation for providing advisory services to such
government entity. Advisers are required to adopt policies and procedures reasonably designed to prevent a
violation of the rule and to keep certain records in order to enable the SEC to determine compliance with the
rule. In addition, there have been similar rules on a state level regarding “pay to play” practices by investment
advisers. Any failure on our part to comply with these rules could expose us to significant penalties and
reputational damage.
There are many other laws and governmental regulations that apply to us, our assets and businesses. Changes
in these laws and governmental regulations, or their interpretation by agencies or the courts, could occur.
Further, economic and political factors, including civil unrest, governmental changes and restrictions on the
ability to transfer capital across borders in the United States, but primarily in the foreign countries in which we
have invested, can have a major impact on us as a global company.
A portion of the workforce in our operations is unionized and if we are unable to negotiate acceptable contracts
with any of our unions as existing agreements expire, we could experience a significant disruption of the
affected operations, higher ongoing labour costs and restriction of our ability to maximize the efficiency of our
operations, which could have an adverse effect on our operations and financial results.
2010 AnnUAl report 85
PART 5
sUppleMentAl inforMAtion
inTeRnaTiOnaL FinanciaL RePORTing STanDaRDS
We adopted IFRS effective January 1, 2010 and have prepared our financial statements in this annual report
using IFRS accounting policies. Prior to the adoption of IFRS our financial statements were prepared in
accordance with Canadian generally accepted accounting principles (“Canadian gAAP”).
IFRS are premised on a conceptual framework similar to Canadian gAAP, however, significant differences
exist in certain matters of recognition, measurement and disclosure. Our adoption had a substantial impact
on our consolidated balance sheets and statements of operations. In particular, our opening balance sheet
reflects the revaluation of substantially all of our fixed assets to their fair values as at January 1, 2009. The
revaluation is the result of the policies we adopted under IFRS requiring certain assets to be measured at fair
value in addition to using fair value as the cost base for our transition to IFRS. Additionally, these changes to the
opening balance sheet required that a corresponding tax asset or liability be established based on the resultant
differences between the carried value of these fixed assets under IFRS and their associated tax bases. In
aggregate, these increases and the application of various policies under IFRS that differ from Canadian gAAP
increased our common equity by $6.4 billion as at January 1, 2009. Note 3 of our financial statements provides
detailed reconciliations between Canadian gAAP and IFRS of equity as at January 1 and December 31, 2009
and of net income for the year ended December 31, 2009. These reconciliations provide explanations of each
major difference.
The following discussion highlights the significant new standards that we have adopted under IFRS and the
effect on our comparative period results of operations and financial position as previously reported under
Canadian gAAP as well as the possible effects going forward.
Revaluation of assets
IAS 16 Property, Plant and Equipment (“IAS 16”) allows an entity to apply either the revaluation or cost method
to individual classes of fixed assets. Under the revaluation method property, plant and equipment are measured
at their fair values. Increases and decreases in fair value are recorded directly to equity, except where an asset
decreases below its historic depreciated cost, in which case the difference between its historic depreciated
cost and fair value is recorded as an impairment loss in net income. We record depreciation expense in net
income based on the fair value at the beginning of the reporting period over the estimated useful life of the
asset. To the extent an asset’s fair value is maintained or increases the accumulated depreciation related
to such asset is effectively reversed, increasing the carried value of the asset although as noted above, the
appraisal increase is recorded through equity.
We have applied the revaluation method to our renewable power generation facilities, transmission assets
and certain other assets within our infrastructure businesses. All other property, plant and equipment will
be accounted for using the cost method, which is similar to Canadian gAAP. We have chosen to use the
revaluation method for assets that are long term in nature and in our view, tend to appreciate, as opposed to
depreciate in a prescribed manner, over time. Accordingly, we believe that the revaluation method provides a
more accurate account of our asset base, especially for assets that we have owned for a long period of time. To
the extent the fair value of these assets increase or decrease in the future, the impact thereof will be reflected
in the carrying value of such assets and within our equity base and can be included in determining net asset
value reporting to shareholders. The use of the revaluation method increased common equity by $8.0 billion as
at January 1, 2009.
86 Brookfield Asset MAnAgeMent
Fair value of investment Property
Significant portions of our operating assets are considered investment properties under IAS 40, Investment
Property (“IAS 40”). Investment property includes land and buildings held primarily to earn rental income or for
capital appreciation or both, rather than for use in the production or supply of goods or for sale in the ordinary
course of business. For IFRS, our commercial properties, commercial development properties, opportunity
investments, higher-and-better use lands within our timber business and certain other assets are classified
as investment property. Similar to Canadian gAAP, investment property is initially measured at cost under
IAS 40. However, subsequent to initial recognition, IFRS requires that an entity choose either the cost or fair
value model to account for its investment property. Under the fair value model changes in fair value are recorded
in net income in the period of change, whereas the cost model is similar to the accounting for such assets
under Canadian gAAP (i.e. the application of depreciation). We have chosen the fair value model to account
for investment property under IFRS. This choice reflects our belief that our portfolio of properties generally
fluctuates in value as opposed to depreciating in a prescribed manner and because the fair value of investment
property can be determined with a reasonable degree of accuracy this policy provides better information as
to our asset base and of our performance in respect of the value of our portfolio of investment properties over
time. We determined the fair value of investment property at January 1, 2009 to be approximately $1.2 billion
greater than the carrying value under Canadian gAAP, net of intangible assets and straight-line rent recorded
under Canadian gAAP. To the extent the fair value of properties increases or decreases in the future, net
income will be correspondingly affected in the period of change offset by a related charge in deferred tax.
Timber
Under IFRS standing timber is considered a biological asset under IAS 41 Agriculture (“IAS 41”) and is recorded
at net fair value which is fair value less estimated costs to sell. Other fixed assets within our timber business
are recorded separately as property, plant and equipment or investment property. Changes in fair value or costs
to sell after initial recognition are recognized in net income in the period in which the change arises.
Financial instruments
The transition to IFRS has resulted in certain presentation and measurement differences for various financial
instruments, the most significant of which relate to securities with redemption features held by non-controlling
interests and available-for-sale equity securities not traded in an active market. The company’s Canadian
Renewable Power Fund is an open-ended mutual fund trust and accordingly its units provide for a redemption
feature allowing holders to redeem their units from the Fund for an amount based on the market price of the
units. Under IFRS, the units held by others are presented as interests of others in funds outside of equity and
are measured at their redemption amount with changes in the redemption amount recorded in net income in
the period of the change. At January 1, 2009, December 31, 2009 and December 31, 2010 the amount of non-
controlling interest recorded outside of shareholders’ equity related to these units was $0.5 billion, $1.0 billion,
and $1.6 billion, respectively. To the extent the traded price of units increases or decreases, we will recognize a
loss or gain, respectively, in net income.
Additionally, under Canadian gAAP certain securities held by the Company that were not traded in an active
market were measured at cost. Under IFRS these securities are carried at their estimated fair value with
changes in fair value recorded in net income in the period of change. This difference resulted in an increase
to shareholders’ equity at January 1, 2009 and December 31, 2009 of $0.3 billion and $0.4 billion, respectively.
Deconsolidation of certain entities and Joint ventures
Our transition to IFRS impacted the basis for which we accounted for certain entities that for Canadian
gAAP we either consolidated or equity accounted. Under Canadian gAAP we determined whether we should
consolidate an entity using two different frameworks: the variable interest entity (“VIE”) and voting control
models. Under IFRS there is no concept of a VIE. We consolidate an entity only if it is determined to be controlled
by us and if we obtain a benefit from that control. Control is defined as the power to govern the financial and
operating policies of an entity to obtain benefit. Control is presumed to exist when the parent owns, directly or
indirectly through subsidiaries, more than one half of an entity’s voting power, but also exists when the parent
owns half or less of the voting power but has legal or contractual rights to control, or de facto control.
2010 AnnUAl report 87
Furthermore, IAS 31 Interests in Joint Ventures (“IAS 31”) allows an entity to choose whether it will
proportionately consolidate or equity account joint ventures in entities over which we have joint control. Under
Canadian gAAP we proportionately consolidated these joint ventures, however, for IFRS we equity account
our interests. The changes described above do not impact our common equity or net income attributable to
common shareholders.
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.
aSSeSSmenT anD changeS in inTeRnaL cOnTROL OveR FinanciaL RePORTing
Management has evaluated the effectiveness of the company’s internal control over financial reporting. Refer
to Management’s Report on Internal Control over Financial Reporting. There have been no changes in our
internal control over financial reporting during the year ended December 31, 2010 that have materially affected,
or are reasonably likely to materially affect, the internal control over financial reporting.
DiScLOSuRe cOnTROLS
Management, including the Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness
of our disclosure controls and procedures (as defined in the Canadian Securities Administrators National
Instrument 52-109). Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded
that such disclosure controls and procedures were effective as of December 31, 2010 in providing reasonable
assurance that material information relating to the company and the consolidated subsidiaries would be made
known to them within those entities.
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; effectiveness of financial hedges for accounting purposes; and fair values for
recognition, measurement and 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 Strategy, Environment and Risks section of this report. 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 2 to the Consolidated Financial Statements and International Financial
Reporting Standards as described above.
88 Brookfield Asset MAnAgeMent
FuTuRe changeS in accOunTing POLicieS
i. Financial instruments
IFRS 9 Financial instruments (“IFRS 9”) was issued by the IASB on November 12, 2009 and will replace
IAS 39 Financial Instruments: Recognition and Measurement (“IAS 39”). IFRS 9 uses a single approach to
determine whether a financial asset is measured at amortized cost or fair value, replacing the multiple
rules in IAS 39. The approach in IFRS 9 is based on how an entity manages its financial instruments
in the context of its business model and the contractual cash flow characteristics of the financial assets.
The new standard also requires a single impairment method to be used, replacing the multiple impairment
methods in IAS 39. IFRS 9 is effective for annual periods beginning on or after January 1, 2013. The company
has not yet determined the impact of IFRS 9 on its financial statements.
ii. Related Party Disclosures
On November 4, 2009 the IASB issued a revised version of IAS 24 Related Party Disclosures (“IAS 24”).
IAS 24 requires entities to disclose in their financial statements information about transactions with related
parties. generally, two parties are related to each other if one party controls, or significantly influences, the
other party. IAS 24 has simplified the definition of a related party and removed certain of the disclosures
required by the predecessor standard. The revised standard is effective for annual periods beginning on
or after January 1, 2011. The company has not yet determined the impact of the change to IAS 24 on its
financial statements.
iii. income Taxes
In December 2010, the IASB made amendments to IAS 12, Income Taxes (“IAS 12”) that are applicable to
the measurement of deferred tax liabilities and deferred tax assets where investment property is measured
using the fair value model in IAS 40, Investment Property. The amendments introduce a rebuttable
presumption that an investment property is recovered entirely through sale. This presumption is rebutted
if the investment property is held within a business model whose objective is to consume substantially all
of the economic benefits embodied in the investment property over time, rather than through sale. The
amendments to IAS 12 are effective for annual periods beginning on or after January 1, 2012. The company
has not yet determined the impact of the amendments to IAS 12 on its financial statements.
2010 AnnUAl report 89
quaRTeRLy ReSuLTS
Total revenues, net income (loss) for the eight recently completed quarters are as follows:
(Millions)
Total revenues
Fees earned
revenues less direct operating costs
renewable power
Commercial properties
infrastructure
development
private equity and finance
equity accounted income
investment and other income
expenses
interest
operating costs
Current income taxes
non-controlling interest in net
income before the following
income prior to other items
fair value changes
depreciation and amortization
future income taxes
non-controlling interest in
the foregoing items
ifrs
q4
2010
Q3
Q2
Q1
Q4
2009
Q3
Q2
Q1
$ 3,957
$ 3,841
$ 3,081
$ 2,744
$ 3,792
$ 2,844
$ 2,549
$ 2,033
126
188
366
76
169
13
132
85
90
157
337
40
176
90
126
193
78
164
300
58
112
104
121
173
71
239
279
47
70
74
115
142
123
217
344
21
80
21
144
159
1,155
1,209
1,110
1,037
1,109
517
121
13
315
189
1,792
(215)
(10)
(667)
452
94
38
271
354
(54)
(193)
(36)
41
112
$
433
109
25
318
225
(1)
(208)
39
34
89
427
93
21
215
281
128
(179)
(36)
(30)
164
$
395
122
(44)
292
344
279
(173)
(33)
65
141
258
25
12
18
44
190
753
383
87
(2)
136
149
(873)
(161)
177
58
52
208
240
18
74
34
91
187
910
367
91
30
151
271
(887)
(137)
92
211
217
31
(10)
38
74
147
760
335
96
11
90
228
(787)
(185)
51
net income (loss)
$ 1,089
$
(202)
291
319
401
$
215
$
(417)
$
(342)
$
(292)
Cash flows from operations for the eight recently completed quarters are as follows:
(Millions, eXCept per shAre AMoUnts)
income before the following
$
disposition gains
cash flow from operations
and gains
preferred share dividends
cash flow to common
shareholders
$
q4
189
227
416
22
$
2010
Q3
354
—
354
18
Q2
225
102
327
19
$
ifrs
Q1
281
85
366
16
$
Q4
344
21
365
14
$
$
2009
Q3
149
346
495
12
Q2
271
23
294
9
$
Q1
228
20
248
8
$
394
$
336
$
308
$
350
$
351
$
483
$
285
$
240
common equity – book value
$ 12,795
$ 12,222
$ 11,695
$ 12,055
$ 11,809
$ 11,760
$ 11,580
$ 10,962
common shares outstanding
577.6
576.1
574.9
574.0
572.9
572.1
572.0
571.8
Per common share
Cash flow from operations
$
net income (loss)
dividends
Book value1
Market trading price (nYse)
0.67
1.80
0.13
22.09
33.29
$
0.57
0.16
0.13
21.15
28.37
$
0.53
0.12
0.13
20.29
22.62
$
0.60
0.25
0.13
20.93
25.42
$
0.60
0.35
0.13
20.47
22.18
$
0.83
$
0.49
$
0.42
(0.75)
0.13
20.38
22.71
(0.62)
0.13
20.02
17.07
(0.52)
0.13
18.93
13.78
1.
excludes dilution from capital securities which the Company intends to redeem prior to conversion
90 Brookfield Asset MAnAgeMent
The company’s quarterly operating cash flows and net income are impacted by seasonality from certain of its
operating platforms, mark-to-market adjustments of the company’s commercial properties and timber assets,
as well as financial assets which are recorded at fair value. The quarterly variances in our operating platforms,
including variances between the fourth quarter of 2010 and 2009, reflect the following:
Our renewable power generation operations are impacted by seasonal water inflows and pricing. During the
fall rainy season and spring thaw, water inflows tend to be the highest leading to higher generation; however
prices tend not to be as strong as the summer and winter seasons due to the more moderate weather conditions
during the fall and spring and associated reductions in demand for electricity. Net operating income decreased
by $29 million in the fourth quarter of 2010 compared to the same period in 2009 as a result of lower hydrology
in some of our higher priced markets.
Commercial properties tend to produce consistent results due to the long-term nature of the contractual lease
arrangements subject to the intermittent recognition of disposition and lease termination gains as was the
case in the third and fourth quarter of 2010 and the fourth quarter of 2009. The increased level of net operating
cash flow in the fourth quarter of 2010 is the result of a $57 million gain recognized on the disposition of certain
of the company’s non-core North American assets, whereas the fourth quarter of 2009 included $27 million of
lease termination income.
Infrastructure revenues include the net operating income from our Utilities, Transport and Energy, and Timber
operations. Our Utilities, Transport and Energy operations increased over the prior year as a result of our
increased ownership of a global portfolio of infrastructure businesses in the fourth quarter of 2009 and a
follow-on acquisition of the remaining interests in the fourth quarter of 2010.
The company’s residential operations are included in development operations and tend to be seasonal in
nature, with the fourth quarter typically the strongest as most of the construction is completed and homes are
delivered. The company’s residential operations recognize revenue at the time of delivery, as opposed to over
the life of the project, and as a result, operating income varies depending on the number of projects completed
in a particular quarter. This can have a noticeable impact on the results from our Brazilian operations which
involve the development of multi-unit condominium buildings as opposed to single-family dwellings. The higher
amount of income in the fourth quarter of 2010 in comparison to the same period in the prior year is a result
of the higher amount of sales and deliveries in the company’s Canadian and Brazilian residential operations.
Our private equity and finance operations results tend to fluctuate on a quarterly basis as a result of certain of
the underlying investments having seasonal operations as well as the timing of acquisitions and dispositions
of operations.
Other variances on a quarterly basis include the company’s investment and other income, interest expense
and fair value changes. Investment income varies on a quarterly basis depending on mark-to-market gains as
well as the timing of recognition of certain disposition gains. The increase in interest expense in the current
quarter is a result of the consolidation of a number of infrastructure businesses as well as an increase in
interest payments on a higher amount of debt issued and outstanding, albeit at lower interest rates. Fair value
changes include the non-cash mark-to-market of the company’s commercial property, timber assets and power
sales contracts, in addition to the fair value changes of certain of the company’s other financial liabilities.
Fair value adjustments in the current quarter include the following: an $846 million gain on commercial
property valuations, primarily the result of decreased discount rates; a $405 million gain on the revaluation
of the underlying assets on completion of the Prime Acquisition and a $476 million gain on the revaluation of
the company’s power contracts.
2010 AnnUAl report 91
InTERnAL COnTROL OvER FInAnCIAL REPORTIng
Management’s report on internal Control over financial reporting
Brookfield’s internal control over financial reporting
as of December 31, 2010, has been audited by Deloitte
Independent Registered Chartered
& Touche LLP
Accountants, who also audited Brookfield’s consolidated
financial statements for the year ended December 31,
2010. As stated in the Report of Independent Registered
Chartered Accountants, Deloitte & Touche LLP
expressed an unqualified opinion on the effectiveness of
Brookfield’s internal control over financial reporting as
of December 31, 2010.
Toronto, Canada J. Bruce Flatt
Brian D. Lawson
March 23, 2011
Chief Executive Officer Chief Financial Officer
is responsible
Inc.
Management of Brookfield Asset Management
(“Brookfield”)
for establishing and
maintaining adequate internal control over financial
reporting. Internal control over financial reporting is a
process designed by, or under the supervision of, the
Chief Executive Officer and the Chief Financial Officer
and effected by the Board of Directors, management and
other personnel
to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes
in accordance with generally accepted accounting
principles as defined in Regulation 240.13a-15(f) or
240.15d-15(f).
financial
Management assessed the effectiveness of Brookfield’s
reporting as of
internal control over
December 31, 2010, based on the criteria set forth in
Internal Control – Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway
Commission. Based on this assessment, management
believes that, as of December 31, 2010, Brookfield’s
internal control over financial reporting is effective in
all material respects. Management excluded from its
assessment the internal control over financial reporting
at Prime Infrastructure and Ainsworth Lumber Co., which
were acquired during 2010, and whose total assets, net
assets, total revenues, and net income on a combined
basis constitute approximately 11%, 10%, 2% and 5%
respectively of the consolidated financial statement
amounts as of and for the year ended December 31, 2010.
92 Brookfield Asset MAnAgeMent
report of independent registered Chartered Accountants
necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles,
and that receipts and expenditures of the company are
being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition
of the company’s assets that could have a material effect
on the financial statements.
Because of the inherent limitations of internal control over
financial reporting, including the possibility of collusion
or improper management override of controls, material
misstatements due to error or fraud may not be prevented
or detected on a timely basis. Also, projections of any
evaluation of the effectiveness of the internal control over
financial reporting to future periods are subject to the
risk that the controls may become inadequate because of
changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting
as of December 31, 2010, based on the criteria established
in Internal Control–Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway
Commission.
We have also audited, in accordance with Canadian
generally accepted auditing standards and the standards of
the Public Company Accounting Oversight Board (United
States), the consolidated financial statements as of and
for the year ended December 31, 2010 of the Company
and our report dated March 23, 2011 expressed an
unqualified opinion on those financial statements.
Toronto, Canada
March 23, 2011
Independent Registered Chartered Accountants
Licensed Public Accountants
To the Board of Directors and Shareholders of Brookfield
Asset Management Inc.
We have audited the internal control over financial reporting
of Brookfield Asset Management Inc. and subsidiaries (the
“Company”) as of December 31, 2010, based on the criteria
established
in Internal Control–Integrated Framework
issued by the Committee of Sponsoring Organizations of
the Treadway Commission. As described in Management’s
Report on Internal Control over Financial Reporting,
management excluded from its assessment the internal
control over financial reporting at Prime Infrastructure and
Ainsworth Lumber Co. (“Ainsworth”) which were acquired
in December 2010 and May 2010, respectively, and whose
financial statements constitute approximately 9% and 1%
of net assets, 10% and 1% of total assets, 1% and 1% of
revenues, and 5% and nil% of net income, respectively,
of the consolidated financial statement amounts as of
and for the year ended December 31, 2010. Accordingly,
our audit did not include the internal control over financial
reporting at Prime Infrastructure and Ainsworth. The
Company’s management is responsible for maintaining
effective internal control over financial reporting and for
its assessment of the effectiveness of internal control
over financial reporting, included in the accompanying
Management’s Report on Internal Control over Financial
Reporting. Our responsibility is to express an opinion on the
Company’s internal control over financial reporting based
on our audit.
We conducted our audit in accordance with the standards
of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting
in all material respects. Our audit
was maintained
included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and
operating effectiveness of internal control based on the
assessed risk, and performing such other procedures as
we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting
is a process designed by, or under the supervision of, the
company’s principal executive and principal financial
officers, or persons performing similar functions, and
effected by the company’s board of directors, management,
and other personnel to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes
in accordance with generally accepted accounting
principles. A company’s internal control over financial
reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as
2010 AnnuAl report 93
Management’s responsibility for the financial statements
is responsible for their
The accompanying consolidated financial statements
and other financial information in this Annual Report
have been prepared by the company’s management
which
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
include 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 the company’s operations. The Chief
Internal Auditor has full access to the Audit Committee.
in conformity with
These consolidated financial statements have been
prepared
International Financial
Reporting Standards and, where appro priate, reflect
estimates based on management’s judgement. 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,
independent registered
the
chartered accountants appointed by the shareholders,
have audited the consolidated financial statements set
out on pages 96 through 153 in accordance with Canadian
generally accepted auditing standards and the standards of
the Public Company Accounting Oversight Board (United
States) to enable them to express to the shareholders their
statements.
financial
opinion on
Their report is set out on the following page.
the consolidated
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 management 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 J. Bruce Flatt
Brian D. Lawson
March 23, 2011
Chief Executive Officer Chief Financial Officer
94 Brookfield Asset MAnAgeMent
report of independent registered Chartered Accountants
Opinion
In our opinion, the consolidated financial statements
present fairly, in all material respects, the financial
position of the Company as at December 31, 2010,
December 31, 2009 and January 1, 2009, and its financial
performance and cash flows for the years ended December
31, 2010 and December 31, 2009 in accordance with
International Financial Reporting Standards as issued by
the International Accounting Standards Board.
Other Matter
We have also audited, in accordance with the standards of
the Public Company Accounting Oversight Board (United
States), the Company’s internal control over financial
reporting as of December 31, 2010, based on the criteria
established in Internal Control – Integrated Framework
issued by the Committee of Sponsoring Organizations
of the Treadway Commission and our report dated
March 23, 2011 expressed an unqualified opinion on the
Company’s internal control over financial reporting.
Toronto, Canada
March 23, 2011
Independent Registered Chartered Accountants
Licensed Public Accountants
To the Board of Directors and Shareholders of Brookfield
Asset Management Inc.
