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Annual Report
A Global Alternative Asset Management Company
Brookfield
OUR BUSINESS
Brookfield Asset Management Inc. is a global alternative asset
manager with over $175 billion in assets under management.
Leading Global Franchise
We have more than a century of experience owning and
operating assets with a focus on property, renewable power,
infrastructure and private equity. We offer a range of public
and private investment products and services, which leverage
our expertise and experience and provide us with a distinct
competitive advantage in the markets in which we operate.
Brookfield is co-listed on the New York and Toronto stock
exchanges under the symbols BAM, BAM.A, respectively, and on
the NYSE Euronext under the symbol BAMA.
20
Countries
100
Offices and Locations
600
Investment Professionals
24,000
Operating Employees
CONTENTS
Letter to Shareholders
MD&A of Financial Results
Internal Control Over Financial Reporting
4
13
83
Consolidated Financial Statements
87
Corporate Social Responsibility
Cautionary Statement Regarding
Forward-Looking Statements
Shareholder Information
145
Board of Directors and Officers
146
148
149
BROOKFIELD ASSET MANAGEMENT R
e
v
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n
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s
T
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t
a
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A
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DELIVERING PERFORMANCE
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1
5
0
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2
0
0
0
0
0
5
0
1
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5
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“Our primary objective is to increase the value of Brookfield on a per share basis, at a rate in excess of 12%
when measured over the long term.”
T
o
t
a
R
e
v
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n
u
e
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2012 Results
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5
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35%
Increase in share price
$1.4B
Funds from operations
$2.7B
Consolidated net income
l
A
U
M
1
0
0
1
5
0
2012
$
1.97
1.94
36.65
2
0
0
$
2011
2.89
1.76
27.48
$ 181,400
108,644
$
160,338
91,022
18,697
2,747
1,380
1,356
658.0
15,921
3,674
1,957
1,211
657.2
AS AT AND FOR THE YEARS ENDED DECEMBER 31
0
5
0
PER FULLY DILUTED SHARE
Net income
Funds from operations
Market trading price – NYSE
TOTAL (MILLIONS)
Total assets under management
Consolidated balance sheet assets
Consolidated results
Revenues
Net income
For Brookfield shareholders
Net income
Funds from operations
Diluted number of common shares outstanding
Note: See “Use of Non-IFRS Measures” on page 21.
Total AUM
($Billions)
Revenues1
($Billions)
‘08
‘09
‘10
‘11
‘12
90
108
122
‘08
‘09
‘10
‘11
160
181
‘12
12,909
12,082
13,623
15,921
18,697
1.
2008 and 2009 revenues based on Canadian GAAP financial results
2012 ANNUAL REPORT 1
LEADING ALTERNATIVE ASSET MANAGER
We are differentiated as an alternative asset manager by our strategic focus on real assets, depth of operating
expertise, global platform, scale and extended investment horizon which enable us to drive greater returns over
the long term for our shareholders and partners.
Total assets under management
Fee bearing capital
under management for clients
$181B
$60B
Multi-fund platform to meet the
diverse needs of our global client base
28
Private funds
3
Global flagship listed entities
Solid pipeline of
private funds in marketing
6
Private funds
$5B
Additional 3rd Party Capital
Leading global fund investors
~150
Clients
~25%
Invested in Multiple Funds
2 BROOKFIELD ASSET MANAGEMENT
CORE INVESTMENT PRINCIPLES
Brookfield’s approach to investing is disciplined and straightforward. With a focus on value creation and capital
preservation, we invest opportunistically