(the “Company”), which comprise
We have audited the accompanying consolidated financial
statements of Brookfield Asset Management Inc. and
subsidiaries
the
consolidated balance sheets as at December 31, 2010,
December 31, 2009 and January 1, 2009, and the consolidated
statements of operations, statements of comprehensive
income, statements of changes in equity and statements
of cash flows for the years ended December 31, 2010 and
December 31, 2009, and the notes to the consolidated
financial statements.
Management’s Responsibility for the Consolidated Financial
Statements
Management is responsible for the preparation and fair
presentation of these consolidated financial statements in
accordance with International Financial Reporting Standards
as issued by the International Accounting Standards Board,
and for such internal control as management determines is
necessary to enable the preparation of consolidated financial
statements that are free from material misstatement,
whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with Canadian
generally accepted auditing standards and the standards
of the Public Company Accounting Oversight Board
(United States). Those standards require that we comply
with ethical requirements and plan and perform the
audit to obtain reasonable assurance about whether
the consolidated financial statements are free from
material misstatement.
An audit
involves performing procedures to obtain
audit evidence about the amounts and disclosures in
the consolidated financial statements. The procedures
selected depend on the auditor’s judgement, including
the assessment of the risks of material misstatement of the
consolidated financial statements, whether due to fraud
or error. In making those risk assessments, the auditor
considers internal control relevant to the entity’s preparation
the consolidated financial
and
statements in order to design audit procedures that are
appropriate in the circumstances. An audit also includes
evaluating the appropriateness of accounting policies used
and the reasonableness of accounting estimates made by
management, as well as evaluating the overall presentation
of the consolidated financial statements.
fair presentation of
We believe that the audit evidence we have obtained in our
audits is sufficient and appropriate to provide a basis for
our audit opinion.
2010 AnnuAl report 95
Consolidated financial statements
CONSOLIDATED BALANCE SHEETS
(Millions)
Assets
Cash and cash equivalents
other financial assets
Accounts receivable and other
inventory
investments
property, plant and equipment
investment properties
timber
intangible assets
goodwill
deferred income tax asset
Liabilities and Equity
Accounts payable and other
Corporate borrowings
non-recourse borrowings
property-specific mortgages
subsidiary borrowings
deferred income tax liability
Capital securities
interests of others in funds
equity
preferred equity
non-controlling interests
Common equity
1.
refer to note 3 for the effects of the adoption of ifrs
On behalf of the Board:
note
Dec. 31, 2010
dec. 31, 20091
Jan. 1, 20091
$
1,713
$
1,309
$
1,169
5
6
7
8
9
10
11
12
13
14
15
16
17
17
14
18
19
20
20
20
4,419
7,869
5,849
6,629
18,148
22,163
3,206
3,805
2,546
1,784
5,146
4,709
5,560
4,466
16,723
19,219
2,968
1,048
2,363
1,454
4,506
3,803
4,752
4,646
15,597
16,719
2,839
619
1,992
984
$ 78,131
$ 64,965
$ 57,626
$ 10,334
$
7,827
$
6,977
2,905
2,593
2,284
23,454
4,007
4,970
1,707
1,562
1,658
14,739
12,795
29,192
19,712
3,800
5,232
1,641
1,021
1,144
10,186
11,809
23,139
17,808
3,661
4,748
1,425
548
870
8,038
11,267
20,175
$ 78,131
$ 64,965
$ 57,626
Robert J. Harding, FCA, Director
Marcel R. Coutu, Director
96 Brookfield Asset MAnAgeMent
CONSOLIDATED STATEMENTS OF OPERATIONS
YeArs ended deCeMBer 31
(Millions, eXCept per sHAre AMounts)
total revenues
Asset management and other services
revenues less direct operating costs
renewable power generation
Commercial properties
infrastructure
development activities
private equity and finance
equity accounted income
investment and other income
expenses
interest
operating costs
Current income taxes
other items
fair value changes
depreciation and amortization
deferred income tax
net income (loss)
1.
refer to note 3 for the effects of the adoption of ifrs
net income (loss) attributable to:
Common shareholders
non-controlling interests
net income (loss) per common share:
diluted
Basic
note
2010
20091
$ 13,623
$ 11,218
21
21
21
21
21
21
14
22
14
365
748
1,282
221
527
281
3,424
494
593
4,511
1,829
417
97
2,168
1,865
(795)
(43)
298
777
1,059
95
156
111
2,496
353
683
3,532
1,480
396
(5)
1,661
(2,268)
(656)
287
$
3,195
$
(976)
$
1,454
$
(836)
1,741
(140)
$
3,195
$
(976)
20
20
$
$
2.33
2.40
$
$
(1.54)
(1.54)
2010 AnnuAl report 97
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
YeArs ended deCeMBer 31
(Millions)
net income (loss)
other comprehensive income
foreign currency translation
Available-for-sale securities
derivative instruments designated as cash flow hedges
revaluations of property, plant and equipment
equity accounted investments
taxes on above items
Comprehensive income
Attributable to:
Common shareholders
net income (loss)
other comprehensive (loss) income
Comprehensive income
non-controlling interests
net income (loss)
other comprehensive income
Comprehensive income
1.
refer to note 3 for the effects of the adoption of ifrs
2010
20091
$
3,195
$
(976)
653
107
(49)
(948)
(16)
448
195
2,212
142
99
(236)
(130)
98
2,185
$
3,390
$
1,209
$
1,454
$
(836)
(226)
1,596
$
1,228
$
760
$
1,741
$
(140)
421
$
2,162
$
589
449
98 Brookfield Asset MAnAgeMent
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
YeAr ended deCeMBer 31, 2010
(Millions)
Common
share
Capital
Contributed
surplus
retained
earnings
disposition
gains1
revaluation
surplus
Currency
translation
other
reserves
Common
equity
preferred
equity
non-
controlling
interests total equity
Balance as at december 31, 2009
$ 1,289 $
67 $ 3,560 $
117 $ 5,193 $ 1,623 $
(40) $ 11,809 $ 1,144 $ 10,186 $ 23,139
Accumulated other Comprehensive income
prior to: deferred income taxes, net
—
1,289
Changes in period
Net income
income and disposition gains
prior to other items
depreciation and
amortization
fair value changes
less: disposition gains1
Associated deferred income
taxes
Other comprehensive income
fair value changes
Currency translation
Associated deferred income
taxes
Shareholder distributions
Common equity
preferred equity
non-controlling interests
Other items
equity issuances, net of
redemptions
share-based compensation
Acquisitions / dispositions
Associated deferred income
taxes
Reversal of in-period income
taxes
—
—
—
—
—
—
—
—
—
—
—
—
—
—
45
—
—
—
45
—
less: deferred income taxes, net
opening balances
in-period amounts
ending balances
1,334
—
—
—
—
67
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
30
—
—
30
—
97
—
—
—
295
3,855
—
117
2,352
7,545
119
1,742
29
2,795
—
983
3,778
(11)
14,604
1,144
11,169
26,917
1,049
414
(693)
1,129
—
—
—
(414)
(31)
1,454
—
—
—
—
(298)
(75)
—
(373)
(14)
—
—
—
(14)
—
—
—
—
—
—
—
—
—
—
—
—
(162)
232
70
—
—
—
—
—
—
(952)
—
439
(513)
—
—
—
—
—
—
—
—
—
31
4,953
(232)
(45)
(439)
6,593
—
—
—
—
—
—
—
276
31
307
—
—
—
—
—
—
75
(75)
—
44
—
—
—
—
—
—
(3)
—
(17)
(20)
—
—
—
—
—
—
—
—
—
17
1,463
(693)
1,129
(414)
(31)
1,454
(955)
276
453
(226)
(298)
(75)
—
(373)
31
30
(87)
157
131
(579)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
514
—
—
—
514
—
1,119
2,582
(102)
736
—
(795)
1,865
(414)
(12)
(43)
1,741
3,195
49
377
(5)
421
—
—
(444)
(444)
(906)
653
448
195
(298)
(75)
(444)
(817)
1,121
1,666
16
46
1,668
1,581
30
2,835
187
3,480
(13)
(592)
2,093
(14)
15,011
1,658
15,709
32,378
(295)
(31)
(326)
— (2,352)
232
232
439
(1,913)
(119)
(44)
(163)
(29)
(17)
(46)
(2,795)
579
(2,216)
—
—
—
(983)
(3,778)
13
592
(970)
(3,186)
Balance as at december 31, 2010
$ 1,334 $
97 $ 4,627 $
187 $ 4,680 $ 1,930 $
(60) $ 12,795 $ 1,658 $ 14,739 $ 29,192
1. disposition gains not recognized in net income under ifrs
refer to note 3 for the effects of the adoption of ifrs
2.
2010 AnnuAl report 99
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
YeAr ended deCeMBer 31, 2009
(Millions)
Common
share
Capital
Contributed
surplus
retained
earnings
disposition
gains1
revaluation
surplus
Currency
translation
other
reserves
Common
equity
preferred
equity
non-
controlling
interests total equity
Balance as at January 1, 2009
$ 1,278 $
49 $ 4,760 $ — $ 5,327 $ — $ (147) $ 11,267 $
870 $ 8,038 $ 20,175
Accumulated other Comprehensive income
270
5,030
—
—
2,446
7,773
992
410
(573)
— (1,502)
—
—
—
(410)
prior to: deferred income taxes, net
—
1,278
Changes in period
Net income
income and disposition gains
prior to other items
depreciation and
amortization
fair value changes
less: disposition gains1
Associated deferred income
taxes
Other comprehensive income
fair value changes
Currency translation
Associated deferred income
taxes
Shareholder distributions
Common equity
preferred equity
non-controlling interests
Other items
equity issuances, net of
redemptions
share-based compensation
Acquisitions / dispositions
Associated deferred income
taxes
Reversal of in-period income
taxes
—
—
—
—
—
—
—
—
—
—
—
—
—
—
11
—
—
—
11
—
less: deferred income taxes, net
opening balances
in-period amounts
ending balances
1,289
—
—
—
—
49
—
—
—
—
—
—
—
—
—
—
—
—
—
—
18
—
—
18
—
67
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
389
(272)
117
272
389
247
(836)
—
—
—
—
(298)
(43)
—
(341)
(23)
—
—
—
(23)
(247)
3,583
(270)
247
(23)
—
—
—
—
—
—
—
—
—
1,612
11
—
—
—
—
—
—
(228)
—
94
(134)
1,623
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
130
(130)
—
(94)
7,545
119
1,742
16
2,732
(131)
13,999
—
870
1,032
9,070
3,764
23,939
—
—
1,402
(573)
— (1,502)
—
—
—
120
—
(13)
107
—
—
—
—
—
—
—
—
—
13
(410)
247
(836)
(108)
1,612
92
1,596
(298)
(43)
—
(341)
(12)
18
519
(402)
123
63
—
—
—
—
—
—
—
—
—
—
—
—
—
—
274
—
—
—
274
—
669
2,071
(83)
(656)
(766)
(2,268)
—
40
(140)
(17)
600
6
589
—
—
(277)
(277)
(410)
287
(976)
(125)
2,212
98
2,185
(298)
(43)
(277)
(618)
1,909
2,171
16
48
3
1,976
34
567
(399)
2,373
(49)
14
(11)
14,604
1,144
11,169
26,917
— (2,446)
(272)
(272)
94
(2,352)
—
(119)
(119)
(16)
(13)
(29)
(2,732)
— (1,032)
(3,764)
(63)
(2,795)
—
—
49
(14)
(983)
(3,778)
Balance as at december 31, 2009
$ 1,289 $
67 $ 3,560 $
117 $ 5,193 $ 1,623 $
(40) $ 11,809 $ 1,144 $ 10,186 $ 23,139
1. disposition gains not recognized in net income under ifrs
refer to note 3 for the effects of the adoption of ifrs
2.
100 Brookfield Asset MAnAgeMent
CONSOLIDATED STATEMENTS OF CASH FLOWS
YeArs ended deCeMBer 31
(Millions)
operating activities
net income (loss)
Adjusted for the following items
fair value changes
depreciation and amortization
deferred income taxes
net change in non-cash working capital balances and other
financing activities
Corporate borrowings, net of repayments
property-specific mortgages, net of issuances
other debt of subsidiaries, net of issuances
Capital provided by non-controlling interests, net of repayments
Capital provided by fund partners
Corporate preferred equity issuances
subsidiary preferred equity issuances
Common shares issued, net of repurchases
Common shares of subsidiaries issued, net of repurchases
shareholder distributions – subsidiaries
shareholder distributions – corporate
investing activities
investment in or sale of operating assets, net
investment properties
property, plant and equipment
renewable power generation
infrastructure
private equity and finance
timber
investments
other financial assets
restricted cash and deposits
Acquisition of subsidiaries, net of dispositions
Cash and cash equivalents
Balance, beginning of year
increase
Balance, end of year
1.
refer to note 3 for the effects of the adoption of ifrs
note
2010
20091
$
3,195
$
(976)
(1,865)
795
43
2,168
(714)
1,454
234
(314)
(360)
327
445
500
782
45
12
(444)
(373)
854
(621)
(348)
11
(131)
(67)
(442)
(391)
(133)
218
2,268
656
(287)
1,661
(540)
1,121
106
(571)
(359)
303
478
266
261
(4)
1,345
(277)
(341)
1,207
(543)
(164)
(7)
(199)
(44)
(859)
(108)
(205)
(59)
29
29
29
29
29
29
29
29
29
29
(1,904)
(2,188)
1,309
404
1,169
140
29
$
1,713
$
1,309
2010 AnnuAl report 101
notes to the Consolidated financial statements
1.
CORPORATE INFORMATION
Brookfield Asset Management Inc. (the “company”) is a global asset management company. Focused on
property, power and infrastructure assets, the company is listed on the new York, Toronto and Euronext stock
exchanges under the symbols BAM, BAM.A and BAMA, respectively. The company was formed by articles
of amalgamation under the Business Corporations Act (Ontario) and is registered in Ontario, Canada. The
registered office of the company is Brookfield Place, 181 Bay Street, Suite 300, Toronto, Ontario, M5J 2T3.
2.
SIGNIFICANT ACCOUNTING POLICIES
(a) Statement of Compliance
These consolidated financial statements represent the first annual financial statements of the company
prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International
Accounting Standards Board (“IASB”). The company adopted IFRS in accordance with IFRS 1, “First-time
Adoption of International Financial Reporting Standards” (“IFRS 1”) as discussed in note 3.
These financial statements were authorized for issuance by the Board of Directors of the company on
March 23, 2011.
(b) Basis of Presentation
The financial statements are prepared on a going concern basis. Standards and guidelines not effective for the
current accounting period are described in note 2(q).
Subsidiaries
(i)
The consolidated financial statements include the accounts of the company and its consolidated subsidiaries,
which are the entities over which the company has control. Subsidiaries are consolidated from the date of
acquisition, being the date on which the company obtains control, and continue to be consolidated until the
date when control is lost. Control exists when the company has the power, directly or indirectly, to govern
the financial and operating policies of an entity so as to obtain benefit from its activities. non-controlling
interests in the equity of the company’s subsidiaries are included in equity on the Consolidated Balance Sheets.
All intercompany balances, transactions, unrealized gains and losses are eliminated in full.
Associates
(ii)
Associates are entities over which the company has significant influence. Significant influence is the power to
participate in the financial and operating policy decisions of the investee but is not control or joint control over
those policies. The company accounts for investments over which it has significant influence using the equity
method, and they are recorded in Investments on the Consolidated Balance Sheets.
Interests in investments accounted for using the equity method are initially recognized at cost. If the cost of
the associate is lower than the proportionate share of the investment’s underlying fair value, the company
records a gain on the difference between the cost and the underlying fair value of the investment in net income.
If the cost of the associate is greater than the company’s proportionate share of the underlying fair value,
goodwill relating to the associate is included in the carrying amount of the investment. Subsequent to initial
recognition, the carrying value of the company’s interest in an investee is adjusted for the company’s share of
comprehensive income and distributions of the investee.
Joint Arrangements
(iii)
The company enters into joint arrangements with one or more parties whereby economic activity and decision-
making are shared. These arrangements may take the form of a jointly controlled operation, jointly controlled
asset or joint venture and accordingly the presentation of each differs.
A jointly controlled operation is where the parties to the joint arrangement each use their own assets and incur
their own expenses and liabilities and a contractual agreement exists as to the sharing of revenues and joint
expenses. In this case, the company recognizes only its assets and liabilities and its share of the results of
operations of the jointly controlled operation.
102 Brookfield Asset MAnAgeMent
A jointly controlled asset is a shared asset to which each party has rights and a contractual agreement exists
as to the sharing of benefits and risks generated from the asset. The company recognizes its share of the asset
and benefits generated from the asset in proportion to its rights.
A joint venture is an arrangement whereby each venturer does not have rights to individual assets or obligations
for expenses of the venture, but where each venturer is entitled to a share of the outcome of the activities of
the arrangement. The company accounts for its interests in joint ventures using the equity method and they are
recorded in the Investments account on the Consolidated Balance Sheets.
(c) Foreign Currency Translation
The U.S. dollar is the functional and presentation currency of the company. Each of the company’s subsidiaries,
associates and jointly controlled entities determines its own functional currency and items included in the
financial statements of each subsidiary and associate are measured using that functional currency.
Assets and liabilities of foreign operations having a functional currency other than the U.S. dollar are translated
at the rate of exchange prevailing at the reporting date and revenues and expenses at average rates during the
period. gains or losses on translation are included as a component of equity. On disposal of a foreign operation,
the component of other comprehensive income relating to that foreign operation is reclassified to net income.
gains or losses on foreign currency denominated balances and transactions that are designated as hedges of
net investments in these operations are reported in the same manner.
Foreign currency denominated monetary assets and liabilities of the company and its U.S. dollar functional
currency subsidiaries are translated using the rate of exchange prevailing at the reporting date and non-
monetary assets and liabilities measured at fair value are translated at the rate of exchange prevailing at
the date when the fair value was determined. Revenues and expenses are measured at average rates
during the period. gains or losses on translation of these items are included in net income. gains or losses
on transactions which hedge these items are also included in net income. Foreign currency denominated
non-monetary assets and liabilities, measured at historic cost, are translated at the rate of exchange at the
transaction date.
(d) Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, demand deposits and highly liquid short-term investments
with original maturities of three months or less.
(e) Revaluation Method for Property, Plant and Equipment
For certain classes of property, plant and equipment, as described below, the company uses the revaluation
method of accounting. Property, plant and equipment measured using the revaluation method is initially
measured at cost and subsequently carried at its revalued amount, being the fair value at the date of the
revaluation less any subsequent accumulated depreciation and any accumulated impairment losses.
Revaluations are made on an annual basis to ensure that the carrying amount does not differ significantly
from fair value. Where the carrying amount of an asset is increased as a result of a revaluation, the increase
is recognized in other comprehensive income and accumulated in equity in revaluation surplus, unless the
increase reverses a previously recognized impairment recorded through net income, in which case that portion
of the increase is recognized in net income. Where the carrying amount of an asset is decreased, the decrease
is recognized in other comprehensive income to the extent of any balance existing in revaluation surplus in
respect of the asset, with the remainder of the decrease recognized in net income.
(f) Operating Assets
Renewable Power Generation
(i)
Renewable power generating assets are classified as property, plant and equipment and are accounted for
using the revaluation method. The company determines the fair value of its renewable power generation
assets using a discounted cash flow model, which includes estimates of forecasted revenue, operating costs,
maintenance and other capital expenditures. Discount rates are selected for each facility giving consideration
to the expected proportion of contracted to un-contracted revenue and markets into which power is sold.
2010 AnnuAl report 103
generally, the first twenty years of cash flow are discounted with a residual value based on the terminal
value cash flows. The fair value and estimated remaining service lives are reassessed on an annual basis. The
company uses external appraisers to review fair values of our renewable power generating assets on a rotating
basis every three to five years.
Depreciation on power generating assets is calculated on a straight-line basis over the estimated service lives
of the assets, which are as follows:
(YeArs)
dams
penstocks
powerhouses
generators
other power generation assets
useful lives
up to 115
up to 60
up to 115
up to 115
up to 40
Cost is allocated to significant components of power generating assets and each component is depreciated
separately.
Renewable power generating assets under development are initially recorded at cost, including pre-development
expenditures, unless an impairment is identified requiring a write-down to estimated fair value.
Investment Properties
(ii)
The company uses the fair value method to account for real estate classified as investment property. A property
is determined to be an investment property when it is principally held to earn rental income or for capital
appreciation, or both. Investment property also includes properties that are under development for future use as
investment property. Investment property is initially measured at cost including transaction costs. Subsequent
to initial recognition, investment properties are carried at fair value. gains or losses arising from changes in fair
value are included in net income during the period in which they arise. Fair values are primarily determined by
discounting the expected future cash flows of each property, generally over a term of 10 years, using a discount
and terminal capitalization rate reflective of the characteristics, location and market of each property. The
future cash flows of each property are based upon, among other things, rental income from current leases and
assumptions about rental income from future leases reflecting current conditions, less future cash outflows
relating to such current and future leases. The company determines fair value using both internal and external
valuations.
(iii) Timber
Standing timber is measured at fair value after deducting estimated selling costs and is recorded as Timber on
the Consolidated Balance Sheets. Estimated selling costs include commissions, levies, delivery costs, transfer
taxes and duties. The fair value of standing timber is calculated as the present value of anticipated future
cash flows for standing timber before tax. Fair value is determined based on existing, sustainable felling plans
and assessments regarding growth, timber prices and felling and silviculture costs. Changes in fair value are
recorded in net income in the period of change. The company determines fair value using external valuations
on an annual basis.
Harvested timber is included in inventory and is measured at the lower of fair value less estimated costs to sell
at the time of harvest and net realizable value.
Land under standing timber is accounted for using the revaluation method and included in property, plant and
equipment.
(iv) Utilities and Transport and Energy
Utilities and transport and energy assets classified as property, plant and equipment are accounted for using
the revaluation method. The company determines the fair value of its utilities and transport and energy assets
as their depreciated replacement cost. Depreciated replacement cost is determined as the current cost of
reproduction or replacement of an asset less deductions for physical deterioration and obsolescence. valuations
are performed internally on an annual basis.
104 Brookfield Asset MAnAgeMent
Depreciation on utilities and transport and energy assets is calculated on a straight-line basis over the
estimated service lives of the components of the assets, which are as follows:
(YeArs)
Buildings and infrastructure
Machinery and equipment
other utilities and transport and energy assets
useful lives
up to 50
up to 40
up to 41
The fair value and the estimated remaining service lives are reassessed on an annual basis.
Other Property, Plant and Equipment
(v)
The company accounts for its property, plant and equipment, which do not utilize the revaluation method,
under the cost model. These assets are initially recorded at cost and are subsequently depreciated over the
assets’ useful lives, unless an impairment is identified requiring a write-down to estimated fair value.
(vi) Residential Development
Residential development lots and homes are recorded in inventory. Residential development lots are recorded
at the lower of cost, including pre-development expenditures and capitalized borrowing costs, and net realizable
value, which the company determines as the estimated selling price in the ordinary course of business, less
estimated expenses.
Homes and other properties held for sale, which include properties subject to sale agreements, are recorded
at the lower of cost and net realizable value in inventory. Costs are allocated to the saleable acreage of each
project or subdivision in proportion to the anticipated revenue.
(vii) Other Financial Assets
Other financial assets are classified as either fair value through profit or loss or available-for-sale securities
based on their nature and use within the company’s business. Other financial assets are initially recorded at
fair value with changes in fair value recorded in net income or other comprehensive income in accordance with
the classification.
Other financial assets also include loans and notes receivable which are recorded initially at fair value and, with
the exception of loans and notes receivable designated as fair value through profit or loss, are subsequently
measured at amortized cost using the effective interest method, less any applicable provision for impairment.
A provision for impairment is established when there is objective evidence that the company will not be able to
collect all amounts due according to the original terms of the receivables. Loans and receivables designated as
fair value through profit or loss are recorded at fair value with changes in fair value accounted for in net income
in the period in which they arise.
(g) Asset Impairment
At each balance sheet date the company assesses whether for assets, other than those measured at fair
value with changes in value recorded in net income, there is any indication that such assets are impaired. An
impairment is recognized if the recoverable amount, determined as the higher of the estimated fair value less
costs to sell or the discounted future cash flows generated from use and eventual disposal from an asset or
cash generating unit is less than their carrying value. Impairment losses are recorded as unrealized fair value
adjustments within accumulated depreciation or cost for depreciable and non-depreciable assets, respectively.
The projections of future cash flows take into account the relevant operating plans and management’s best
estimate of the most probable set of conditions anticipated to prevail. Where an impairment loss subsequently
reverses, the carrying amount of the asset or cash generating unit is increased to the lesser of the revised
estimate of recoverable amount and the carrying amount that would have been recorded had no impairment
loss been recognized previously.
(h) Accounts Receivable
Trade receivables are recognized initially at fair value and subsequently measured at amortized cost using the
effective interest method, less any allowance for uncollectability.
2010 AnnuAl report 105
(i)
Intangible Assets
Finite life intangible assets are carried at cost less any accumulated amortization and any accumulated
impairment losses, and are amortized on a straight-line basis over their estimated useful lives, generally not
exceeding 25 years.
Certain of the company’s intangible assets have an indefinite life, as there is no foreseeable limit to the period
over which the asset is expected to generate cash flows. Indefinite life intangible assets are recorded at cost
unless an impairment is identified which requires a write-down to its estimated fair value.
(j) Goodwill
goodwill represents the excess of the price paid for the acquisition of a consolidated entity over the fair value
of the net identifiable tangible and intangible assets and liabilities acquired. goodwill is allocated to the cash
generating unit to which it relates. The company identifies cash generating units as identifiable groups of
assets that are largely independent of the cash inflows from other assets or groups of assets.
goodwill is evaluated for impairment annually or more often if events or circumstances indicate there may be
impairment. Impairment is determined for goodwill by assessing if the carrying value of a cash generating unit,
including the allocated goodwill, exceeds its recoverable amount determined as the greater of the estimated
fair value less costs to sell or the value in use. Impairment losses recognized in respect of a cash generating
unit are first allocated to the carrying value of goodwill and any excess is allocated to the carrying amount of
assets in the cash generating unit. Any goodwill impairment is charged to income in the period in which the
impairment is identified. Impairment losses on goodwill are not subsequently reversed.
(k) Revenue and Expense Recognition
Asset Management Fee Income
(i)
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 at the end of the measurement period established by the
contract where it is no longer subject to adjustment based on future events, and are presented as Asset
Management and Other Services on the Statement of Operations.
Renewable Power Generation
(ii)
Revenue from the sale of electricity is recorded at the time power is provided based upon output delivered and
capacity provided at rates as specified under contract terms or prevailing market rates. Costs of generating
electricity are recorded as incurred.
(iii) Commercial Properties Operations
Revenue from a commercial property is recognized when the property is ready for its intended use. Commercial
properties are considered to be ready for their intended use when the property is capable of operating in the
manner intended by management, which generally occurs upon completion of construction and receipt of all
occupancy and other material permits.
The company has retained substantially all of the risks and benefits of ownership of its investment properties
and therefore accounts for leases with its tenants as operating leases. Revenue recognition under a lease
commences when the tenant has a right to use the leased asset. 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 as a component of investment property 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’ specified 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 significant cash down payment or appropriate security is received.
(iv) Timber
Revenue from timber is derived from the sale of logs and related products. The company recognizes sales to
external customers when the product is shipped, title passes and collectibility is reasonably assured.
106 Brookfield Asset MAnAgeMent
(v) Utilities
Revenue from utilities infrastructure is derived from the distribution and transmission of energy as well as
from the company’s coal terminal. Distribution and transmission revenue is recognized when services are
rendered based upon usage or volume during that period. Terminal infrastructure charges are charged at
set rates per tonne of coal based on each customer’s annual contracted tonnage and is then recognized on a
pro-rata basis each month. The company’s coal terminal also recognizes variable handling charges based on
tonnes of coal shipped through the terminal.
(vi) Transport and Energy
Revenue from transport and energy infrastructure consists primarily of energy distribution income and freight
services revenue. Energy distribution income is recognized when services are provided and are rendered
based upon usage or volume throughput during the period. Freight services revenue is recognized at the time
of the provision of services.
(vii) Development and Construction Activities
Revenue from residential land sales is recognized at the time that the risks and rewards of ownership have
been transferred, which is generally when possession or title passes to the purchaser, all material conditions
of the sales contract have been met, and a significant cash down payment or appropriate security is received.
Revenue from the sale of homes and residential condominium projects is recognized upon completion, when
title passes to the purchaser upon closing and at which time all proceeds are received or collectibility is
reasonably assured.
Revenue from construction contracts is recognized using the percentage-of-completion method once the
outcome of the construction contract can be estimated reliably, in proportion to the stage of completion of
the contract and to the extent to which collectibility is reasonably assured. The stage of completion is measured
by reference to actual costs incurred as a percentage of estimated total costs of each contract. When the
outcome cannot be reliably determined, contract costs are expensed as incurred and no revenue is recorded.
Where it is probable that a loss will arise from a construction contract, the excess of total expected costs over
total expected revenue is recognized as an expense immediately.
(viii) Loans and Notes Receivable
Revenue from loans and notes receivable, less a provision for uncollectible amounts, is recorded on the accrual
basis using the effective interest method.
(l) Derivative Financial Instruments and Hedge Accounting
The company and its subsidiaries selectively utilize derivative financial instruments primarily to manage
financial risks, including interest rate, commodity and foreign exchange risks. Derivative financial instruments
are recorded at fair value determined on a credit adjusted basis. Hedge accounting is applied when the derivative
is designated as a hedge of a specific exposure and there is assurance that it will continue to be effective as
a hedge based on an expectation of offsetting cash flows or fair value. Hedge accounting is discontinued
prospectively when the derivative no longer qualifies as a hedge or the hedging relationship is terminated.
Once discontinued, the cumulative change in fair value of a derivative that was previously recorded in other
comprehensive income by the application of hedge accounting is recognized in net income over the remaining
term of the original hedging relationship. The asset or liability relating to unrealized mark-to-market gains and
losses on derivative financial instruments are recorded in Accounts Receivable and Other or Accounts Payable
and Other, respectively.
Items Classified as Hedges
(i)
Realized and unrealized gains and losses on foreign exchange contracts, designated as hedges of currency
risks relating to a net investment in a subsidiary with a functional currency other than the U.S. dollar are
included in equity and are included in net income in the period in which the subsidiary is disposed of or to the
extent partially disposed and control is not retained. Derivative financial instruments that are designated as
hedges to offset corresponding changes in the fair value of assets and liabilities and cash flows are measured
at estimated fair value with changes in fair value recorded in net income or as a component of equity as
applicable.
Unrealized gains and losses on interest rate contracts designated as hedges of future variable interest
payments are included in equity as a cash flow hedge when the interest rate risk relates to an anticipated
variable interest payment. The periodic exchanges of payments on interest rate swap contracts designated as
2010 AnnuAl report 107
hedges of debt are recorded on an accrual basis as an adjustment to interest expense. The periodic exchanges
of payments on interest rate contracts designated as hedges of future interest payments are amortized into net
income over the term of the corresponding interest payments.
Unrealized gains and losses on electricity contracts designated as cash flow hedges of future power generation
revenue are included in equity as a cash flow hedge. The periodic exchanges of payments on power generation
commodity swap contracts designated as hedges are recorded on a settlement basis as an adjustment to
power generation revenue.
Items Not Classified as Hedges
(ii)
Derivative financial instruments that are not designated as hedges are carried at estimated fair value, and
gains and losses arising from changes in fair value are recognized in net income in the period the changes
occur. 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 together with
the corresponding compensation expense. Realized and unrealized gains on other derivatives not designated
as hedges are recorded in investment and other income.
(m) Income Taxes
Current income tax assets and liabilities are measured at the amount expected to be paid to tax authorities,
net of recoveries based on the tax rates and laws enacted or substantively enacted at the balance sheet date.
Current and deferred income tax relating to items recognized directly in equity are also recognized in equity.
Deferred income tax liabilities are provided for using the liability method on temporary differences between
the tax bases and carrying amounts of assets and liabilities. Deferred income tax assets are recognized for
all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent
that it is probable that deductions, tax credits and tax losses can be utilized. The carrying amount of deferred
income tax assets is reviewed at each balance sheet date and reduced to the extent it is no longer probable
that the income tax assets will be recovered. Deferred income tax assets and liabilities are measured at
the tax rates that are expected to apply to the year when the asset is realized or the liability settled, based on the
tax rates and laws that have been enacted or substantively enacted at the balance sheet date.
(n) Business Combinations
The acquisition of businesses is accounted for using the acquisition method. The cost of the acquisition is
measured at the aggregate of the fair values, at the date of exchange of assets given, liabilities incurred or
assumed, and equity instruments issued in exchange for control of the acquiree. The acquiree’s identifiable
assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 Business
Combinations (“IFRS 3”) are recognized at their fair values at the acquisition date, except for non-current assets
that are classified as held-for-sale in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued
Operations which are recognized and measured at fair value, less costs to sell. The interest of non-controlling
shareholders in the acquiree is initially measured at the non-controlling shareholders’ proportion of the net fair
value of the identifiable assets, liabilities and contingent liabilities recognized.
To the extent the fair value of consideration paid exceeds the fair value of the net identifiable tangible and
intangible assets, the excess is recorded as goodwill. To the extent the fair value of consideration paid is less
than the fair value of net identifiable tangible and intangible assets, the excess is recognized in net income.
Where a business combination is achieved in stages, previously held interests in the acquired entity are
re-measured to fair value at the acquisition date, which is the date control is obtained, and the resulting gain or
loss, if any, is recognized in net income. Amounts arising from interests in the acquiree prior to the acquisition
date that have previously been recognized in other comprehensive income are reclassified to net income.
Changes in the company’s ownership interest of a subsidiary that do not result in a loss of control are accounted
for as equity transactions and are recorded in disposition gains as a component of equity. Acquisition costs are
recorded as an expense in net income as incurred.
(o) Other Items
Capitalized Costs
(i)
Capitalized costs related to assets under development and redevelopment include all eligible 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 that are directly attributable to these assets.
108 Brookfield Asset MAnAgeMent
Borrowing costs are capitalized when such costs are directly attributable to the acquisition, construction or
production of a qualifying asset. A qualifying asset is an asset that takes a substantial period of time to prepare
for its intended use.
(ii) Capital Securities
Capital securities are preferred shares that may be settled by a variable number of the company’s common
shares upon their conversion by the holders or the company. These instruments as well as the related accrued
distributions are classified as liabilities on the Consolidated Balance Sheets. Dividends and yield distributions
on these instruments are recorded as interest expense.
(iii) Share-based Payments
The company and its subsidiaries issue share-based awards to certain employees and non-employee
directors. The cost of equity-settled share-based transactions, comprised of stock-options issued to certain
employees, is determined as the fair value of the options on the grant date using a fair value model. The cost
of stock-options is recognized as each tranche vests and is recorded in contributed surplus as a component of
equity. The cost of cash-settled share-based transactions, comprised of Deferred Share Units and Restricted
Share Units, is measured as the fair value at the grant date, and expensed on a proportionate basis consistent
with the vesting features over the vesting period with the recognition of a corresponding liability. The liability is
measured at each reporting date at fair value with changes in fair value recognized in net income.
(p) Critical Judgements and Estimates
The preparation of financial statements requires management to make critical judgements, estimates and
assumptions that affect the carried amounts of certain assets and liabilities, disclosure of contingent assets
and liabilities and the reported amounts of revenues and expenses recorded during the period. Actual results
could differ from those estimates.
In making estimates and judgements, management relies on external information and observable conditions
where possible, supplemented by internal analysis as required. These estimates and judgements have been
applied in a manner consistent with prior periods and there are no known trends, commitments, events or
uncertainties that we believe will materially affect the methodology or assumptions utilized in making these
estimates and judgements in these financial statements.
The estimates and judgements used in determining the recorded amount for assets and liabilities in the
financial statements include the following:
Investment Property
(i)
The critical assumptions and estimates used when determining the fair value of commercial properties are:
the timing of rental income from future leases reflecting current market conditions, less assumptions of future
cash flows in respect of current and future leases; maintenance and other capital expenditures; discount rates;
terminal capitalization rates; and terminal valuation dates. Commercial properties under development are
recorded at fair value using a discounted cash flow model which includes estimates in respect of the timing
and cost to complete the development. Further information on investment property estimates is provided in
note 10.
Revaluation Method for Property, Plant and Equipment
(ii)
When determining the carrying value of property, plant and equipment using the revaluation method, the
company uses the following critical assumptions and estimates: the timing of forecasted revenues, future sales
prices and margins; future sales volumes; future regulatory rates; maintenance and other capital expenditures;
discount rates; terminal capitalization rates; terminal valuation dates; useful lives; and residual values. Further
information on estimates used in the revaluation method for property, plant and equipment is provided in note 9.
(iii) Timber
The fair value of timber is based on the following critical estimates and assumptions: the timing of forecasted
revenues and timber prices; estimated selling costs; sustainable felling plans; growth assumptions; silviculture
costs; discount rates; terminal capitalization rates; and terminal valuation dates. Further information on
estimates used for timber is provided in note 11.
2010 AnnuAl report 109
Financial Instruments
(iv)
The critical assumptions and estimates used in determining the fair value of financial instruments are: equity
and commodity prices; future interest rates; the relative credit worthiness of the company to its counterparties;
the credit risk of the company’s counterparties relative to the company; estimated future cash flows; discount
rates and volatility utilized in option valuations. Further information on estimates used in determining the
carrying value of financial instruments is provided in notes 5, 23 and 24.
Inventory
(v)
The company estimates the net realizable value of its inventory using estimates and assumptions about future
selling prices and future development costs.
Other critical estimates and judgements utilized in the preparation of the company’s financial statements
are: assessment of net recoverable amounts; net realizable values; depreciation and amortization rates and
useful lives; value of goodwill and intangible assets; ability to utilize tax losses and other tax measurements;
determination of functional currency, and determination of the degree of control that exists in determining
the corresponding accounting basis. Critical estimates and judgements also include the determination of
effectiveness of financial hedges for accounting purposes, the likelihood and timing of anticipated transactions
for hedge accounting; the fair value assets held as collateral and the company’s ability to hold a financial asset
and the selection of accounting policies.
(q) Future Changes in Accounting Policies
Financial instruments
(i)
IFRS 9 Financial instruments (“IFRS 9”) was issued by the IASB on november 12, 2009 and will replace IAS 39
Financial Instruments: Recognition and Measurement (“IAS 39”). IFRS 9 uses a single approach to determine
whether a financial asset is measured at amortized cost or fair value, replacing the multiple rules in IAS 39. The
approach in IFRS 9 is based on how an entity manages its financial instruments in the context of its business
model and the contractual cash flow characteristics of the financial assets. The new standard also requires a
single impairment method to be used, replacing the multiple impairment methods in IAS 39. IFRS 9 is effective
for annual periods beginning on or after January 1, 2013. The company has not yet determined the impact of
IFRS 9 on its financial statements.
Related Party Disclosures
(ii)
On november 4, 2009 the IASB issued a revised version of IAS 24 Related Party Disclosures (“IAS 24”). IAS 24
requires entities to disclose in their financial statements information about transactions with related parties.
generally, two parties are related to each other if one party controls, or significantly influences, the other party.
IAS 24 has simplified the definition of a related party and removed certain of the disclosures required by the
predecessor standard. The revised standard is effective for annual periods beginning on or after January 1,
2011. The company has not yet determined the impact of the change to IAS 24 on its financial statements.
Income Taxes
(iii)
In December 2010, the IASB made amendments to IAS 12 Income Taxes (“IAS 12”) that are applicable to the
measurement of deferred tax liabilities and deferred tax assets where investment property is measured using
the fair value model in IAS 40 Investment Property. The amendments introduce a rebuttable presumption that
an investment property is recovered entirely through sale. This presumption is rebutted if the investment
property is held within a business model whose objective is to consume substantially all of the economic
benefits embodied in the investment property over time, rather than through sale. The amendments to IAS 12
are effective for annual periods beginning on or after January 1, 2012. The company has not yet determined the
impact of the amendments to IAS 12 on its financial statements.
3.
TRANSITION TO IFRS
The company prepared its financial statements in accordance with Canadian generally accepted accounting
principles (“Canadian gAAP”) for all periods up to and including December 31, 2009. These financial statements
for the year ending December 31, 2010 are the company’s first annual financial statements that have been
prepared in accordance with IFRS.
110 Brookfield Asset MAnAgeMent
The company adopted IFRS effective January 1, 2010. The company’s transition date is January 1, 2009 and the
company prepared its opening IFRS balance sheet at that date. These financial statements have been prepared
in accordance with the accounting policies described in note 2. This note explains the impact of the company’s
transition to IFRS.
The company issued its January 1, 2009 and December 31, 2009 transitional IFRS balance sheets and statement
of operations in its March 31, 2010, June 30, 2010, and September 30, 2010 interim reports in anticipation of
adopting IFRS. These financial statements include the final comparative balance sheets and Statement of
Operations which reflect the correction of certain immaterial differences arising from the final selection
of accounting policies and finalization of certain estimates and assumptions. These adjustments resulted in:
a $33 million increase in equity as at January 1, 2009, of which $29 million is attributable to the company’s
common shareholders; a $167 million increase in comprehensive income, of which a decrease of $127 million is
attributable to the company’s common shareholders; and a $105 million decrease in equity as at December 31,
2009, of which $58 million is attributable to the company’s common shareholders.
(a) Elected Exemptions from Full Retrospective Application
These consolidated financial statements have been prepared in accordance with IFRS 1 First-time Adoption of
International Financial Reporting Standards (“IFRS 1”). In doing so, the company has applied certain of the optional
exemptions from full retrospective application of IFRS. The optional exemptions applied are described below.
Business Combinations
(i)
The company has elected to not apply IFRS 3 retrospectively to past business combinations. Accordingly, the
company has not restated business combinations that took place prior to the transition date.
Fair Value or Revaluation as Deemed Cost
(ii)
The company has elected to measure certain items of property, plant and equipment at fair value as at the
transition date or revaluation amounts previously determined under Canadian gAAP and use that amount as
deemed cost as at the transition date.
(iii) Employee Benefits
The company has elected to recognize all cumulative actuarial gains and losses for the company’s employee
benefit plans as at the transition date in opening retained earnings.
(iv) Cumulative Translation Differences
The company has elected to set the previously accumulated cumulative translation account, which is included
in accumulated other comprehensive income in equity, to zero at the transition date. This exemption has been
applied to all subsidiaries.
Share-based Payment Transactions
(v)
IFRS 2 Share-based Payment (“IFRS 2”) only requires recognition of equity instruments in respect of share-
based payment transactions granted by the company prior to the transition date. The company has elected to
apply IFRS 2 to equity instruments granted after november 7, 2002 that have not vested by the transition date.
(b) Mandatory Exceptions to Retrospective Application
In preparing these consolidated financial statements in accordance with IFRS 1 the company has applied
certain mandatory exceptions from full retrospective application of IFRS. The mandatory exceptions
applied from full retrospective application of IFRS are described below.
Hedge Accounting
(i)
Hedging relationships that satisfied the hedge accounting criteria as of the transition date are reflected as
hedges in the company’s results under IFRS. Any derivative not meeting the IAS 39 Financial Instruments:
Recognition and Measurement criteria for hedge accounting was recorded as a non-hedging derivative financial
instrument.
Estimates
(ii)
Hindsight was not used to create or revise estimates and accordingly the estimates previously made by the
company under Canadian gAAP are consistent with their application under IFRS.
2010 AnnuAl report 111
(c) Reconciliation of Equity as Reported Under Canadian GAAP to IFRS
The following is a reconciliation of the company’s equity reported in accordance with Canadian gAAP to its
equity in accordance with IFRS as at the transition date:
(Millions)
As reported under Canadian gAAp – december 31, 2008
reclassification of non-controlling interests to
equity under ifrs
differences increasing (decreasing) reported amount:
revaluations:
revaluation method for property, plant and equipment
investment property
Agricultural assets
fair value as deemed cost
financial instruments
lease accounting
deferred revenue
unrecognized portion of employee benefits
renewable power generation sales
Basis of accounting
deferred income taxes
other
note
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
(ix)
(x)
(xi)
Common
equity
$ 4,911
—
8,000
1,227
237
226
195
(216)
(127)
(168)
(327)
—
(2,701)
10
6,356
preferred
equity
non-controlling
interests
equity
$
870
$ —
$ 5,781
—
—
—
—
—
—
—
—
—
—
—
—
—
—
6,321
6,321
580
2,143
122
13
(133)
(210)
(63)
(56)
(109)
(247)
(312)
(11)
1,717
8,580
3,370
359
239
62
(426)
(190)
(224)
(436)
(247)
(3,013)
(1)
8,073
As reported under ifrs – January 1, 2009
$ 11,267
$
870
$ 8,038
$ 20,175
The following is a reconciliation of the company’s equity reported in accordance with Canadian gAAP to its
equity in accordance with IFRS as at December 31, 2009:
(Millions)
As reported under Canadian gAAp – december 31, 2009
reclassification of non-controlling interests to
equity under ifrs
differences increasing (decreasing) reported amount:
revaluations:
revaluation method for property, plant and equipment
investment property
Agricultural assets
fair value as deemed cost
financial instruments
lease accounting
deferred revenue
unrecognized portion of employee benefits
renewable power generation sales
Basis of accounting
deferred income taxes
other
note
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
(ix)
(x)
(xi)
Common
equity
$ 6,403
—
8,052
745
333
237
(212)
(294)
(109)
(171)
(281)
—
(2,862)
(32)
5,406
preferred
equity
$ 1,144
non-controlling
interests
$ —
equity
$ 7,547
—
—
—
—
—
—
—
—
—
—
—
—
—
—
8,969
8,969
563
1,895
213
(14)
(419)
(270)
(147)
(58)
(94)
(248)
(181)
(23)
1,217
$ 10,186
8,615
2,640
546
223
(631)
(564)
(256)
(229)
(375)
(248)
(3,043)
(55)
6,623
$ 23,139
As reported under ifrs – december 31, 2009
$ 11,809
$ 1,144
Revaluation Method for Property, Plant and Equipment
(i)
Under IFRS the company measures renewable power generation, utilities, and transport and energy assets
at their revalued amount, being the fair value at the date of the revaluation less any subsequent accumulated
depreciation and any accumulated impairment losses whereas for Canadian gAAP the company recorded
such assets at historic cost less accumulated depreciation. The increase in equity relates to the difference
in the fair value of renewable power generation, utilities, and transport and energy assets and their carried
amounts for Canadian gAAP.
112 Brookfield Asset MAnAgeMent
Investment Property
(ii)
The company measures its commercial property and certain other assets as investment property and
records the assets at fair value under IFRS whereas for Canadian gAAP the company recorded such assets
at historic cost less any accumulated amortization. The increase in equity relates to the difference in the fair
value of investment property and its carried amount for Canadian gAAP.
(iii) Agricultural Assets
The company’s standing timber and other agricultural assets are measured at fair value less estimated costs to
sell for IFRS whereas for Canadian gAAP the company recorded such assets at historic cost less accumulated
depletion. The increase in equity relates to the difference in the fair value, less estimated costs to sell, of the
company’s standing timber and other agricultural assets and its carried amounts for Canadian gAAP.
Fair Value as Deemed Cost
(iv)
The majority of the company’s assets are revalued at least annually, however a smaller amount is carried at
historical cost under IFRS. The company elected to measure certain of the assets at fair value that would
otherwise not be revalued and used that amount as deemed cost on transition to IFRS. The increase in equity
relates to the net difference between the fair value used as deemed cost and the carried amounts for Canadian
gAAP. The established deemed cost amount will be amortized to net income over the useful lives of the assets.
The aggregate amount of assets which the company elected to measure at fair value and use that amount as
deemed cost at the transition date was an increase of $239 million which was recorded in the following account
balances on the transitional Consolidated Balance Sheets: an increase of $287 million in property, plant and
equipment and a decrease of $48 million in intangible assets.
Financial Instruments
(v)
Certain equity securities that were measured at historical cost under Canadian gAAP are measured at fair
value for IFRS. Additionally, non-controlling interests of others in the net assets of consolidated subsidiaries
held in the form of equity securities that contain a feature that allows the holder to redeem the instrument
for cash or another financial asset are presented as a liability under IFRS. These liabilities are recorded at fair
value and are included in Interests of others in funds on the Consolidated Balance Sheets. For Canadian gAAP,
these interests were presented within non-controlling interests and measured at the proportionate share of net
assets not owned by the company of such consolidated subsidiaries. The effect on equity of these and other
differences related to financial instruments is as follows:
(Millions)
As at January 1, 2009
fair value of equity securities
interests of others in funds
other
As at december 31, 2009
fair value of equity securities
interests of others in funds
other
Common
equity
non-controlling
interests
equity
$
324
$
25
$
349
(137)
8
(146)
(12)
$
195
$
(133)
$
(283)
(4)
62
$
355
$
51
$
406
(562)
(5)
(459)
(11)
(1,021)
(16)
$
(212)
$
(419)
$
(631)
Lease Accounting
(vi)
Under Canadian gAAP, the company recognized intangible assets and liabilities on the acquisition of commercial
properties related to the difference between the fair value and contracted amounts of in place leases. These
intangible assets and liabilities were amortized into revenue over the life of the underlying leases. As a result
of electing to fair value investment properties under IFRS, as noted in 3(c)(ii), the company derecognized these
intangible assets and liabilities as they are included as a component of the fair value attributable to investment
properties. In addition, rental revenue from operating leases is recognized on a straight-line basis over the
term of the lease for both Canadian gAAP and IFRS. Under IFRS however, rental revenue from operating
leases is determined considering all rentals from the inception of the lease whereas for Canadian gAAP this
determination considered only rental revenues to be received on a prospective basis subsequent to January 1,
2004, the adoption date of this accounting policy for Canadian gAAP purposes.
2010 AnnuAl report 113
(vii) Revenue Recognition
IFRIC 15 Agreements for the Construction of Real Estate provides specific guidance to determine whether
an agreement represents a contract for the construction of real estate or the sale of real property. For both
Canadian gAAP and IFRS construction contracts are measured using the percentage-of-completion method
and sales of real property are recognized in revenue upon completion, when title passes to the purchaser and
the collectibility is reasonably assured. Upon transition to IFRS certain contracts in the company’s Brazilian
development business that were measured for Canadian gAAP using the percentage-of-completion method
were determined to be contracts for the sale of real property under IFRS. Accordingly these contracts are
recognized in revenue upon completion of construction and title transfers to the purchaser under IFRS.
(viii) Employee Benefits
The company elected to recognize all cumulative actuarial gains and losses as at January 1, 2009. Cumulative
actuarial gains and losses that existed at the transition date were recognized in opening retained earnings for
all of the company’s employee benefit plans.
(ix) Renewable Power Generation Sales
Certain power generation sales are recognized on a levelized basis for Canadian gAAP but are recognized on
an accrual basis for IFRS.
Basis of Accounting
(x)
Under Canadian gAAP the conclusion as to whether an entity should be consolidated or not is determined by
using two different frameworks: the variable interest entity framework or voting control model. Under IFRS an
entity is consolidated if it is controlled by the company. Control under IFRS is defined as the power to govern the
financial and operating policies of an entity to obtain benefit and is presumed to exist when the parent controls,
directly or indirectly through subsidiaries, more than one half of an entity’s voting power, but also exists when
the parent owns half or less of the voting power but has legal or contractual rights to control, or de facto
control. The decrease represents the effect of deconsolidating certain of the company’s investments under
IFRS that were previously consolidated under Canadian gAAP, partially offset by the impact of consolidating
certain of the company’s investments under IFRS that were previously deconsolidated.
(xi) Deferred Taxes
The decrease in equity related to deferred taxes reflects the change in temporary differences resulting from
the effect of the IFRS and Canadian gAAP adjustments described.
(d) Reconciliation of Net Income (Loss) as Reported Under Canadian GAAP to IFRS
The following is a reconciliation of the company’s net income reported in accordance with Canadian gAAP to
its net loss in accordance with IFRS for the year ended December 31, 2009:
YeAr ended deCeMBer 31, 2009 (Millions)
net income as reported under Canadian gAAp
Add back: non-controlling interests
differences increasing (decreasing) reported net income:
depreciation of fair value adjustments
investment property
Agricultural assets
financial instruments
lease accounting
revenue recognition
deferred gains
renewable power generation sales
Basis of accounting
deferred income taxes
other
net loss as reported under ifrs
114 Brookfield Asset MAnAgeMent
note
Common equity
non-controlling
interests
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
(ix)
(x)
(xi)
$
454
—
$
—
219
(140)
(596)
(11)
(314)
(63)
(61)
(410)
61
—
234
10
(30)
(415)
(27)
155
(50)
(77)
(9)
15
10
77
(8)
net income
(loss)
$
454
219
(170)
(1,011)
(38)
(159)
(113)
(138)
(419)
76
10
311
2
(1,290)
(359)
(1,649)
$
(836)
$
(140)
$
(976)
Non-controlling Interests
(i)
non-controlling interests are included in the determination of net income under IFRS reported by an entity.
This adjustment adds back non-controlling interests expense to net income as reported under Canadian gAAP.
(ii) Depreciation of Fair Value Adjustments
Certain property, plant and equipment were recorded at fair value on transition at carried values in excess of
their recorded amount under Canadian gAAP. Accordingly, these increased carrying values resulted in a higher
amounts of depreciation during the year.
Investment Property
(iii)
For IFRS the company measures investment property at fair value and records any change in fair value in net
income during the period of change. Under Canadian gAAP commercial property was recorded at historic cost
and depreciated over its estimated useful life. The effect on net income of these differences is as follows:
YeAr ended deCeMBer 31, 2009 (Millions)
Changes in fair value recorded under ifrs
Common equity
non-controlling
interests
net income
(loss)
$ (1,128)
$
(579)
$ (1,707)
depreciation and amortization recorded under Canadian gAAp
532
164
696
$
(596)
$
(415)
$ (1,011)
(iv) Agricultural Assets
For IFRS the company’s standing timber and other agricultural assets are measured at fair value less estimated
cost to sell, with changes in fair value or costs to sell recorded in net income during the period of change. Under
Canadian gAAP, the company recorded such assets at historic cost and charged a depletion amount to net
income based upon harvest levels. Depletion is not recorded under IFRS. The effect on net income of these
differences is as follows:
YeAr ended deCeMBer 31, 2009 (Millions)
Changes in fair value recorded under ifrs
depletion recorded under Canadian gAAp
Common equity
non-controlling
interests
net income
(loss)
$
(53)
$
(90)
$
(143)
42
63
$
(11)
$
(27)
$
105
(38)
Financial Instruments
(v)
Under Canadian gAAP, certain equity securities that were carried at historic cost are recorded at fair value
under IFRS. Furthermore under IFRS, changes in the fair value of the equity securities and interests of others
in funds classified outside of shareholders’ equity is recorded in net income in the period of change. Under
IFRS changes in fair value attributable to changes in foreign currency exchange rates of available-for-sale
debt securities denominated in foreign currencies is recorded in net income whereas for Canadian gAAP this
amount was recorded in other comprehensive income. The following table shows the effect on net income of
these differences:
YeAr ended deCeMBer 31, 2009 (Millions)
fair value of equity securities
investments of others in funds
foreign exchange on debt securities
Common equity
non-controlling
interests
$
(5)
$
(332)
23
50
100
5
net income
(loss)
$
45
(232)
28
$
(314)
$
155
$
(159)
Lease Accounting
(vi)
As described in 3(c)(vi), under IFRS the company derecognized intangible assets and liabilities recognized
on the acquisition of investment property. Under Canadian gAAP, these intangible assets and liabilities were
amortized into revenue. In addition, under IFRS, rental revenue from operating leases is determined considering
all rentals from the inception of the lease whereas for Canadian gAAP this determination considers only rentals
to be received on a prospective basis subsequent to the adoption of this accounting policy for Canadian gAAP
purposes.
2010 AnnuAl report 115
(vii) Revenue Recognition
As described in 3(c)(vii), upon transition to IFRS certain contracts that were measured using the percentage
of completion method for Canadian gAAP were determined to be contracts for the sale of real property
under IFRS. Accordingly for IFRS, sales under these contracts are recognized in revenue upon completion of
construction and transfer of title to the purchaser.
(viii) Deferred Gains
In Canadian gAAP, the company recognized gains in net income resulting from the partial disposition of a
subsidiary when the company retains a controlling interest in the subsidiary after the sale. Under IFRS, gains
on the partial disposition of a subsidiary are recorded in equity.
(ix) Renewable Power Generation Sales
Certain renewable power generation sales are recognized on a levelized basis for Canadian gAAP but are on
an accrual basis for IFRS.
Basis of Accounting
(x)
The company either consolidates or does not consolidate entities under IFRS that were accounted for differently
under Canadian gAAP. Accordingly, where the company has deconsolidated entities, the results of operations
attributable to the non-controlling interests are excluded from the determination of net income under IFRS.
When the company commenced consolidation under IFRS, the results attributable to non-controlling interests
are included in net income under IFRS.
(xi) Deferred Taxes
Deferred taxes are impacted by the change in temporary differences resulting from the effect of the IFRS and
Canadian gAAP reconciling items described above.
(e) Reconciliation of Comprehensive Income as Reported Under Canadian GAAP to IFRS
The following is a reconciliation of the company’s comprehensive income reported in accordance with Canadian
gAAP to its comprehensive income in accordance with IFRS for the year ended December 31, 2009:
for tHe YeAr ended deCeMBer 31, 2009 (Millions)
Comprehensive income as reported under Canadian gAAp
Add back: non-controlling interests
differences increasing (decreasing) reported comprehensive income:
differences in net income
foreign currency translation
financial instruments
revaluations of property, plant and equipment
equity accounted investments
deferred taxes
note
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
Common
equity
non-controlling
interests
Comprehensive
income
$
1,829
$
—
—
806
$
1,829
806
(1,290)
(359)
(1,649)
488
(58)
(228)
(77)
96
(1,069)
60
(8)
(8)
(53)
11
(357)
548
(66)
(236)
(130)
107
(1,426)
Comprehensive income as reported under ifrs
$
760
$
449
$
1,209
Non-controlling Interests
(i)
non-controlling interests are included in the determination of comprehensive income under IFRS reported by
an entity. This adjustment adds back non-controlling interests expense as determined under Canadian gAAP.
(ii) Differences in Net Income
Reflects the differences in net income between Canadian gAAP and IFRS as described in 3(d) for the year
ended December 31, 2009.
Foreign Currency Translation
(iii)
Reflects the impact of foreign currency arising from the IFRS adjustments described above.
Financial Instruments
(iv)
The differences primarily relate to securities that are not traded in an active market and that were measured
at cost for Canadian gAAP whereas for IFRS, these securities are recorded at fair value, with changes in fair
116 Brookfield Asset MAnAgeMent
value recorded in other comprehensive income. In addition, as described in note (d)(v), fair value changes
related to foreign exchange translation of available-for-sale debt securities is recorded in net income under
IFRS, whereas it was recorded in other comprehensive income for Canadian gAAP.
Revaluations of Property, Plant and Equipment
(v)
The company measures renewable power generation, utilities, and transport and energy assets at their revalued
amount under IFRS. Revaluations of these assets in excess of their cost base less accumulated depreciation
are recorded in revaluation surplus as a component of equity.
Equity Accounted Investments
(vi)
The difference reflects the impact of various changes in IFRS to equity accounted investments.
(vii) Deferred Taxes
The difference related to deferred taxes reflects the change in temporary differences resulting from the effect
of the reconciling items described above that are recorded in other comprehensive income.
(f) Statement of Cash Flow As Reported Under Canadian GAAP and IFRS
The following items are the differences in cash flow reported in accordance with Canadian gAAP from cash
flow reported in accordance with IFRS:
Differences in Net Income
(i)
Reflects the differences in net income between Canadian gAAP and IFRS as described in 3(d) for the year
ended December 31, 2009.
Fair Value Changes
(ii)
Reflects the adjustment of non-cash fair value changes to investment properties, agricultural assets, and
financial instruments recognized under IFRS as described in 3(d)(iii) and 3(d)(iv) for the year ended December
31, 2009.
(iii) Basis of Accounting
The company either consolidates or does not consolidate entities under IFRS that were accounted differently
under Canadian gAAP. The results of operations attributable to the non-controlling interests of entities that
were deconsolidated under IFRS, are excluded from cash flow for the year ended December 31, 2009. When the
company commenced consolidation under IFRS, the results of operations attributable to the non-controlling
interests are included in cash flow.
4. ACQUISITIONS OF CONSOLIDATED ENTITIES
The company accounts for business combinations using the acquisition method of accounting, pursuant
to which the cost of acquiring a business is allocated to its identifiable tangible and intangible assets and
liabilities on the basis of the estimated fair values at the date of acquisition.
(a) Completed During 2010
On December 8, 2010, Brookfield Infrastructure Partners (“Brookfield Infrastructure”), a subsidiary of the company,
completed a merger with Prime Infrastructure (“Prime”) through the issuance of 50.7 million limited partnership
units of Brookfield Infrastructure valued at $1.1 billion. As a result of the merger, the company’s ownership interest
in Brookfield Infrastructure decreased from 41% to 28% and Brookfield Infrastructure’s interest in Prime increased
from 40% to 100%. Brookfield Infrastructure recorded a $405 million gain on the revaluation of the underlying assets
on completion of the Prime merger.
On May 11, 2010, the company acquired a controlling interest in Ainsworth Lumber Co. (“Ainsworth”) through
a 40% owned fund that is controlled by the company and commenced consolidation of Ainsworth. Prior to
the acquisition, the fund held a 29% interest in Ainsworth. The company paid consideration of $56 million for
the additional 24.5% interest in Ainsworth. Following the acquisition, the fund’s interest in Ainsworth is 53.5%.
Other acquisitions primarily consisted of the acquisition of a controlling interest in commercial property funds
in Australia as well as the indirect acquisition of eight commercial properties in north America.
2010 AnnuAl report 117
As a result of the total acquisitions made during the year, the company earned $296 million of revenue and
$56 million of net income. The total revenue and net income if the acquisitions had occurred at the beginning of
the year would have been $1,612 million and $148 million, respectively.
The following table summarizes the balance sheet impact of significant acquisitions during 2010 that resulted
in consolidation:
(Millions)
Cash and cash equivalents
Accounts receivable and other assets
investments
property, plant and equipment
investment properties
intangible assets
goodwill
less:
Accounts payable and other liabilities
non-recourse borrowings
non-controlling interests
(b) Completed During 2009
prime
Ainsworth
other
$
125
$
2,429
779
1,932
—
2,490
—
7,755
(2,659)
(2,606)
(1,862)
69
176
—
538
—
74
—
857
(101)
(535)
(173)
$
43
76
143
51
1,416
—
22
1,751
(276)
(693)
(392)
total
$
237
2,681
922
2,521
1,416
2,564
22
10,363
(3,036)
(3,834)
(2,427)
$
628
$
48
$
390
$ 1,066
On november 20, 2009, the company increased its infrastructure investments by sponsoring the recapitalization
of Prime. As part of the transaction, the company made direct and indirect investments in utility and
transportation operations. The company acquired control of, and began consolidating Brookfield Ports (UK)
Ltd. (“PD Ports”), a large port operator in the United Kingdom (“UK”).
On november 12, 2009, the company increased its 22% interest in the Multiplex Prime Property Fund (“MAFCA”)
to 68%. As a result, the company ceased equity accounting for its investment and commenced consolidation.
MAFCA is a listed unit trust and owns commercial properties in Australia.
The company also acquired $28 million of net assets which relate to its commercial property and timber
operations.
The following table summarizes the balance sheet impact of significant acquisitions in 2009 that resulted in
consolidation:
pd ports
MAfCA
other
total
$
$
15
36
—
297
138
306
792
(236)
(392)
(102)
$
62
$
7
—
238
136
183
—
564
(27)
(425)
(56)
56
$
$
5
7
—
35
—
—
47
(19)
—
—
28
$
27
43
238
468
321
306
1,403
(282)
(817)
(158)
$
146
(Millions)
Cash and cash equivalents
Accounts receivable and other assets
investments
property, plant and equipment
investment properties
intangible assets
less:
Accounts payable and other liabilities
non-recourse borrowings
non-controlling interests
118 Brookfield Asset MAnAgeMent
5.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of a financial instrument is the amount of consideration that would be agreed upon in an arm’s-
length transaction between knowledgeable, willing parties who are under no compulsion to act. Fair values are
determined by reference to quoted bid or ask prices, as appropriate. Where bid and ask prices are unavailable,
the closing price of the most recent transaction of that instrument is used. In the absence of an active market,
fair values are determined based on prevailing market rates (bid and ask prices, as appropriate) for instruments
with similar characteristics and risk profiles or internal or external valuation models, such as option pricing
models and discounted cash flow analysis, using observable market inputs.
Fair values determined using valuation models require the use of assumptions concerning the amount and
timing of estimated future cash flows and discount rates. In determining those assumptions, the company
looks primarily to external readily observable market inputs such as interest rate yield curves, currency rates,
and price and rate volatilities as applicable. The fair value of interest rate swap contracts which form part
of financing arrangements is calculated by way of discounted cash flows using market interest rates and
applicable credit spreads. In limited circumstances, the company uses input parameters that are not based on
observable market data and believes that using alternative assumptions will not result in significantly different
fair values.
Classification of Financial Instruments
Financial instruments classified as fair value through profit or loss or available-for-sale are carried at fair value
on the Consolidated Balance Sheets. Changes in the fair values of financial instruments classified as fair value
through profit or loss and available-for-sale are recognized in net income and other comprehensive income,
respectively. The cumulative changes in the fair values of available-for-sale securities previously recognized
in accumulated other comprehensive income are reclassified to net income when the security is sold, or there
is a significant or prolonged decline in fair value or when the company acquires a controlling interest in the
underlying investment and commences consolidating the investment. During the year ended December 31,
2010, $28 million of net deferred losses (2009 – $32 million) previously recognized in Accumulated other
comprehensive income were reclassified to net income as a result of a sale or a determination that a decline in
fair value was significant or prolonged or the acquisition of a controlling interest of the investment.
Available-for-sale securities are assessed for impairment at each reporting date. As at December 31, 2010,
unrealized gains relating to the fair values of available-for-sale financial instruments measured at fair value
amounted to $61 million (2009 – $126 million) and unrealized losses were $19 million (2009 – $67 million).
gains or losses arising from changes in the fair value of fair value through profit or loss financial assets are
presented in the Consolidated Statements of Operations, within Investment and other income, in the period
in which they arise. Dividends on fair value through profit or loss and available-for-sale financial assets are
recognized in the Consolidated Statements of Operations as part of Investment and other income when the
company’s right to receive payment is established. Interest on available-for-sale financial assets is calculated
using the effective interest method and recognized in the Consolidated Statements of Operations as part of
Investment and other income.
2010 AnnuAl report 119
Carrying Value and Fair Value of Financial Instruments
The following table provides the allocation of financial instruments and their associated financial instrument
classifications as at December 31, 2010:
(Millions)
financial instrument Classification
MeAsureMent BAsis
Financial assets
Cash and cash equivalents
other financial assets
government bonds
Corporate bonds
fixed income securities
Common shares
loans and notes receivable
Accounts receivable and other2
total
Financial liabilities
Corporate borrowings
property-specific mortgages
subsidiary borrowings
Accounts payable and other2
Capital securities
interest of others in funds
FVTPL1
Available-
for-Sale
(Fair Value)
(Fair Value)
Held-to-
Maturity
(Amortized
Cost)
Loans and
Receivables/
Other
Financial
Liabilities
(Amortized
Cost)
Total
$
1,713
$
—
$
—
$
—
$
1,713
242
20
95
1,059
—
1,416
1,823
$
4,952
$
—
—
—
572
—
1,562
$
$
$
2,134
$
414
194
231
88
—
927
—
927
—
—
—
—
—
—
—
—
—
—
—
1,332
1,332
—
—
—
—
—
744
744
2,824
656
214
326
1,147
2,076
4,419
4,647
$
1,332
$
3,568
$ 10,779
$
$
—
—
—
—
—
—
—
$
2,905
$
2,905
23,454
4,007
9,762
1,707
—
23,454
4,007
10,334
1,707
1,562
$ 41,835
$ 43,969
financial instruments classified as fair value through profit and loss
1.
2. derivative instruments which are elected for hedge accounting totalling $24 million (2009 – $292 million) are included in Accounts receivable and
other and $278 million (2009 – $424 million) of derivative instruments in Accounts payable and other
120 Brookfield Asset MAnAgeMent
The following table provides the carrying values and fair values of financial instruments as at December 31,
2010, December 31, 2009 and January 1, 2009:
(Millions)
Dec. 31, 2010
dec. 31, 2009
Jan. 1, 2009
Carrying
Value
Fair
Value
Carrying
Value
fair
Value
Carrying
Value
fair
Value
Financial assets
Cash and cash equivalents
$ 1,713
$ 1,713
$ 1,309
$ 1,309
$ 1,169
$ 1,169
other financial assets
government bonds
Corporate bonds
fixed income securities
Common shares
loans and notes receivable
Accounts receivable and other
total
Financial liabilities
Corporate borrowings
property-specific mortgages
subsidiary borrowings
Accounts payable and other
Capital securities
interest of others in funds
656
214
326
1,147
2,076
4,419
4,647
656
214
326
1,147
1,990
4,333
4,647
561
1,104
300
656
2,525
5,146
3,632
561
1,104
300
656
2,432
5,053
3,632
557
620
418
662
2,249
4,506
2,889
557
620
418
662
1,784
4,041
2,889
$ 10,779
$ 10,693
$ 10,087
$ 9,994
$ 8,564
$ 8,099
$ 2,905
$ 3,039
$ 2,593
$ 2,659
$ 2,284
$ 2,144
23,454
4,007
10,334
1,707
1,562
23,601
4,085
10,334
1,781
1,562
19,712
3,800
7,827
1,641
1,021
19,201
3,803
7,827
1,631
1,021
17,808
3,661
6,977
1,425
548
17,431
3,422
6,977
1,558
548
$ 43,969
$ 44,402
$ 36,594
$ 36,142
$ 32,703
$ 32,080
The current and non-current balances of other financial assets are as follows:
(Millions)
Current
non-current
total
Hedging Activities
Dec. 31, 2010
dec. 31, 2009
Jan. 1, 2009
$
1,700
$
1,797
$
926
2,719
3,349
3,580
$
4,419
$
5,146
$
4,506
The company uses derivatives and non-derivative financial instruments to manage or maintain exposures to
interest, currency, credit and other market risks. For certain derivatives which are used to manage exposures,
the company determines whether hedge accounting can be applied. When hedge accounting can be applied,
a hedge relationship can be designated as a fair value hedge, cash flow hedge or a hedge of foreign currency
exposure of a net investment in a foreign operation with a functional currency other than the U.S. dollar. To
qualify for hedge accounting the derivative must be highly effective in accomplishing the objective of offsetting
changes in the fair value or cash flows attributable to the hedged risk both at inception and over the life of the
hedge. If it is determined that the derivative is not highly effective as a hedge, hedge accounting is discontinued
prospectively.
Fair Value Hedges
The company uses interest rate swaps to hedge the variability related to changes in the fair value of fixed
rate assets or liabilities. For the year ended December 31, 2010, pre-tax net unrealized losses of $5 million
(2009 – gains of $9 million) were recorded in net income as a result of changes in the fair value of the hedges
which were offset by fair value changes related to the effective portion of the hedged asset or liability. As at
December 31, 2010, there was a net unrealized derivative asset balance of $24 million relating to derivative
contracts designated as fair value hedges (2009 – net unrealized derivative asset balance of $6 million).
2010 AnnuAl report 121
Cash Flow Hedges
The company uses the following cash flow hedges: energy derivative contracts to hedge the sale of power;
interest rate swaps to hedge the variability in cash flows related to a variable rate asset or liability; and equity
derivatives to hedge the long-term compensation arrangements. For the year ended December 31, 2010,
pre-tax net unrealized losses of $41 million (2009 – gains of $118 million) were recorded in other comprehensive
income for the effective portion of the cash flow hedges. As at December 31, 2010, there was a net unrealized
derivative liability balance of $136 million relating to derivative contracts designated as cash flow hedges (2009
– net unrealized derivative liability balance of $29 million).
Net Investment Hedges
The company uses foreign exchange contracts and foreign currency denominated debt instruments to
manage its foreign currency exposures arising from net investments in foreign operations having a functional
currency other than the U.S. dollar. For the year ended December 31, 2010, unrealized pre-tax net losses of
$318 million (2009 – losses of $251 million) were recorded in other comprehensive income for the effective
portion of hedges of net investments in foreign operations. As at December 31, 2010, there was a net unrealized
derivative liability balance of $257 million relating to derivative contracts designated as net investment hedges
(2009 – net unrealized derivative liability balance of $103 million).
Fair Value Hierarchical Levels
Fair value hierarchical levels are directly determined by the amount of subjectivity associated with the valuation
inputs of these assets and liabilities, and are as follows:
Level 1 – Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the
measurement date.
Level 2 – Inputs (other than quoted prices included in Level 1) are either directly or indirectly observable for the
asset or liability through correlation with market data at the measurement date and for the duration
of the instrument’s anticipated life. Fair valued assets and liabilities that are included in this category
are primarily certain derivative contracts, other financial assets carried at fair value in an inactive
market and redeemable fund units.
Level 3 – Inputs reflect management’s best estimate of what market participants would use in pricing the
asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation
technique and the risk inherent in the inputs to determining the estimate. Fair valued assets and
liabilities that are included in this category are power purchase contracts, subordinated mortgaged-
backed securities, interest rate swap contracts, derivative contracts, certain equity securities
carried at fair value which are not traded in an active market and the non-controlling interests share
of net assets of limited life funds.
122 Brookfield Asset MAnAgeMent
Assets and liabilities measured at fair value on a recurring basis include $2,087 million (2009 – $1,463 million)
of financial assets and $580 million (2009 – $390 million) of financial liabilities which are measured at fair value
using valuation inputs based on management’s best estimates. The following table categorizes financial assets
and liabilities, which are carried at fair value, based upon the level of input to the valuations as described above:
(Millions)
Financial assets
Dec. 31, 2010
dec. 31, 2009
Jan. 1, 2009
Level 1
Level 2
Level 3
level 1
level 2
level 3
level 1
level 2
level 3
Cash and cash equivalents
$ 1,713
$ — $ — $ 1,309
$ — $ — $ 1,169
$ — $ —
other financial assets
government bonds
Corporate bonds
fixed income securities
Common shares
Accounts receivable and other
Financial liabilities
397
77
149
274
789
259
111
—
11
12
—
26
177
862
1,022
110
652
21
167
642
451
428
—
13
1
—
24
279
476
684
158
210
53
167
631
399
401
—
17
11
—
9
365
478
110
$ 3,399
$
393
$ 2,087
$ 2,901
$
893
$ 1,463
$ 2,388
$
828
$
962
Accounts payable and other
$ — $
199
$
interests of others in funds
—
1,355
$ — $ 1,554
$
373
207
580
$ — $
—
$
264
899
$ — $ 1,163
$
268
122
390
$ — $
—
$ — $
97
283
380
$
$
393
265
658
6. ACCOUNTS RECEIVABLE AND OTHER
(Millions)
Accounts receivable
prepaid expenses and other assets
restricted cash
total
note
Dec. 31, 2010
dec. 31, 2009
Jan. 1, 2009
(a)
(b)
(c)
$
3,860
$
2,991
$
2,331
3,222
787
1,077
641
914
558
$
7,869
$
4,709
$
3,803
The current and non-current balances of accounts receivable and other are as follows:
(Millions)
Current
non-current
total
(a) Accounts Receivable
Dec. 31, 2010
dec. 31, 2009
Jan. 1, 2009
$
5,504
$
3,357
$
2,668
2,365
1,352
1,135
$
7,869
$
4,709
$
3,803
Accounts receivable include $1,026 million (2009 – $684 million) of unrealized mark-to-market gains on
energy sales contracts and $814 million (2009 – $760 million) of work-in-process related to contracted sales
from the company’s residential development operations. Also included in this balance are loans receivable
from employees of the company and consolidated subsidiaries of $7 million (2009 – $6 million).
(b) Prepaid Expenses and Other Assets
Prepaid expenses and other assets include the consolidation of Prime Infrastructure’s $1,859 million of assets
which are classified as held-for-sale (see note 4 and note 15).
(c) Restricted Cash
Restricted cash relates primarily to commercial property and power generating financing arrangements
including defeasement of debt obligations, debt service accounts and deposits held by the company’s insurance
operations.
2010 AnnuAl report 123
7.
INVENTORY
(Millions)
residential properties under development
land held for development
Completed residential properties
pulp, paper and other
total carrying value1
Dec. 31, 2010
dec. 31, 2009
Jan. 1, 2009
$
3,398
$
3,121
$
2,852
1,712
182
557
1,610
352
477
869
374
657
$
5,849
$
5,560
$
4,752
1.
the carrying amount of inventory pledged as security at december 31, 2010 was $1,450 million (december 31, 2009 – $1,265 million; January 1, 2009
– $1,323 million)
The current and non-current balances of inventory are as follows:
(Millions)
Current
non-current
total
Dec. 31, 2010
dec. 31, 2009
Jan. 1, 2009
$
3,156
$
3,039
$
2,126
2,693
2,521
2,626
$
5,849
$
5,560
$
4,752
During the year ended December 31, 2010, the company recognized as an expense $4,676 million (2009 –
$3,885 million) relating to costs of sales and $65 million (2009 – $53 million) relating to impairments of inventory.
8.
INVESTMENTS
The following table presents the ownership interests and carrying values of the company’s investments in
associates and equity-accounted joint ventures:
(Millions)
renewable power generation
Bear swamp power Co. llC
other renewable power generation
Commercial properties
u.s. office fund
general growth properties
245 park Avenue
other commercial properties1
infrastructure
natural gas pipeline company
transelec s.A.
powerco
euroports
prime infrastructure2
other
total
ownership interest
Carrying Value
Dec. 31, 2010 dec. 31, 2009 Dec. 31, 2010 dec. 31, 2009
Jan. 1, 2009
50%
23-50%
$
70
196
$
50%
50%
47%
10%
51%
47%
—
51%
20-51%
20-51%
26%
28%
42%
40%
—
—
28%
—
—
40%
25-50%
25-45%
1,806
1,014
580
1,421
384
373
280
115
—
390
119
157
934
—
616
1,101
—
348
—
—
656
535
$
120
163
2,078
—
635
796
—
373
—
—
—
481
$ 6,629
$ 4,466
$ 4,646
1. other commercial properties include investments in darling park trust, e&Y Centre sydney and four World financial Center
the company acquired a controlling interest in prime and commenced consolidation at december 8, 2010, as noted in note 4
2.
In november 2010, a Brookfield-led consortium sponsored the recapitalization of general growth Properties
(“ggP”) and acquired a 27% ownership interest in the reorganized ggP on a fully diluted basis. Brookfield
holds an indirect 10% interest in ggP, and is entitled to appoint three of the nine directors to ggP’s board. The
consortium members have entered into a voting agreement regarding the control over their combined investment
in ggP which deems the consortium, as a whole, to exercise significant influence over ggP. In January 2011, the
company acquired an additional 11% ownership interest in ggP for consideration of $1.7 billion.
124 Brookfield Asset MAnAgeMent
The following table presents the change in the balance of investments in associates and equity-accounted joint
ventures:
(Millions)
Balance at beginning of year
Additions
Acquisitions through business combinations
disposals
share of net income (loss)
share of other comprehensive income (loss)
distributions received
foreign exchange
Balance at end of year
2010
2009
$
4,466
$
4,646
1,738
922
(1,100)
765
(16)
(374)
228
239
238
(254)
(426)
(130)
(61)
214
$
6,629
$
4,466
The following table presents the gross assets and liabilities of our investments in associates and equity
accounted joint ventures:
(Millions)
Assets
Liabilities
Assets
liabilities
Assets
liabilities
Dec. 31, 2010
dec. 31, 2009
Jan. 1, 2009
renewable power generation
Bear swamp power Co. llC
other renewable power generation
Commercial properties
u.s. office fund
general growth properties
245 park Avenue
other commercial properties1
infrastructure
natural gas pipeline company
transelec s.A.
powerco
euroports
prime infrastructure2
other
$
498
566
$
322
251
$
499
514
$
274
230
$
602
463
$
315
160
7,802
32,367
987
2,534
4,950
4,142
1,511
1,045
—
2,474
$ 58,876
5,804
21,953
407
673
3,504
2,803
846
761
—
1,815
$ 39,139
7,308
—
773
2,569
—
4,182
—
—
13,740
1,924
6,012
—
228
1,232
—
2,838
—
—
10,091
1,347
$ 31,509
$ 22,252
8,385
—
783
3,279
—
3,520
—
—
—
5,289
—
232
1,720
—
2,367
—
—
—
1,661
$ 18,693
1,043
$ 11,126
1. other commercial properties include investment in darling park trust, e&Y Centre sydney and four World financial Center
2.
the company acquired a controlling interest in prime and commenced consolidation at december 8, 2010, as noted in note 4
Certain of our investments in associates are subject to restrictions over the extent to which they can remit
funds to the company in the form of cash dividends, or repayment of loans and advances as a result of borrowing
arrangements, regulatory restrictions and other contractual requirements.
2010 AnnuAl report 125
The following table presents the gross and net income of our investments in associates and equity accounted
joint ventures:
As At deCeMBer 31 (Millions)
renewable power generation
Year ended Dec. 31, 2010
Year ended dec. 31, 2009
Revenue
Net
Income
(Loss)
Share of
Net Income
(Loss)
revenue
net
income
(loss)
share of
net income
(loss)
Bear swamp power Co. llC
$
other renewable power generation
Commercial properties
u.s. office fund
general growth properties
245 park Avenue
other commercial properties1
infrastructure
natural gas pipeline company
transelec s.A.
powerco
euroports
prime infrastructure2
other
total
69
42
863
—
63
328
61
351
21
57
—
386
$
29
1
779
—
306
232
(18)
44
2
(5)
—
65
$
14
1
366
—
156
140
(6)
16
1
(3)
—
80
$
81
48
844
—
122
500
—
331
—
—
205
170
$
22
11
$
11
5
(1,111)
(522)
—
(6)
48
—
14
—
—
44
19
—
(3)
49
—
2
—
—
18
14
$ 2,241
$ 1,435
$
765
$ 2,301
$ (959)
$ (426)
1. other commercial properties include investment in darling park trust, e&Y Centre sydney and four World financial Center
2.
the company acquired a controlling interest in prime and commenced consolidation at december 8, 2010, as noted in note 4
Certain of our investments are publicly listed entities with active pricing in a liquid market. The publicly listed
price of these investments in comparison to the company’s carrying value is as follows:
Dec. 31, 2010
dec. 31, 2009
Jan. 1, 2009
(Millions)
Public Price Carrying Value
public price Carrying Value
public price Carrying Value
general growth properties
$ 1,176
$ 1,014
$ —
$ —
$ —
$ —
prime infrastructure
other
—
72
—
87
$ 1,248
$ 1,101
$
580
103
683
656
99
$
755
$
—
91
91
—
114
114
$
9.
PROPERTY, PLANT AND EQUIPMENT
(Millions)
Cost
Accumulated fair value changes
Accumulated depreciation
total
Dec. 31, 2010
dec. 31, 2009
Jan. 1, 2009
$ 12,026
$
8,911
$
7,534
7,417
(1,295)
8,373
(561)
8,063
—
$ 18,148
$ 16,723
$ 15,597
Accumulated fair value changes include unrealized revaluations of property, plant and equipment using the
revaluation method which are recorded in revaluation surplus as a component of equity, as well as unrealized
impairment losses recorded in net income.
The company’s property, plant and equipment relates to our business platforms as shown in the following table:
(Millions)
renewable power generation
infrastructure
utilities
transport and energy
timberlands
private equity and finance
other property, plant and equipment
126 Brookfield Asset MAnAgeMent
note
Dec. 31, 2010
dec. 31, 2009
Jan. 1, 2009
(a)
(b)
(c)
(d)
(e)
(f)
$ 12,443
$ 13,166
$ 12,413
723
1,727
688
2,497
70
209
298
737
2,114
199
219
—
809
1,940
216
$ 18,148
$ 16,723
$ 15,597
(a) Renewable Power Generation
(Millions)
Cost
Accumulated fair value changes
Accumulated depreciation
total
Dec. 31, 2010
dec. 31, 2009
Jan. 1, 2009
$
5,533
$
5,035
$
4,350
7,804
(894)
8,531
(400)
8,063
—
$ 12,443
$ 13,166
$ 12,413
Renewable power generation assets include the cost of the company’s hydroelectric generating stations, wind
energy, pumped storage and natural gas-fired 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 up to 2046.
Renewable power generation assets are accounted for under the revaluation model and the most recent date
of revaluation was December 31, 2010.
The key valuation metrics of our hydro and wind generating facilities at the end of 2010 and 2009 are summarized
below. The valuations are impacted primarily by the discount rate and long-term power prices.
united states
Canada
Brazil
Dec. 31, 2010
dec. 31, 2009
Dec. 31, 2010
dec. 31, 2009
Dec. 31, 2010
dec. 31, 2009
discount rate
terminal capitalization rate
exit date
7.7%
7.9%
2030
8.2%
8.4%
2029
6.1%
7.1%
2030
7.2%
7.9%
2029
10.8%
11.0%
2029
11.0%
11.0%
2029
The following table presents the changes to the cost of the company’s renewable power generation assets:
(Millions)
Balance at beginning of year
Additions
foreign currency translation
Balance at end of year
2010
2009
$
5,035
$
4,350
335
163
146
539
$
5,533
$
5,035
As at December 31, 2010, the cost of generating facilities under development includes $239 million of capitalized
costs (December 31, 2009 – $231 million; January 1, 2009 – $253 million).
The following table presents the changes to the accumulated fair value changes of the company’s power
generation assets:
(Millions)
Balance at beginning of year
Accumulated fair value changes
foreign currency translation
Balance at end of year
2010
2009
$
8,531
$
8,063
(929)
202
(278)
746
$
7,804
$
8,531
The following table presents the changes to the accumulated depreciation of the company’s power generation
assets:
(Millions)
Balance at beginning of year
depreciation expense
foreign currency translation
Balance at end of year
$
2010
(400)
(488)
(6)
$
2009
—
(379)
(21)
$
(894)
$
(400)
2010 AnnuAl report 127
(b) Utilities
(Millions)
Cost
Accumulated depreciation
total
Dec. 31, 2010
dec. 31, 2009
Jan. 1, 2009
$
$
746
(23)
723
$
$
220
(11)
209
$
$
219
—
219
The company’s utilities assets are primarily comprised of power transmission and distribution networks, and
an Australian coal terminal, which are operated primarily under regulated rate base arrangements.
Utilities assets are accounted for under the revaluation model, and the most recent date of revaluation was
December 31, 2010. The company determined fair value to be the current replacement cost. The Australasian
and European operations were valued based on fair values attributed in connection with the Prime merger.
The following table presents the changes to the cost of the company’s utilities assets:
(Millions)
Balance at beginning of year
Additions
Acquisitions through business combinations
disposals
foreign currency translation
Balance at end of year
$
2010
220
12
513
—
1
2009
219
$
12
4
(45)
30
220
$
746
$
The following table presents the changes to the accumulated depreciation of the company’s utilities assets:
(Millions)
Balance at beginning of year
depreciation expense
foreign currency translation
Balance at end of year
(c) Transport and Energy
(Millions)
Cost
Accumulated fair value changes
Accumulated depreciation
total
(Millions)
Balance at beginning of year
Additions
Acquisitions through business combinations
foreign currency translation
Balance at end of year
2010
(11)
(11)
(1)
(23)
$
$
2009
—
(10)
(1)
(11)
$
$
Dec. 31, 2010
dec. 31, 2009
Jan. 1, 2009
$
1,776
$
299
(32)
(17)
—
(1)
$
1,727
$
298
$
$
$
—
—
—
—
2009
—
—
297
2
$
2010
299
26
1,419
32
$
1,776
$
299
The following table presents the changes to the cost of the company’s transport and energy assets:
The increase in transport and energy assets during 2010 relates primarily to the acquisition of Prime
Infrastructure in December. Further details are included in note 4.
128 Brookfield Asset MAnAgeMent
The following table presents the changes to the accumulated fair value changes of the company’s transport
and energy assets:
(Millions)
Balance at beginning of year
Accumulated fair value changes
foreign currency translation
Balance at end of year
$
2010
—
(33)
1
$
(32)
2009
—
—
—
—
$
$
The following table presents the changes to the accumulated depreciation of the company’s transport and
energy assets:
(Millions)
Balance at beginning of year
depreciation expense
foreign currency translation
Balance at end of year
(d) Timberlands
(Millions)
Cost
Accumulated fair value changes
Accumulated depreciation
total
2010
(1)
(15)
(1)
(17)
$
$
2009
—
(1)
—
(1)
$
$
Dec. 31, 2010
dec. 31, 2009
Jan. 1, 2009
$
922
$
861
$
809
(224)
(10)
688
$
(119)
(5)
—
—
$
737
$
809
The following table presents the change in the balance of property, plant and equipment within the company’s
timberlands business.
(Millions)
Balance at beginning of year
Additions
disposals
foreign currency translation
Balance at end of year
2010
861
$
$
40
(3)
24
$
922
$
2009
809
33
(11)
30
861
Timberland assets are accounted for under the revaluation model and the most recent date of revaluations was
December 31, 2010.
The following table presents the changes to the accumulated fair value changes of the company’s timberland
assets:
(Millions)
Balance at beginning of year
Accumulated fair value changes
foreign currency translation
Balance at end of year
Dec. 31, 2010
dec. 31, 2009
$
(119)
$
—
(104)
(1)
(119)
—
$
(224)
$
(119)
The following table presents the changes to the accumulated depreciation of the property, plant and equipment
within the company’s timberlands business:
(Millions)
Balance at beginning of year
depreciation expense
Balance at end of year
$
2010
(5)
(5)
$
(10)
2009
—
(5)
(5)
$
$
2010 AnnuAl report 129
(e) Private Equity and Finance
(Millions)
Cost
Accumulated fair value changes
Accumulated depreciation
total
Dec. 31, 2010
dec. 31, 2009
Jan. 1, 2009
$
2,951
$
2,288
$
1,940
(131)
(323)
(39)
(135)
—
—
$
2,497
$
2,114
$
1,940
Private equity and finance includes capital assets owned by the company’s investees held directly or
consolidated through funds.
These assets are accounted for under the cost model, which requires the asset to be carried at its cost less any
accumulated depreciation and any accumulated impairment losses. The following table presents the changes
to the carrying value of the company’s property, plant and equipment assets included in the company’s private
equity and finance operations:
(Millions)
Balance at beginning of year
Additions
Acquisitions through business combinations
disposals
foreign currency translation
Balance at end of year
2010
2009
$
2,288
$
1,940
184
538
(123)
64
216
21
(70)
181
$
2,951
$
2,288
The following table presents the changes to the accumulated fair value changes of the company’s property,
plant and equipment within its private equity and finance operations:
(Millions)
Balance at beginning of year
Accumulated fair value changes
Balance at end of year
$
2010
(39)
(92)
$
(131)
2009
—
(39)
(39)
$
$
The following table presents the changes to the accumulated depreciation of the company’s other property,
plant and equipment within its private equity and finance operations:
(Millions)
Balance at beginning of year
depreciation expense
disposals
foreign currency translation
Balance at end of year
$
2010
(135)
(185)
—
(3)
$
2009
—
(180)
53
(8)
$
(323)
$
(135)
(f) Other Property, Plant and Equipment
Other property, plant and equipment includes construction in progress and development properties and totalled
$70 million at December 31, 2010 (December 31, 2009 – $199 million; January 1, 2009 – $216 million).
10.
INVESTMENT PROPERTIES
(Millions)
fair value at beginning of year
Additions
Acquisitions through business combinations
disposals
fair value adjustments
foreign currency translation
fair value at end of year
130 Brookfield Asset MAnAgeMent
2010
2009
$ 19,219
$ 16,719
689
1,416
(859)
835
863
1,480
321
(360)
(888)
1,947
$ 22,163
$ 19,219
The fair value of investment properties is generally determined by discounting the expected cash flows
of the properties based upon internal or external valuations. All properties are externally valued on a three
year rotation plan. Certain adjustments have been made to external valuations conducted by third parties as
follows:
(Millions)
Dec. 31, 2010
dec. 31, 2009
Jan. 1, 2009
properties where fair value is determined by external valuators
$
5,161
$
7,177
$
3,587
Adjustment for straight-line rentals
internal appraisals
(1)
5,160
17,003
87
7,264
11,955
12
3,599
13,120
fair value recorded in financial statements
$ 22,163
$ 19,219
$ 16,719
The key valuation metrics of our commercial office properties are presented in the following table:
united states
Canada
Australia
Dec. 31, 2010
dec. 31, 2009
Dec. 31, 2010
dec. 31, 2009
Dec. 31, 2010
dec. 31, 2009
discount rate
terminal capitalization rate
investment horizon (years)
8.1%
6.7%
10
8.8%
6.9%
10
6.9%
6.3%
11
7.4%
6.7%
10
9.1%
7.4%
10
9.3%
7.8%
10
11. TIMBER
(Millions)
timber
other agricultural assets
total
Dec. 31, 2010
dec. 31, 2009
Jan. 1, 2009
$
2,807
$
2,610
$
2,604
399
358
235
$
3,206
$
2,968
$
2,839
The company held 1,447 million acres of consumable freehold timber at December 31, 2010 (December 31, 2009
– 1,445 million), of which approximately 854 million (December 31, 2009 – 855 million) acres were classified as
mature and available for harvest.
The following table presents the change in the balance of standing timber within the company’s timber business:
(Millions)
Balance at beginning of year
Additions
fair value adjustments
decrease due to harvest
foreign currency changes
Balance at end of year
2010
2009
$
2,610
$
2,604
52
282
(139)
2
—
54
(88)
40
$
2,807
$
2,610
The carrying values are based on external appraisals that are completed annually. Key valuation assumptions
include a weighted average discount and terminal capitalization rate of 6.6% (2009 – 6.5%) and an average
terminal valuation date of 75 years. Timber prices were based on a combination of forward prices available in
the market and the price forecasts of each appraisal firm.
12.
INTANGIBLE ASSETS
(Millions)
Cost
Accumulated amortization and impairment losses
net intangible assets
Dec. 31, 2010
dec. 31, 2009
Jan. 1, 2009
$
3,969
$
1,150
(164)
(102)
$
3,805
$
1,048
$
$
667
(48)
619
2010 AnnuAl report 131
Intangible assets are allocated to the following cash generating units:
(Millions)
utilities – Australian coal terminal
Construction
transport and energy – uk port operations
private equity and finance
timber – Western north America
renewable power generation
other
total
Dec. 31, 2010
dec. 31, 2009
Jan. 1, 2009
$
2,571
$
408
332
180
133
125
56
—
376
306
89
112
119
46
$
—
308
—
91
94
89
37
$
3,805
$
1,048
$
619
The following table presents the change in the balance of the intangible assets:
(Millions)
Cost at beginning of year
Additions
Acquisitions through business combinations
disposals
foreign currency translation
Cost at end of year
2010
$
1,150
$
34
2,564
—
221
2009
667
5
306
(14)
186
$
3,969
$
1,150
The following table presents the accumulated amortization and accumulated impairment losses to the
company’s intangible assets:
(Millions)
Accumulated amortization at beginning of year
Amortization
reversal of impairments
foreign currency translation
2010
$
(102)
$
(43)
15
(34)
2009
(48)
(29)
8
(33)
Accumulated amortization at end of year
$
(164)
$
(102)
13. GOODWILL
(Millions)
Cost
Accumulated impairment losses
total
goodwill is allocated to the following cash generating units:
(Millions)
Construction
timber – Western north America
residential – Brazil
retail – Brazil
Asset management
other
total
132 Brookfield Asset MAnAgeMent
Dec. 31, 2010
dec. 31, 2009
Jan. 1, 2009
$
2,561
$
2,370
$
1,995
(15)
(7)
(3)
$
2,546
$
2,363
$
1,992
Dec. 31, 2010
dec. 31, 2009
Jan. 1, 2009
$
862
591
474
169
194
256
$
756
591
446
162
194
214
$
599
591
334
121
173
174
$
2,546
$
2,363
$
1,992
The following table presents the change in the balance of goodwill:
(Millions)
Cost at beginning of year
Acquisitions through business combinations
disposals
foreign currency translation and other
Cost at end of year
The following table reconciles the accumulated goodwill impairments:
(Millions)
Accumulated impairment at beginning of year
impairment losses
Accumulated impairment at end of year
14.
INCOME TAxES
2010
2009
$
2,370
$
1,995
22
—
169
—
(12)
387
$
2,561
$
2,370
$
2010
(7)
(8)
$
(15)
2009
(3)
(4)
(7)
$
$
The major components of income tax expense for the year ended December 31, 2010 and December 31, 2009
are set out below:
for tHe YeArs ended deCeMBer 31 (Millions)
total current income tax
deferred income tax expense / (recovery)
origination and reversal of temporary differences
expense / (recovery) arising from previously unrecognized tax assets
Change of tax rates and imposition of new legislation
total deferred income tax
2010
97
60
(15)
(2)
43
$
$
$
2009
$
(5)
$
(292)
13
(8)
$
(287)
The company’s effective tax rate is different from the company’s domestic statutory income tax rate due to the
differences set out below:
statutory income tax rate
increase (reduction) in rate resulting from:
portion of income not subject to tax
international operations subject to different tax rates
Change in tax rates on temporary differences
derecognition of future tax assets/(liabilities)
non-recognition of the benefit of current year’s tax losses
other
effective income tax rate
2010
31%
(7)
(14)
1
(6)
1
(1)
5%
2009
33%
(4)
(3)
(2)
2
(5)
(2)
19%
The following chart details the expiry date, if applicable, of the unrecognized deferred tax assets:
(Millions)
2010
2011
2012
2013
2014
2015
After 2020
do not expire
total
Dec. 31, 2010
dec. 31, 2009
Jan. 1, 2009
$
$
—
—
—
—
1
8
284
519
812
$
$
5
—
—
—
29
15
257
432
738
$
$
—
5
—
—
—
29
205
432
671
2010 AnnuAl report 133
The dividend payment on certain preferred shares of the company results in the payment of cash taxes and the
company obtaining a deduction based on the amount of these taxes.
Deferred income tax assets and liabilities as at December 31, 2010, December 31, 2009 and January 1, 2009
relate to the following:
(Millions)
non-capital losses (Canada)
Capital losses (Canada)
losses (u.s.)
losses (international)
difference in basis
total net deferred tax liability
(Millions)
deferred income tax asset
deferred income tax liability
total net deferred tax liability
Dec. 31, 2010
dec. 31, 2009
Jan. 1, 2009
$
578
171
360
634
$
433
129
165
273
$
215
82
177
237
(4,929)
(4,778)
(4,475)
$ (3,186)
$ (3,778)
$ (3,764)
Dec. 31, 2010
dec. 31, 2009
Jan. 1, 2009
$
1,784
$
1,454
$
984
(4,970)
(5,232)
(4,748)
$ (3,186)
$ (3,778)
$ (3,764)
The aggregate amount of temporary differences associated with investments in subsidiaries for which
deferred tax liabilities have not been recognized as at December 31, 2010 is $4,164 million (December 31, 2009
– $2,497 million; January 1, 2009 – $5,999 million).
The company regularly assesses the status of open tax examinations and its historical tax filing positions
for the potential for adverse outcomes to determine the adequacy of the provision for income and other taxes.
The company believes that it has adequately provided for any tax adjustments that are more likely than not to
occur as a result of ongoing tax examinations or historical filing positions.
15. ACCOUNTS PAYABLE AND OTHER LIABILITIES
(Millions)
Accounts payable
other liabilities
total
Dec. 31, 2010
dec. 31, 2009
Jan. 1, 2009
$
4,581
$
3,697
$
3,912
5,753
4,130
3,065
$ 10,334
$
7,827
$
6,977
The current and non-current balances of accounts payable and other liabilities are as follows:
(Millions)
Current
non-current
total
Dec. 31, 2010
dec. 31, 2009
Jan. 1, 2009
$
6,482
$
4,567
$
3,812
3,852
3,260
3,165
$ 10,334
$
7,827
$
6,977
Included in accounts payable and other liabilities are $1,286 million (2009 – $946 million) and $633 million
(2009 – $592 million) of accounts payable and deferred revenue, respectively, related to the company’s residential
development operations. Accounts payable includes $598 million (2009 – $826 million) of insurance deposits,
claims and other liabilities incurred by the company’s insurance subsidiaries. Other liabilities also includes the
consolidation of Prime Infrastructure’s $1,859 million of liabilities associated with assets that are classified as
held-for-sale (see note 4 and note 6).
134 Brookfield Asset MAnAgeMent
16. CORPORATE BORROWINGS
Maturity Annual rate
Currency Dec. 31, 2010
dec. 31, 2009
Jan. 1, 2009
(Millions)
term debt
public – u.s.
public – u.s.
private – u.s.
private – u.s.
private – Canadian
private – Canadian
public – Canadian
public – u.s.
public – Canadian
public – Canadian
public – u.s.
public – Canadian
Mar. 1, 2010
Jun. 15, 2012
oct. 23, 2012
oct. 23, 2013
Apr. 30, 2014
Jun. 2, 2014
sept. 8, 2016
Apr. 25, 2017
Apr. 25, 2017
Mar. 1, 2021
Mar. 1, 2033
Jun. 14, 2035
5.75%
7.13%
6.40%
6.65%
6.26%
8.95%
5.20%
5.80%
5.29%
5.30%
7.38%
5.95%
us$
us$
us$
us$
C$
C$
C$
us$
C$
C$
us$
C$
$
—
350
75
75
33
501
301
240
250
351
250
301
199
$
200
350
75
75
35
475
—
240
238
—
250
285
388
(21)
(18)
$
200
350
75
75
—
—
—
250
205
—
250
246
649
(16)
$
2,905
$
2,593
$
2,284
Commercial paper through bank borrowings
l + 50 b.p.
us$/C$
deferred financing costs1
total
1. deferred financing costs are amortized to interest expense over the term of the borrowing following the effective interest method
l-one month liBor, b.p. - Basis points
Corporate borrowings have a weighted average interest rate of 5.5% (2009 – 5.9%), and include $1,832 million
(2009 – $1,099 million) repayable in Canadian dollars of C$1,829 million (2009 – C$1,157 million).
17. NON-RECOURSE BORROWINGS
(a) Property-Specific Mortgages
Principal repayments on property-specific mortgages due over the next five calendar years and thereafter are
as follows:
(Millions)
2011
2012
2013
2014
2015
thereafter
Total – Dec. 31, 2010
total – dec. 31, 2009
total – Jan. 1, 2009
renewable
power
generation
$
127
—
603
236
475
2,393
3,834
3,861
3,353
$
$
$
Commercial
properties
infrastructure
development
Activities
$
2,091
$
1,862
2,357
1,155
259
2,965
$ 10,689
$
$
9,481
8,977
643
314
750
491
433
1,832
4,463
1,978
1,582
$
$
$
$
1,289
$
497
413
221
90
116
other
181
395
89
333
6
838
total Annual
payments
$
4,331
3,068
4,212
2,436
1,263
8,144
$
$
$
2,626
2,377
2,438
$
$
$
1,842
2,015
1,458
$ 23,454
$ 19,712
$ 17,808
The current and non-current balances of property-specific mortgages are as follows:
(Millions)
Current
non-current
total
Dec. 31, 2010
dec. 31, 2009
Jan. 1, 2009
$ 4,331
19,123
$ 23,454
$ 2,639
17,073
$ 19,712
$ 2,626
15,182
$ 17,808
2010 AnnuAl report 135
Property-specific mortgages by currency include:
(Millions)
u.s. dollars
Australian dollars
Canadian dollars
Brazilian reais
British pounds
new Zealand dollars
european union euros
Dec. 31, 2010 Local Currency
dec. 31, 2009 local Currency
Jan. 1, 2009 local Currency
$
9,490
5,320
3,785
3,215
1,380
257
7
US$
A$
C$
R$
£
N$
€
9,490
5,199
3,779
5,356
884
329
5
$
9,641
us$
2,865
3,433
2,397
1,201
120
55
A$
C$
r$
£
n$
€
9,641
3,192
3,612
4,174
743
166
38
$
10,622
us$
10,622
2,021
2,861
1,431
725
101
47
A$
C$
r$
£
n$
€
2,867
3,493
3,344
496
171
32
total
$
23,454
$ 19,712
$
17,808
(b) Subsidiary Borrowings
Principal repayments on subsidiary borrowings due over the next five calendar years and thereafter are as
follows:
(Millions)
2011
2012
2013
2014
2015
thereafter
Total – Dec. 31, 2010
total – dec. 31, 2009
total – Jan. 1, 2009
renewable
power
generation
$
56
—
—
—
—
1,096
1,152
1,144
652
$
$
$
Commercial
properties
infrastructure
development
Activities
$
$
$
$
308
10
261
—
—
—
579
551
831
$
$
$
$
25
112
1
1
—
9
148
—
140
$
191
$
—
87
—
—
—
278
475
462
$
$
$
$
$
$
other
40
283
134
1
1,149
243
1,850
1,630
1,576
total Annual
payments
$
$
$
$
620
405
483
2
1,149
1,348
4,007
3,800
3,661
The current and non-current balances of subsidiary borrowings are as follows:
(Millions)
Current
non-current
total
Subsidiary borrowings by currency include:
Dec. 31, 2010
dec. 31, 2009
Jan. 1, 2009
$
620
$
867
$
1,175
3,387
2,933
2,486
$
4,007
$
3,800
$
3,661
(Millions)
u.s. dollars
Canadian dollars
Australian dollars
British pounds
new Zealand dollars
Brazilian reais
total
Dec. 31, 2010
Local Currency
dec. 31, 2009
local Currency
Jan. 1, 2009
local Currency
$ 1,907
US$
1,301
511
157
112
19
$ 4,007
C$
A$
£
N$
R$
1,907
1,298
499
100
144
32
$
1,860
us$
1,191
588
161
—
—
C$
A$
£
n$
r$
1,860
1,253
655
100
—
—
$
1,933
us$
955
760
9
—
4
C$
A$
£
n$
r$
1,933
1,166
1,078
6
—
9
$
3,800
$
3,661
18. CAPITAL SECURITIES
Capital securities are classified as liabilities and consist of the following:
(Millions)
Corporate preferred shares
subsidiary preferred shares
total
136 Brookfield Asset MAnAgeMent
note
Dec. 31, 2010
dec. 31, 2009
Jan. 1, 2009
(a)
(b)
$
669
$
632
$
1,038
1,009
543
882
$
1,707
$
1,641
$
1,425
(a) Corporate Preferred Shares
(Millions eXCept sHAre inforMAtion)
outstanding description
Class A preferred shares
10,000,000
series 10
shares
4,032,401
series 11
7,000,000
series 12
6,000,000
series 21
Cumulative
dividend
rate
5.75%
5.50%
5.40%
5.00%
deferred financing costs
total
Currency
Dec. 31, 2010
dec. 31, 2009
Jan. 1, 2009
C$
C$
C$
C$
$
251
101
175
150
(8)
$
238
$
205
96
166
142
(10)
83
143
123
(11)
$
669
$
632
$
543
Subject to approval of the Toronto Stock Exchange, the Series 10, 11, 12 and 21 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$2.00, at the option of either the company or the holder, at any
time after the following dates:
ClAss A preferred sHAres
series 10
series 11
series 12
series 21
(b) Subsidiary Preferred Shares
earliest permitted
redemption date
Company’s
Conversion option
Holder’s
Conversion option
sept. 30, 2008
sept. 30, 2008
Mar. 31, 2012
Jun. 30, 2009
Jun. 30, 2009
dec. 31, 2013
Mar. 31, 2014
Mar. 31, 2014
Mar. 31, 2018
Jun. 30, 2013
Jun. 30, 2013
Jun. 30, 2013
(Millions, eXCept sHAre inforMAtion)
outstanding description
shares
Cumulative
dividend
rate
Currency Dec. 31, 2010
dec. 31, 2009
Jan. 1, 2009
Class AAA preferred
shares of Brookfield
office properties
deferred financing costs
total
8,000,000
series f
4,400,000
series g
8,000,000
series H
7,130,228
series i
8,000,000
series J
6,000,000
series k
6.00%
5.25%
5.75%
5.20%
5.00%
5.20%
C$
us$
C$
C$
C$
C$
$
200
110
200
179
200
151
(2)
$
190
110
190
190
190
143
(4)
$
164
110
164
164
164
123
(7)
$ 1,038
$ 1,009
$
882
The subsidiary preferred shares are redeemable at the option of either the issuer or the holder, at any time after
the following dates:
ClAss AAA preferred sHAres
series f
series g
series H
series i
series J
series k
earliest permitted
redemption date
Company’s
Conversion option
Holder’s
Conversion option
sept. 30, 2009
sept. 30, 2009
Mar. 31, 2013
Jun. 30, 2011
Jun. 30, 2011
sept. 30, 2015
dec. 31, 2011
dec. 31, 2011
dec. 31, 2015
dec. 31, 2008
dec. 31, 2008
dec. 31, 2010
Jun. 30, 2010
Jun. 30, 2010
dec. 31, 2014
dec. 31, 2012
dec. 31, 2012
dec. 31, 2016
2010 AnnuAl report 137
19.
INTERESTS OF OTHERS IN FUNDS
Interests of others in funds is classified outside of equity and is comprised of the following:
(Millions)
redeemable fund units
limited life funds
Dec. 31, 2010
dec. 31, 2009
Jan. 1, 2009
$
1,355
$
207
899
122
$
1,562
$
1,021
$
$
283
265
548
Redeemable fund units represent the interests of others in the company’s Canadian Renewable Power Fund,
whose units have a redemption feature allowing holders to redeem their units from the Fund for an amount
based on the market price of the units. These interests are measured at the redemption amount at the balance
sheet date with changes in value recorded in net income in the period of change. A maximum of $0.3 million
may be redeemed in one single month for cash cumulatively by all holders and the Fund may satisfy additional
redemptions through the issuance of notes in lieu of cash which are redeemable at the option of the Fund.
Limited life funds represent the interests of others in the company’s consolidated funds that have a defined
maximum fixed life where the company has an obligation to distribute the residual interests of the fund to
non-controlling interests based on their proportionate share of the fund’s equity in the form of cash or other
financial assets at cessation of the fund’s life. The increase or decrease in the amount of the liability resulting
from the operations of the fund that is attributable to others is recorded in net income in the period of the
change.
20. EQUITY
Equity is comprised of the following:
(Millions)
preferred equity
non-controlling interests
Common equity
(a) Preferred Equity
Dec. 31, 2010
dec. 31, 2009
Jan. 1, 2009
$
1,658
$
1,144
$
870
14,739
12,795
10,186
11,809
8,038
11,267
$ 29,192
$ 23,139
$ 20,175
Preferred equity represents perpetual preferred shares and consists of the following:
(Millions, eXCept sHAre inforMAtion)
Class A preferred shares
series 2
series 4
series 8
series 9
series 13
series 15
series 17
series 18
series 22
series 24
series 26
total
issued and outstanding
rate
2010
2009
Dec. 31, 2010
dec. 31, 2009
Jan. 1, 2009
70% p
10,465,100
10,465,100
$
169
$
169
$
169
70% p/8.5%
2,800,000
2,800,000
Variable up to p
1,805,948
1,805,948
4.35%
2,194,052
2,194,052
70% p
9,297,700
9,297,700
B.A. + 40 b.p.1
2,000,000
2,000,000
4.75%
4.75%
7.00%
5.40%
4.50%
8,000,000
8,000,000
8,000,000
8,000,000
12,000,000
12,000,000
11,000,000
10,000,000
—
—
45
29
35
195
42
174
181
274
269
245
45
29
35
195
42
174
181
274
—
—
45
29
35
195
42
174
181
—
—
—
$
1,658
$
1,144
$
870
1.
rate determined in a quarterly auction
p – prime rate, B.A. – Bankers’ Acceptance rate, b.p. – Basis points
138 Brookfield Asset MAnAgeMent
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.
In February 2011, the company issued 9,400,000 Class A Series 28, 4.6% preferred shares for cash proceeds of
C$235 million, and incurred transaction costs of C$7 million.
(b) Non-controlling interests
non-controlling interests represent the common and preferred equity in consolidated entities that is owned by
other shareholders.
(Millions)
Common equity
preferred equity
total
Dec. 31, 2010
dec. 31, 2009
Jan. 1, 2009
$ 13,802
$
9,798
$
7,916
937
388
122
$ 14,739
$ 10,186
$
8,038
non-controlling interests in common and preferred equity increased by $4,553 and $2,148 million during 2010
and 2009 respectively, primarily as a result of equity issuances in the company’s consolidated subsidiaries, the
consolidation of net assets acquired through business combinations and the non-controlling interests’ share
of comprehensive income.
(c) Common Equity
The company’s common share capital is comprised of the following:
(Millions)
Class A and B common shares
Contributed surplus
retained earnings
disposition gains
Accumulated other comprehensive income
Common equity
Dec. 31, 2010
dec. 31, 2009
Jan. 1, 2009
$
1,334
$
1,289
$
1,278
97
4,627
187
6,550
67
3,560
117
6,776
49
4,760
—
5,180
$ 12,795
$ 11,809
$ 11,267
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 shares have no stated par value. The holders of Class A common
shares and Class B common 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 between the classes. 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 shares participate 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 shares
is diluted.
The number of shares issued and outstanding and unexercised options at December 31, 2010, December 31,
2009 and January 1, 2009 are as follows:
Class A common shares
Class B common shares
unexercised options
total diluted common shares
Dec. 31, 2010
dec. 31, 2009
Jan. 1, 2009
577,578,573
572,782,819
572,479,652
85,120
85,120
85,120
577,663,693
572,867,939
572,564,772
38,401,076
34,883,426
27,761,269
616,064,769
607,751,365
600,326,041
2010 AnnuAl report 139
The authorized common share capital consists of an unlimited number of common voting shares. Common
shares issued and outstanding changed as follows:
outstanding at beginning of year
shares issued (repurchased)
dividend reinvestment plan
Management share option plan
repurchases
other
outstanding at end of year
Dec. 31, 2010
dec. 31, 2009
572,867,939
572,564,772
112,876
4,681,614
—
1,264
178,962
1,622,444
(1,498,249)
10
577,663,693
572,867,939
In January 2011, the company issued 27,500,000 Class A common shares in connection with the $1.7 billion
acquisition of general growth Properties common shares. In February 2011, the company issued 17,595,000
Class A common shares for cash proceeds of C$578 million pursuant to a public equity offering.
(i)
Earnings Per Share
The components of basic and diluted earnings per share are summarized in the following table:
for tHe YeArs ended deCeMBer 31 (Millions)
net income (loss) available to common shareholders
preferred share dividends
net income (loss) available to common shareholders – basic
Capital securities dividends1
2010
2009
$
1,454
$
(836)
(75)
1,379
36
(43)
(879)
—
net income (loss) available for common shareholders – diluted
$
1,415
$
(879)
(Millions)
Weighted average – common shares
dilutive effect of the conversion of options using treasury stock method
dilutive effect of the conversion of capital securities1,2
Common shares and common share equivalents
574.9
9.6
23.0
607.5
572.2
—
—
572.2
1.
2.
subject to the approval of the toronto stock exchange, the series 10,11,12 and 21 shares, unless redeemed by the company for cash, are convertible
into Class A common shares at a price equal to the greater of 95% at the market price at the time of conversion and C$2.00, at the option of either
the company or the holder
the number of shares is based on 95% of the quoted market price at year-end
(ii) Stock-Based Compensation
The expense recognized for stock-based compensation is summarized in the following table:
for tHe YeArs ended deCeMBer 31 (Millions)
expense arising from equity-settled share-based payment transactions
expense arising from cash-settled share-based payment transactions
total expense arising from share-based payment transactions
effect of hedging program
total expense included in consolidated results
$
$
2010
46
163
209
(149)
$
60
$
2009
34
81
115
(82)
33
The share-based payment plans are described below. There have been no cancellations or modifications to any
of the plans during 2010.
Management Share Option Plan (“MSOP”)
Options issued under the company’s Management Share Option Plan (“MSOP”) vest over a period of up to five
years, expire 10 years after the grant date, and are settled through issuance of Class A Limited voting Shares.
The exercise price is equal to the market price at the grant date.
140 Brookfield Asset MAnAgeMent
The changes in the number of options during 2010 and 2009 were as follows:
outstanding at January 1, 2010
granted
exercised
Cancelled
outstanding at december 31, 2010
1. options to acquire tsX listed Class A Common shares
2. options to acquire nYse listed Class A Common shares
outstanding at January 1, 2009
granted
exercised
Cancelled
outstanding at december 31, 2009
1. options to acquire tsX listed Class A Common shares
number of
options (000’s)1
Weighted
Average
exercise price
number of
options (000’s)2
34,883
C$
19.11
—
(4,682)
(565)
29,636
—
9.51
26.83
20.48
C$
—
8,873
—
(108)
8,765
number of
options (000’s)1
27,761
10,155
(1,623)
(1,410)
34,883
Weighted
Average
exercise price
us$ —
23.39
—
23.18
us$ 23.39
Weighted
Average
exercise price
C$ 17.12
17.78
7.76
32.37
C$ 19.11
The cost of the options granted during the period was determined using the Black-Scholes model of valuation,
with inputs to the model as follows:
Weighted average share price
Average term to exercise
share price volatility1
liquidity discount
Weighted average expected annual dividend yield
risk-free rate
unit
us$
Years
%
%
%
%
2010
23.39
7.5
32.7
25.0
2.2
3.0
1.
share price volatility was determined based on historical share prices over a similar period to the term exercise
At December 31, 2010, the following options to purchase Class A common shares were outstanding:
exercise price
C$7.61 – C$9.76
C$13.37 – C$19.03
C$20.21 – C$30.22
C$31.62 – C$46.59
us$23.18 – us$30.64
Weighted Average
remaining life
Vested
unvested
options outstanding (000’s)
1.4 years
7.1 years
4.7 years
6.7 years
9.2 years
4,715
4,413
6,566
2,687
—
—
7,717
760
2,778
8,765
18,381
20,020
2009
14.31
7.5
32.1
25.0
3.7
2.3
total
4,715
12,130
7,326
5,465
8,765
38,401
2010 AnnuAl report 141
Restricted Share Unit (“RSU”) Plan
A Restricted Share Unit Plan provides for the issuance of DSUs, as well as Restricted Share Units (“RSUs”).
Under this plan, qualifying employees and directors receive varying percentages of their annual incentive bonus
or directors’ fees in the form of DSUs. The DSUs and RSUs vest over periods of up to five years, and DSUs
accumulate additional DSUs at the same rate as dividends on common shares based on the market value of the
common shares at the time of the dividend. Participants are not allowed to convert DSUs and RSUs 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 RSUs, when
converted into cash, will be equivalent to the difference between the market price of equivalent number of
common shares at the time the conversion takes place and the market price on the date the RSUs are granted.
The company uses equity derivative contracts to offset its exposure to the change in share prices in respect
of vested and unvested DSUs and RSUs. The fair value of the vested DSUs and RSUs as at December 31, 2010
was $374 million (December 31, 2009 – $231 million; January 1, 2009 – $145 million).
Employee compensation expense for these plans is charged against income over the vesting period of the
DSUs and RSUs. The amount payable by the company in respect of vested DSUs and RSUs 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, 2010, including those of operating subsidiaries, totalled $13 million (2009 – $1 million), net
of the impact of hedging arrangements.
The change in the number of DSUs and RSUs during 2010 and 2009 was as follows:
outstanding at January 1, 2010
granted and reinvested
exercised
Cancelled
outstanding at december 31, 2010
outstanding at January 1, 2009
granted and reinvested
exercised
Cancelled
outstanding at december 31, 2009
dsus
rsus
number of
units (000’s)
number of
units (000’s)
6,540
635
(621)
(23)
6,531
8,142
—
(112)
—
8,030
Weighted
Average
exercise price
C$ 13.49
—
8.83
—
C$ 13.56
dsus
rsus
number of
units (000’s)
number of
units (000’s)
6,202
956
(581)
(37)
6,540
9,331
—
(949)
(240)
8,142
Weighted
Average
exercise price
C$ 13.59
—
13.29
18.12
C$ 13.49
The fair value of DSUs is equal to the traded price of the company’s common shares.
The fair value of RSUs was determined using the Black-Scholes model of valuation, with inputs to the model
as follows:
share price on date of measurement
Weighted average exercise price
term to exercise
share price volatility
Weighted average of expected annual dividend yield
risk-free rate
Weighted average fair value of a unit
142 Brookfield Asset MAnAgeMent
unit
Dec. 31, 2010
dec. 31, 2009
Jan. 1, 2009
C$
C$
Years
%
%
%
C$
33.20
13.56
11.2
29.3
1.3
3.7
20.62
23.37
13.49
12.2
29.0
2.0
4.3
12.02
18.55
13.50
13.2
29.1
2.6
3.3
7.38
21. REVENUES LESS DIRECT OPERATING COSTS
Direct operating costs include all attributable expenses except interest, depreciation and amortization, taxes
and fair value changes. The details are as follows:
(Millions)
Revenue
Expenses
Net
revenue
expenses
2010
2009
renewable power generation
$ 1,138
$
Commercial properties
infrastructure
development activities
private equity and finance
Cash, financial assets, fee revenues
and other
Construction and property services
1,829
656
2,702
2,000
347
2,172
390
547
435
2,175
1,719
102
2,052
$
748
$ 1,114
$
1,282
221
527
281
245
120
1,715
314
1,880
1,754
280
1,477
337
656
219
1,724
1,643
71
1,388
$
net
777
1,059
95
156
111
209
89
$ 10,844
$ 7,420
$ 3,424
$ 8,534
$ 6,038
$ 2,496
22. FAIR VALUE CHANGES
Fair value changes consist of mark-to-market gains (losses) and are comprised of the following:
for tHe YeArs ended deCeMBer 31 (Millions)
investment property
timber
infrastructure
equity accounted investments
power contracts
redeemable units
interest rate contracts
other
$
2010
835
143
405
271
588
(159)
(58)
(160)
2009
$
(888)
(34)
—
(779)
3
(244)
74
(400)
$
1,865
$ (2,268)
23. DERIVATIVE FINANCIAL INSTRUMENTS
The company’s activities expose it to a variety of financial risks, including market risk (i.e. currency risk, interest
rate risk, and other price risk), credit risk and liquidity risk. The company and its subsidiaries selectively use
derivative financial instruments principally to manage these risks.
The aggregate notional amount of the company’s derivative positions at December 31, 2010, December 31, 2009
and January 1, 2009 is as follows:
(Millions)
foreign exchange
interest rates
Credit default swaps
equity derivatives
Commodity instruments
energy (gWh)
natural gas (MMBtu – 000s)
Crude oil (bbls)
note
Dec. 31, 2010
dec. 31, 2009
Jan. 1, 2009
(a)
(b)
(c)
(d)
(e)
$ 6,463
$ 2,220
$ 3,607
9,523
84
790
5,287
365
567
4,385
2,465
417
$ 16,860
$ 8,439
$ 10,874
74,022
16,990
1,000
45,089
20,811
—
18,798
17,295
—
2010 AnnuAl report 143
(a) Foreign Exchange
The company held the following foreign exchange contracts with notional amounts at December 31, 2010,
December 31, 2009 and January 1, 2009.
(Millions)
foreign exchange contracts
Australian dollars
Canadian dollars
British pounds
european union euros
danish krones
Brazilian reais
new Zealand dollars
Japanese yen
Cross currency interest rate swaps
Canadian dollars
Brazilian reais
Australian dollars
foreign exchange options
Australian dollars
Canadian dollars
British pounds
foreign currency futures
u.s. dollars
european union euros
Japanese yen
notional Amount (u.s. dollars)
Average exchange rate
Dec. 31, 2010 dec. 31, 2009
Jan. 1, 2009 Dec. 31, 2010 dec. 31, 2009
Jan. 1, 2009
$ 2,282
$
389
$ 1,053
984
883
211
164
181
74
28
366
174
—
640
431
7
30
5
3
192
364
176
54
3
—
—
569
—
24
449
—
—
—
—
—
278
960
121
—
249
—
—
669
136
141
—
—
—
—
—
—
0.96
1.01
1.57
1.35
0.18
1.73
0.75
79.23
0.73
1.60
—
1.05
1.14
1.65
1.01
1.34
80.50
0.81
0.95
1.61
1.46
0.19
1.75
—
—
0.79
—
0.66
0.73
—
—
—
—
—
0.67
0.82
1.48
1.49
—
1.92
—
—
0.67
1.71
0.77
—
—
—
—
—
—
$ 6,463
$ 2,220
$ 3,607
Included in net income, are unrealized net losses on foreign currency derivative balances amounting to
$14 million (2009 – net gain of $24 million) and included in the cumulative translation adjustment account
in other comprehensive income are losses in respect of foreign currency contracts entered into for hedging
purposes amounting to $151 million (2009 – net gain of $4 million).
(b)
Interest Rates
At December 31, 2010, the company held interest rate swap contracts having an aggregate notional amount
of $700 million (2009 – $650 million). The company’s subsidiaries held interest rate swap contracts having an
aggregate notional amount of $7,550 million (2009 – $3,953 million). The company’s subsidiaries held interest rate
cap contracts with an aggregate notional amount of $556 million (2009 – $684 million), interest rate swaptions
with an aggregate notional value of $584 million (2009 – $nil), bond forwards with an aggregate notional value
of $60 million (2009 – $nil), and interest rate futures with an aggregate notional value of $73 million (2009 – $nil).
(c) Credit Default Swaps
As at December 31, 2010, the company held credit default swap contracts with an aggregate notional amount
of $84 million (2009 – $365 million). Credit default swaps are contracts which are designed to compensate
the purchaser for any change in the value of an underlying reference asset, based on measurement in credit
spreads, upon the occurrence of predetermined credit events. The company is entitled to receive payments in
the event of a predetermined credit event for up to $75 million (2009 – $245 million) of the notional amount and
could be required to make payments in respect of $9 million (2009 – $120 million) of the notional amount.
144 Brookfield Asset MAnAgeMent
(d) Equity Derivatives
At December 31, 2010, the company and its subsidiaries held equity derivatives with a notional amount of
$790 million (2009 – $567 million) which includes a $543 million (2009 – $366 million) notional amount that
hedges long-term compensation arrangements. The balance represents common equity positions established
in connection with the company’s investment activities. The fair value of these instruments was reflected in the
company’s consolidated financial statements at year-end.
(e) Commodity Instruments
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 specific periods in which it expects to
generate electricity for sale. All energy derivative contracts are recorded at an amount equal to fair value and
are reflected in the company’s consolidated financial statements at year-end.
Other Information Regarding Derivative Financial Instruments
The following table classifies derivatives elected for hedge accounting during the years ended December 31,
2010 and 2009 as either: cash flow hedges, net investment hedges or fair value hedges. Changes in the fair
value of the effective portion of the hedge are recorded in either other comprehensive income or net income,
depending on the hedge classification whereas, changes in the fair value of the ineffective portion of the hedge
are recorded in net income:
As At And for tHe YeArs ended (Millions)
Cash flow hedges1
net investment hedges
fair value hedges
Notional
$ 6,192
4,695
649
2010
Effective
Portion
Ineffective
Portion
$
(41)
(151)
(5)
$
$
4
—
—
4
2009
effective
portion
$
118
4
9
notional
$ 3,359
1,064
447
$ 4,870
$
131
ineffective
portion
$
$
1
5
2
8
$ 11,536
$ (197)
1.
notional amount does not include 2,476 gWh and 2,267 gWh of commodity derivatives at december 31, 2010 and december 31, 2009, respectively
The following table presents the change in fair values of the company’s derivative positions during the years
ended December 31, 2010 and 2009, for both derivatives that are fair value through profit or loss and derivatives
that qualify for hedge accounting:
(Millions)
foreign exchange derivatives
interest rate derivatives
interest rate swaps
Bond forwards
interest rate caps
interest rate swaptions
Credit default swaps
equity derivatives
Commodity derivatives
Unrealized
Gains
During 2010
Unrealized
Losses
During 2010
Net Change
During 2010
net Change
during 2009
$
40
$
(205)
$ (165)
$
28
66
—
—
—
66
1
374
641
(182)
(2)
—
(1)
(185)
(5)
(2)
(105)
$ 1,122
$
(502)
$
(116)
(2)
—
(1)
(119)
(4)
372
536
620
219
—
3
—
222
(4)
19
(30)
$
235
2010 AnnuAl report 145
The following table presents the notional amounts underlying the company’s derivative instruments by term
to maturity as at December 31, 2010 and the comparative notional amounts at December 31, 2009 and January
1, 2009, for both derivatives that are fair value through profit or loss and derivatives that qualify for hedge
accounting:
Dec. 31, 2010
dec. 31, 2009
Jan. 1, 2009
(Millions)
< 1 year
1 to 5 years
> 5 years
Fair value through profit or loss
Total
Notional
Amount
total notional
Amount
total notional
Amount
foreign exchange derivatives
$ 736
$ 563
$
4
$ 1,303
$ 789
$
352
interest rate derivatives
interest rate swaps
interest rate swaptions
interest rate caps
interest rate futures
Credit default swaps
equity derivatives
Commodity instruments
energy (gWh)
natural gas (MMBtu – 000s)
Crude oil (bbls)
Elected for hedge accounting
1,446
523
214
—
2,183
—
76
425
61
42
73
601
75
487
378
—
—
—
378
9
212
2,249
584
256
73
3,162
84
775
1,474
—
384
—
1,858
365
557
1,328
—
393
—
1,721
2,465
409
$ 2,995
$ 1,726
$ 603
$ 5,324
$ 3,569
$ 4,947
17,336
4,056
500
18,181
12,934
500
36,029
—
—
71,546
16,990
1,000
42,822
20,811
—
14,523
17,295
—
foreign exchange derivatives
$ 4,975
$ 185
$ —
$ 5,160
$ 1,431
$ 3,255
interest rate derivatives
interest rate swaps
Bond forwards
interest rate caps
equity derivatives
Commodity instruments
energy (gWh)
362
60
300
722
6
3,135
2,504
—
—
3,135
9
—
—
2,504
—
6,001
60
300
6,361
15
3,129
—
300
3,429
10
2,364
—
300
2,664
8
$ 5,703
$ 3,329
$ 2,504
$ 11,536
$ 4,870
$ 5,927
1,362
1,114
—
2,476
2,267
4,275
24. MANAGEMENT OF RISkS ARISING FROM HOLDING FINANCIAL INSTRUMENTS
The company is exposed to the following risks as a result of holding financial instruments: market risk (i.e.
interest rate risk, currency risk and other price risks that impact the fair values of financial instruments); credit
risk; and liquidity risk. The following is a description of these risks and how they are managed:
(a) Market Risk
Market risk is defined for these purposes as the risk that the fair value or future cash flows of a financial
instrument held by the company will fluctuate because of changes in market prices. Market risk includes the
risk of changes in interest rates, currency exchange rates and changes in market prices due to factors other
than interest rates or currency exchange rates, such as changes in equity prices, commodity prices or credit
spreads.
The company manages market risk from foreign currency assets and liabilities and the impact of changes in
currency exchange rates and interest rates, by funding assets with financial liabilities in the same currency
and with similar interest rate characteristics and holding financial contracts such as interest rate and foreign
exchange derivatives to minimize residual exposures.
146 Brookfield Asset MAnAgeMent
Financial instruments held by the company that are subject to market risk include other financial assets,
borrowings, and derivative instruments such as interest rate, currency, equity and commodity contracts.
Interest Rate Risk
The observable impacts on the fair values and future cash flows of financial instruments that can be directly
attributable to interest rate risk include changes in the net income from financial instruments whose cash
flows are determined with reference to floating interest rates and changes in the value of financial instruments
whose cash flows are fixed in nature.
The company’s assets largely consist of long duration interest sensitive physical assets. Accordingly, the
company’s financial liabilities consist primarily of long-term fixed rate debt or floating rate debt that has
been swapped with interest rate derivatives. These financial liabilities are, with few exceptions, recorded at
their amortized cost. The company also holds interest rate caps to limit its exposure to increases in interest
rates on floating rate debt that has not been swapped and holds interest rate contracts to lock in fixed rates
on anticipated future debt issuances and as an economic hedge against the values of long duration interest
sensitive physical assets that have not been otherwise matched with fixed rate debt.
The result of a 50-basis point increase in interest rates on the company’s net floating rate assets and liabilities
would have resulted in a corresponding decrease in net income before tax of $29 million (2009 – $33 million) on
an annualized basis.
Changes in the value of fair value through profit or loss interest rate contracts are recorded in net income and
changes in the value of contracts that are elected for hedge accounting together with changes in the value of
available-for-sale financial instruments are recorded in other comprehensive income. The impact of a 10-basis
point parallel increase in the yield curve on the aforementioned financial instruments is estimated to result in
a corresponding increase in net income of $6 million (2009 – $4 million) and an increase in other comprehensive
income of $21 million (2009 – $9 million), before tax for the year ended December 31, 2010.
Currency Exchange Rate Risk
Changes in currency rates will impact the carrying value of financial instruments denominated in currencies
other than the U.S. dollar.
The company holds financial instruments with net unmatched exposures in several currencies, changes in the
translated value of which are recorded in net income. The impact of a 1% increase in the U.S. dollar against
these currencies would have resulted in a $7 million (2009 – $8 million) increase in the value of these positions
on a combined basis, of which $6 million (2009 – $12 million) relates to the Canadian dollar. The impact on cash
flows from financial instruments would be insignificant. The company holds financial instruments to hedge the
net investment in foreign operations whose functional and reporting currencies are other than the U.S. dollar.
A 1% increase in the U.S. dollar would increase the value of these hedging instruments by $52 million (2009 –
$14 million) as at December 31, 2010, which would be recorded in other comprehensive income and offset by
changes in the U.S. dollar carrying value of the net investment being hedged.
Other Price Risk
Other price risk is the risk of variability in fair value due to movements in equity prices or other market prices
such as commodity prices and credit spreads.
Financial instruments held by the company that are exposed to equity price risk include equity securities and
equity derivatives. A 5% decrease in the market price of equity securities and equity derivatives held by the
company, excluding equity derivatives in respect of compensation arrangements, would have decreased net
income by $55 million (2009 – $27 million) and decreased other comprehensive income by $5 million (2009 –
$7 million), prior to taxes. The company’s liability in respect of equity compensation arrangements is subject
to variability based on changes in the company’s underlying common share price. The company holds equity
derivatives to hedge almost all of the variability. A 5% change in the common equity price of the company in
respect of compensation agreements would increase the compensation liability and compensation expense by
$24 million (2009 – $16 million). This increase would be offset by a $25 million (2009 – $17 million) change in value
of the associated equity derivatives of which $24 million (2009 – $16 million) would offset the above mentioned
increase in compensation expense and the remaining $1 million (2009 – $1 million) would be recorded in other
comprehensive income.
2010 AnnuAl report 147
The company sells power and generation capacity under long-term agreements and financial contracts to
stabilize future revenues. Certain of the contracts are considered financial instruments and are recorded
at fair value in the financial statements, with changes in value being recorded in either net income or other
comprehensive income as applicable. A 5% increase in energy prices would have decreased net income for
the year ended December 31, 2010 by approximately $113 million (2009 – $21 million) and decreased other
comprehensive income by $6 million (2009 – $4 million), prior to taxes. The corresponding increase in the value
of the revenue or capacity being contracted, however, is not recorded in net income until subsequent periods.
The company held credit default swap contracts with a net notional amount of $84 million (2009 – $125 million)
at December 31, 2010. The company is exposed to changes in the credit spread of the contracts’ underlying
reference asset. A 10-basis point increase in the credit spread of the underlying reference assets would have
increased net income by $0.3 million (2009 – $0.3 million) for the year ended December 31, 2010, prior to taxes.
(b) Credit Risk
Credit risk is the risk of loss due to the failure of a borrower or counterparty to fulfill its contractual obligations.
The company’s exposure to credit risk in respect of financial instruments relates primarily to counterparty
obligations regarding derivative contracts, loans receivable and credit investments such as bonds and
preferred shares.
The company assesses the credit worthiness of each counterparty before entering into contracts and
ensures that counterparties meet minimum credit quality requirements. Management evaluates and monitors
counterparty credit risk for derivative financial instruments and endeavours to minimize counterparty credit
risk through diversification, collateral arrangements, and other credit risk mitigation techniques. The credit risk
of derivative financial instruments is generally limited to the positive fair value of the instruments, which,
in general, tends to be a relatively small proportion of the notional value. Substantially all of the company’s
derivative financial instruments involve either counterparties that are banks or other financial institutions in
north America, the United Kingdom and Australia, or arrangements that have embedded credit risk mitigation
features. The company does not expect to incur credit losses in respect of any of these counterparties. The
maximum exposure in respect of loans receivable and credit investments is equal to the carrying value.
(c) Liquidity Risk
Liquidity risk is the risk that the company cannot meet a demand for cash or fund an obligation as it comes
due. Liquidity risk also includes the risk of not being able to liquidate assets in a timely manner at a reasonable
price.
To ensure the company is able to react to contingencies and investment opportunities quickly, the company
maintains sources of liquidity at the corporate and subsidiary level. The primary source of liquidity consists of
cash and other financial assets, net of deposits and other associated liabilities, and undrawn committed credit
facilities.
The company is subject to the risks associated with debt financing, including the ability to refinance indebtedness
at maturity. The company believes these risks are mitigated through the use of long-term debt secured by
high quality assets, maintaining debt levels that are in management’s opinion relatively conservative, and
by diversifying maturities over an extended period of time. The company also seeks to include in its agreements
terms that protect the company from liquidity issues of counterparties that might otherwise impact the
company’s liquidity.
25. CAPITAL MANAGEMENT
The capital of the company consists of the components of equity in the company’s consolidated balance sheet
(i.e. common and preferred equity) as well as the company’s capital securities, which consist of corporate
preferred shares that are convertible into common shares at the option of either the holder or the company. As
at December 31, 2010, the recorded values of these items in the company’s consolidated financial statements
totalled $15.1 billion (2009 – $13.6 billion).
The company’s objectives when managing this capital are to maintain an appropriate balance between holding
a sufficient amount of capital to support its operations, which includes maintaining investment-grade ratings
at the corporate level, and providing shareholders with a prudent amount of leverage to enhance returns.
Corporate leverage, which consists of corporate debt as well as subsidiary obligations that are guaranteed by
148 Brookfield Asset MAnAgeMent
the company or are otherwise considered corporate in nature, totalled $3.8 billion based on carrying values
at December 31, 2010 (2009 – $3.4 billion). The company monitors its capital base and leverage primarily in the
context of its deconsolidated debt-to-total capitalization ratios based on the company’s net tangible asset
value. The ratio as at December 31, 2010 was 15% (2009 – 14%), which is within the company’s target.
The consolidated capitalization of the company includes the capital and financial obligations of consolidated
entities, including long-term property-specific financings, subsidiary borrowings, capital securities as well
as common and preferred equity held by other investors in these entities. The capital in these entities is
managed at the entity level with oversight by management of the company. The capital is managed with the
objective of maintaining investment-grade levels in most circumstances and is, except in limited and carefully
managed circumstances, without any recourse to the company. Management of the company also takes into
consideration capital requirements of consolidated and non-consolidated entities that it has interests in when
considering the appropriate level of capital and liquidity on a deconsolidated basis.
The company is subject to limited covenants in respect of its corporate debt and is in full compliance with all
such covenants as at December 31, 2010. The company and its consolidated entities are also in compliance
with all covenants and other capital requirements related to regulatory or contractual obligations of material
consequence to the company.
26. POST-EMPLOYMENT BENEFITS
The company offers pension and other post employment benefit plans to employees of certain of its
subsidiaries. The company’s obligations under its defined benefit pension plans are determined periodically
through the preparation of actuarial valuations. The benefit plans’ income for 2010 was $13 million (2009 –
expense of $15 million). The discount rate used was 6% (2009 – 6%) with an increase in the rate of compensation
of 3% (2009 – 4%) and an investment rate of 7% (2009 – 8%).
(Millions)
plan assets
less accrued benefit obligation:
defined benefit pension plan
other post-employment benefits
net asset (liability)
less: unamortized transitional obligations and net actuarial losses
Accrued benefit asset
27. JOINT OPERATIONS
Dec. 31, 2010
dec. 31, 2009
Jan. 1, 2009
$
833
$
1,063
$
983
(752)
(39)
42
27
69
$
(1,186)
(1,094)
(34)
(157)
264
107
$
(62)
(173)
291
118
$
The following amounts represent the company’s proportionate interest in jointly controlled assets that are
proportionately consolidated in the company’s accounts:
As At And YeArs ended (Millions)
Dec. 31, 2010
dec. 31, 2009
Jan. 1, 2009
Current assets
long-term assets
total assets
Current liabilities
long-term liabilities
total liabilities
revenues
expenses
net income (loss)
$
$
$
$
$
$
53
3,536
3,589
278
768
1,046
465
106
359
$
180
$
135
$
$
2,766
2,901
408
607
$
1,015
$
$
$
$
2,016
2,196
68
556
624
298
458
$
(160)
2010 AnnuAl report 149
28. SEGMENTED INFORMATION
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 five
reportable segments:
(a) Renewable power generation operations, which are predominantly hydroelectric power generating facilities
on river systems in north America and Brazil;
(b) Commercial property operations, which are principally commercial office properties, retail properties and
commercial developments located primarily in major north American, Australian, Brazilian and European
cities;
(c) Infrastructure operations, which are predominantly utilities, transport and energy and timberland
operations located in Australia, north America, Europe and South America;
(d) Development activities operations, which are principally residential development, opportunistic investing
and homebuilding operations, located primarily in major north American, Brazilian and Australian cities;
and
(e) Private equity and finance operations include the company’s restructuring funds, real estate finance,
bridge lending and other investments.
non-operating assets, liabilities and related revenues, cash flows and net income (loss) are presented as cash,
financial assets, fee revenues and other.
The following table disaggregates revenue, net income (loss), assets and liabilities by reportable segments:
As At And for tHe YeArs ended
(Millions)
Revenue
Net
Income
Assets Liabilities
revenue
net
income
Assets liabilities
Assets liabilities
renewable power generation
$ 1,161 $
406 $ 14,738 $ 9,902 $ 1,136 $
(40) $ 15,081 $ 9,771 $ 14,013 $ 7,823
Dec. 31, 2010
dec. 31, 2009
Jan. 1, 2009
Commercial properties
infrastructure
development activities
private equity and finance
Cash, financial assets,
fee revenues and other
2,085
867
2,713
3,802
1,602
538
299
173
27,654
13,695
9,393
7,554
14,055
8,446
5,336
4,078
2,045
420
1,881
3,473
(687)
(106)
(53)
(47)
22,600
13,124
21,069
12,830
6,395
8,987
6,999
3,039
4,820
3,786
4,870
6,959
6,284
2,456
4,258
3,325
2,995
177
5,097
7,122
2,263
(43)
4,903
7,286
4,431
6,759
$ 13,623 $ 3,195 $ 78,131 $ 48,939 $ 11,218 $
(976) $ 64,965 $ 41,826 $ 57,626 $ 37,451
Revenues, assets and liabilities by geographic segments are as follows:
As At And for tHe YeArs ended
(Millions)
Revenue
Assets Liabilities
revenue
Assets
liabilities
Assets
liabilities
united states
$ 5,069
$ 28,122
$ 18,100
$ 4,743
$ 27,083
$ 19,429
$ 27,227
$ 19,437
Dec. 31, 2010
dec. 31, 2009
Jan. 1, 2009
Canada
Australia
Brazil
europe
other
2,607
2,034
1,688
1,283
942
17,440
16,813
11,483
3,348
925
12,053
10,028
6,453
1,937
368
2,399
1,660
1,212
797
407
15,917
10,143
14,542
7,706
9,594
3,450
1,215
4,292
5,166
2,450
346
5,654
7,015
2,154
1,034
8,732
3,820
4,127
1,156
179
$ 13,623
$ 78,131
$ 48,939
$ 11,218
$ 64,965
$ 41,826
$ 57,626
$ 37,451
150 Brookfield Asset MAnAgeMent
29. SUPPLEMENTAL CASH FLOW INFORMATION
YeArs ended deCeMBer 31 (Millions)
Corporate borrowings
issuances
repayments
Commercial paper and bank borrowings repayments, net of issuances
net
property-specific mortgages
issuances
repayments
net
other debt of subsidiaries
issuances
repayments
net
Common shares
issuances
repayments
net
investment property
proceeds of dispositions
investments
net
renewable power generation
proceeds of dispositions
investments
net
infrastructure
proceeds of dispositions
investments
net
private equity and finance
proceeds of dispositions
investments
net
investments
proceeds of dispositions
investments
net
other financial assets
proceeds of disposition
investments
net
2010
$
630
$
(203)
(193)
2009
459
(20)
(333)
$
234
$
106
$
3,141
$
2,239
(3,455)
(2,810)
$
(314)
$
(571)
$
744
$
1,302
(1,104)
(1,661)
$
(360)
$
(359)
$
$
45
—
45
$
$
14
(18)
(4)
$
749
$
158
(1,370)
(701)
$
(621)
$
(543)
$
—
$
—
(348)
(164)
$
(348)
$
(164)
$
$
69
(58)
11
$
116
(247)
$
314
$
$
(321)
(7)
36
(235)
$
(131)
$
(199)
$
—
$
—
(442)
(859)
$
(442)
$
(859)
$
1,328
$
1,160
(1,719)
(1,268)
$
(391)
$
(108)
Cash taxes paid were $141 million (2009 – $19 million). Cash interest paid totalled $1,784 million (2009 –
$1,581 million). Sustaining capital expenditures in the company’s power generating operations were $59 million
(2009 – $70 million), in its property operations were $47 million (2009 – $49 million) and in its infrastructure
operations were $22 million (2009 – $13 million).
Included in cash and cash equivalents is $1,188 million (December 31, 2009 – $776 million) of cash and
$525 million of short-term deposits at December 31, 2010 (December 31, 2009 – $533 million).
2010 AnnuAl report 151
30. OTHER INFORMATION
(a) Commitments, Guarantees and Contingencies
In the normal course of business, the company and its subsidiaries enter into contractual obligations which
include commitments to provide bridge financing, letters of credit and guarantees provided in respect of
power sales contracts and reinsurance obligations. At the end of 2010, the company and its subsidiaries had
$1,338 million (2009 – $1,285 million) of such commitments outstanding of which $147 million (2009 – $244 million)
is included in accounts payable and other liabilities in the consolidated balance sheets.
In addition, the company and its consolidated subsidiaries execute agreements that provide for indemnifications
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 officers and employees. The nature of
substantially all of the indemnification 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 significant payments in the past nor do they expect at this time to
make any significant payments under such indemnification agreements in the future.
The company periodically enters into joint venture, consortium or other arrangements that have contingent
liquidity rights in favour of the company or its counterparties. These include buy-sell arrangements, registration
rights and other customary arrangements. These agreements generally have embedded protective terms
that mitigate the risk to us. The amount, timing and likelihood of any payments by the company under these
arrangements is in most cases dependent on either further contingent events or circumstances applicable to
the counterparty and therefore cannot be determined at this time.
The company and its subsidiaries are contingently liable with respect to litigation and claims that arise in the
normal course of business.
The company has $3.5 billion 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, through its subsidiaries within the residential properties operations, is contingently liable for
obligations of its associates in its land development joint ventures. In each case, all of the assets of the joint
venture are available first for the purpose of satisfying these obligations, with the balance shared among the
participants in accordance with predetermined joint venture arrangements.
(b)
Insurance
The company conducts insurance operations as part of its activities. As at December 31, 2010, the company
held insurance assets of $473 million (2009 – $709 million) in respect of insurance contracts that are accounted
for using the deposit method which were offset in each year by an equal amount of reserves and other liabilities.
During 2010, net underwriting gains on reinsurance operations were $3 million (2009 – $13 million) representing
$59 million (2009 – $89 million) of premium and other revenues offset by $56 million (2009 – $102 million) of
reserves and other expenses.
152 Brookfield Asset MAnAgeMent
(c) Compensation of key Management Personnel
The remuneration of directors and other key management personnel of the company during the years ended
December 31, 2010 and 2009 was as follows:
(Millions)
salaries, incentives and short-term benefits
share-based payments
2010
4
14
18
$
$
2009
3
15
18
$
$
The remuneration of directors and key executives is determined by the Compensation Committee having
regard to the performance of individuals and market funds.
2010 AnnuAl report 153
CAutionArY stAteMent regArding forWArd-looking stAteMents
This Annual Report contains forward-looking information within the meaning of Canadian provincial securities
laws and “forward-looking statements” within the meaning of Section 27A of the U.S. Securities Act of 1933,
as amended, Section 21E of the U.S. Securities Exchange Act of 1934, as amended, “safe harbour” provisions
of the United States Private Securities Litigation Reform Act of 1995 and in any applicable Canadian securities
regulations. The words, “potential,” “intend,” “grow,” “plan,” “seek,” “expect,” “believe,” “predict,” “project,”
“estimate,” “anticipate,” “objective,” “continue,” “enable,” “expand,” “likely,” and derivations thereof and other
expressions, including conditional verbs such as “will,” “can,” “may,” “might,” “could,” “would” and “should” are
predictions of or indicate future events, trends or prospects or identify forward-looking statements. Forward-
looking statements in this Annual Report include statements with respect to: our belief that we should record
substantially increased cash flows as the recovery gains momentum, our economically sensitive businesses
continue to recover and new operations start to fully contribute; our belief in continued growth in 2011, as
well as a recovery in employment levels and the impact on our shorter cycle businesses; our objective to
increase the intrinsic value of a Brookfield common share at a rate of 12% to 15% per annum when measured
over the longer term; our belief that our business strategies should enable our shares to compound at a rate
of between 12% and 15%; our expectation of growth opportunities with our investment in general growth
Properties, Inc., and our positive outlook on its long-term prospects; our ability to capitalize on organic growth
opportunities over the next decade in Australia, Brazil and Canada, and our belief that such countries will
continue to be excellent places to invest our capital; our belief in the recovery of the U.S. economy over the
medium to longer term; our ability to organically expand our operations, achieve our goals for return on capital
and make acquisitions at highly attractive long-term returns; the ability of Brookfield Infrastructure to increase
distributions; our belief that Brookfield Office Properties will become a premier public security in the capital
markets over the next five years; our belief that our Brazilian residential homebuilder in on track to achieve its
best year ever as the Brazilian real estate market continues to prosper; the closing of the combination of BPO’s
residential business with Brookfield Homes, as well as our belief in improvement in north American residential
markets over the next few years and the ability of the combined entity to compete with large-scale developers;
our ability to expand our agricultural activities in Brazil through our fund, and the long-term upside from our
agricultural land operations; our focus on the balance sheet leading to greater stability of operating cash flows
and safeguarding of our assets; our ability to raise private capital, including our expectations of availability;
our ability to grow our asset management business and increase the level of base management fees, and
our belief that our assets should become more appealing to investors over time; our expectation to expand
our property, renewable power and infrastructure businesses and future cash flows with internal initiatives
and new acquisitions; our expectation of a reduction in energy prices within our renewable power operations
over the next few years; the potential growth in capital and fees over the next 10 years as reflected in our
assessment of the value of our asset management franchise; our assumptions in valuing our tangible assets,
including projected cash flows and discount rates; our unrecognized and deferred performance-based income
in our asset management business; our expectation for having seven funds in the market over the next eighteen
months for which we will be seeking more than $4 billion of third-party capital; our development activities,
including wind facilities in Canada and the United States and hydro facilities in Brazil; our objective to lock
in the current lower yield interest rate environment and extend term to match fund our long-life assets; our
ability to complete highly promising investment opportunities; our targeted returns; our expectation on when
our development hydroelectric facilities and wind facilities will be commissioned; the scheduled completion
of City Square office development in Australia; our ability to maintain or increase our net rental income in the
coming years; our expectation for office development in Manhattan; our expectation of continued growth in net
operating income and lower interest rates over time to result in favourable total returns for BRREP; our belief
that our utilities business allows for stable growth and margin expansion; our expectation of stable revenues
and margins that should increase with inflation and operational improvements, and continued growth, in our
regulated utilities business; our belief that our transport and energy businesses are well positioned to benefit
from increases in commodity demand and the global movement of goods; our ability to structure our financing
arrangements to provide sufficient duration and flexibility to manage our investments with a longer-term
horizon; our expectation that the receipt of performance-based income from our funds business will not result
in any meaningful cash taxes; our assumption of growth in capital under management in our unlisted funds and
managed listed issuers growing at a 10% growth rate over the next 10 years; our assumption of annualized gross
margin of 150 basis points in our asset management operations, and our belief that we can add meaningfully to
managed capital without a commensurate increase in expenses; future determination of our legal proceedings
with AIg Financial Products; hedging of currency risks if we believe currency valuations are misaligned and to
154 Brookfield Asset MAnAgeMent
protect shorter term capital flows; our belief that our asset management activities and business franchise will
contribute to additional cash flow growth and enhancement of existing and future business activities; and other
statements with respect to our beliefs, outlooks, plans, expectations, and intentions. Although Brookfield Asset
Management believes that its anticipated future results, performance or achievements expressed or implied by
the forward-looking statements and information are based upon reasonable assumptions and expectations, the
reader should not place undue reliance on forward-looking statements and information 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 and information.
Factors that could cause actual results to differ materially from those contemplated or implied by forward-
looking statements include: economic and financial conditions in the countries in which we do business; rate
of recovery of the current financial crisis; the behaviour of financial markets, including fluctuations in interest
and exchange rates; availability of equity and debt financing and refinancing; strategic actions including
dispositions; the ability to complete and effectively integrate acquisitions into existing operations and the
ability to attain expected benefits; adverse hydrology conditions; the ability to continue to attract institutional
investors to our funds; regulatory and political factors within the countries in which the company operates;
tenant renewal rates; availability of new tenants to fill office property vacancies; tenant bankruptcies; acts of
god, such as earthquakes and hurricanes; the possible impact of international conflicts and other developments
including terrorist acts; and other risks and factors detailed from time to time in the company’s form 40-F filed
with the Securities and Exchange Commission as well as other documents filed by the company with the
securities regulators in Canada and the United States including Management’s Discussion and Analysis of
Financial Results under the heading “Business Environment and Risks.”
We caution that the foregoing list of important factors that may affect future results is not exhaustive. When
relying on our forward-looking statements to make decisions with respect to Brookfield, investors and others
should carefully consider the foregoing factors and other uncertainties and potential events. Except as required
by law, the company undertakes no obligation to publicly update or revise any forward-looking statements or
information, whether written or oral, that may be as a result of new information, future events or otherwise.
2010 AnnuAl report 155
sUstAinABle deVeloPMent
At Brookfield, we understand that the actions we take to ensure the sustainability of our business can
have a far reaching impact on the communities and environment in which our clients, employees and
shareholders live. Management and the Board of Directors consider our corporate citizenship and social
responsibilities in our business decisions to be a high priority and we strive for the highest standards in
environmental, safety and economic performance throughout out operations.
We have over $120 billion of assets under management and more than a century of experience as business
operators, and have developed expertise in areas such as energy and water conservation, recycling, wildlife
preservation, timber harvesting and erosion control. We pursue innovative programs and systems that
foster environmental responsibility across all of our operations. Reviewing and improving our sustainability
practices is an ongoing priority at all levels of the organization.
We do not believe that sustainable development and the pursuit of shareholder value are mutually exclusive.
In fact, in almost all of our businesses, they are very complementary.
Our $15 billion power portfolio represents one of the world’s largest collection of renewable power facilities,
with 167 hydro stations and wind farms on two continents. In an average year, our plants generate enough
clean power to supply 1.4 million homes. The same output from coal-fired generation would produce
15 million tons of CO2. Our ability to produce energy during peak periods, and conserve water during off-
peak hours, meets an important social need, as we deliver clean power when demand is at its highest.
In addition to producing carbon-free clean power, we employ corporate responsibility and sustainability
standards in our renewable power operations that include:
• Environmental Management Systems modelled on the ISO 14001 Standard
• Safe Work Management Systems aligned with the OHSAS 18001 Standard
• Codes of Conduct on corporate and social responsibility for employees, contractors and consultants
• Extensive independent audit programs
As one of the largest commercial property investors in the world, we are committed to continuous
improvement of our environmental performance. Sustainability is a priority for our tenants, and as
landlords, our goal is to exceed their expectations. We know that shrinking the environmental footprint
in our buildings, and cutting back on energy, water and waste will have a positive effect on the financial
performance of our assets. To assist our efforts and assess our progress, we commissioned an outside
audit of sustainability initiatives within our portfolio of 18 Canadian office buildings last year, and found
that in 2010, our recycling programs saved the equivalent of 191,000 trees, our water usage fell by an
amount that would fill 120 Olympic sized pools, and we saved enough electricity to power 3,800 homes.
Within our 88 million-square foot global office portfolio, we currently have:
• 16 Leadership in Energy and Environmental (LEED) certifications
• 100% of our Canadian properties earned BOMA BESt (Building Environmental Standards) certification
• 80% of our U.S. properties achieved ENERGY STAR certification
In our $15 billion infrastructure division, we hold 2.3 million acres of timberland, one of the largest private
holdings of forest land in North America. These trees offset greenhouse gas emissions by capturing and
storing carbon dioxide, and are a truly renewable resource. In managing our timber portfolio, we focus on
sustainable harvest levels, and meet both our own internal standards and regulations set down in more
than 30 government statutes.
156 Brookfield Asset MAnAgeMent
Our timber practices meet or exceed measures set under the U.S. Sustainable Forestry Initiative (SFI 2005-
2009 Standard), a code that balances the economic benefits of forest management with other forest values.
The major principles in this program include:
• Sustainable Forestry
• Soil Preservation
• Protection of Water Resources
• Protection of Special Sites and Biological Diversity
Our goal is to be responsible stewards of our resources, and good citizens in all that we do. Brookfield is
an active contributor in the communities where we conduct business. We are proud of the commitment we
have made to corporate social responsibility. The initiatives we undertake and the investments we make in
building our company are guided by our core set of values around sustainable development, as we create a
culture and organization that can be successful today and in the future.
corPorAte goVernAnce
Management and the Board of Directors are committed to working together to achieve strong and effective
corporate governance. Our Board of Directors is of the view that our corporate governance policies and
practices and our disclosure in this regard are appropriate, effective and consistent with the guidelines
established by Canadian and U.S. securities regulators. We continue to review our corporate governance
policies and practices in relation to evolving legislation, guidelines and best practices.
Our Statement of Corporate Governance Practices is set out in full in the Management Information Circular
prepared each year and distributed to shareholders who request it along with the Notice of our Annual
Meeting. This Statement is also available on our web site, www.brookfield.com, at “About Brookfield /
Corporate Governance.”
You can also access the following documents referred to in the Statement on our web site: our Board of
Directors Charter, 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 Code of Business Conduct and Ethics and our Corporate Disclosure Policy.
AnnUAl rePort 157
sHAreHolder inforMAtion
shareholder enquiries
investor relations and communications
Shareholder enquiries should be directed to our Investor Relations
group at:
Brookfield Asset Management Inc.
Suite 300, Brookfield Place, Box 762, 181 Bay Street
Toronto, Ontario M5J 2T3
Telephone: 416-363-9491
Facsimile:
416-363-2856
Web site: www.brookfield.com
E-Mail:
inquiries@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)
Facsimile:
Web site: www.cibcmellon.com
E-Mail:
inquiries@cibcmellon.com
416-643-5501
We are committed to informing our shareholders of our progress
through our comprehensive communications program which
includes publication of materials such as our annual report,
quarterly interim reports and news releases. We also maintain a
web site that provides ready access to these materials, as well
as statutory filings, stock and dividend information and other
presentations.
Meeting with shareholders is an integral part of our communica-
tions program. Directors and management meet with Brookfield’s
shareholders at our annual meeting and are available to respond to
questions. Management is also available to investment analysts,
financial advisors and media.
The text of the company’s 2010 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 2011 Annual and Special Meeting of Shareholders
will be held at 10:30 a.m. on Wednesday, May 11, 2011 at the
Auditorium, 300 Madison Avenue, New York, New York.
stock exchange listings
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 Class A Common Shares in the company
without payment of commissions. Further details on the Dividend
Reinvestment Plan and a Participation Form can be obtained from
our Toronto office, our transfer agent or from our web site.
Symbol
Stock Exchange
Class A Common Shares BAM
BAM.A
BAMA
Class A Preference Shares
New York
Toronto
Euronext – Amsterdam
Series 2
Series 4
Series 8
Series 9
Series 10
Series 11
Series 12
Series 13
Series 14
Series 17
Series 18
Series 21
Series 22
Series 24
Series 26
Series 28
BAM.PR.B Toronto
BAM.PR.C Toronto
BAM.PR.E Toronto
BAM.PR.G Toronto
BAM.PR.H Toronto
Toronto
BAM.PR.I
BAM.PR.J
Toronto
BAM.PR.K Toronto
BAM.PR.L
Toronto
BAM.PR.M Toronto
BAM.PR.N Toronto
BAM.PR.O Toronto
BAM.PR.P Toronto
BAM.PR.R Toronto
BAM.PR.T Toronto
BAM.PR.X 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, 13, 17,
18, 21, 22, 24, 26 and 28
15th day of March, June, September and December
Last day of March, June, September and December
Series 8 and 14
Series 9
Last day of each month
12th day of following month
5th day of January, April, July and October
First day of February, May, August and November
1. All dividend payments are subject to declaration by the Board of Directors
158 Brookfield Asset MAnAgeMent
BoArd of directors And officers
BoArd of directors
Jack l. cockwell
Group Chairman
Brookfield Asset Management Inc.
Marcel r. coutu
President and Chief Executive Officer
Canadian Oil Sands Limited
the Hon. J. trevor eyton, o.c.
Corporate Director and former
Member of the Senate of Canada
david W. kerr
Corporate Director
lance liebman
Director
American Law Institute
J. Bruce flatt
Chief Executive Officer
Brookfield Asset Management Inc.
Philip B. lind, c.m.
Vice-Chairman
Rogers Communications Inc.
James k. gray, o.c.
Founder and former Chairman and CEO
Canadian Hunter Exploration Ltd.
g. Wallace f. Mccain, o.c., c.c., o.n.b.
Chairman
Maple Leaf Foods Inc.
robert J. Harding, f.c.a.
Chairman, Brookfield Global
Infrastructure Advisory Board
Maureen kempston darkes, o.c., o.ont.
Corporate Director, and former President
Latin America, Africa and Middle East
General Motors Corporation
the Hon. frank J. Mckenna, p.c., o.c., o.n.b.
Chairman, Brookfield Asset
Management Inc. and Deputy Chair,
TD Bank Financial Group
dr. Jack M. Mintz
Palmer Chair in Public Policy
University of Calgary
Youssef A. nasr
Corporate Director and former Chairman
and CEO of HSBC Middle East Ltd. and
former President of HSBC Bank Brazil
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.
senior MAnAging PArtners
Barry s. Blattman
Jeffrey M. Blidner
richard B. clark
J. Bruce flatt
Joseph s. freedman
Harry A. goldgut
Brian W. kingston
Brian d. lawson
richard J. legault
luiz ildefonso lopes
cyrus Madon
george e. Myhal
samuel J.B. Pollock
corPorAte officers
J. Bruce flatt
Chief Executive Officer
Brian d. lawson
Chief Financial Officer
Jeffrey A. Haar
Corporate Secretary
Brookfield incorporates sustainable development practices within our
corporation. This document was printed in Canada using vegetable-based
inks on FSC certified stock.
AnnUAl rePort 159
Brookfield
BROOKFIELD ASSET MANAGEMENT INC.
CORPORATE OFFICES
New York – United States
Three World Financial Center
200 Vesey Street, 10th Floor
New York, New York
10281-0221
T 212.417.7000
F 212.417.7196
Toronto – Canada
Brookfield Place, Suite 300
Bay Wellington Tower
181 Bay Street, Box 762
Toronto, Ontario M5J 2T3
T 416.363.9491
F 416.365.9642
REGIONAL OFFICES
Sydney – Australia
Level 22
135 King Street
Sydney, NSW 2001
T 61.2.9322.2000
F 61.2.9322.2001
London – United Kingdom
23 Hanover Square
London W1S 1JB
United Kingdom
T 44 (0) 20.7659.3500
F 44 (0) 20.7659.3501
Hong Kong
Lippo Centre, Tower One
13/F, 1306
89 Queensway, Hong Kong
T 852.2143.3003
F 852.2537.6948
Dubai – UAE
Level 12, Al Attar Business Tower
Sheikh Zayed Road
Dubai, UAE
T 971.4.3158.500
F 971.4.3158.600
Rio de Janeiro – Brazil
Rua Lauro Müller 116, 21° andar,
Botafogo - Rio de Janeiro - Brasil
22290 - 160
CEP: 71.635-250
T 55 (21) 3527.7800
F 55 (21) 3527.7799
www.brookfield.com NYSE: BAM TSX: BAM.A EURONEXT: BAMA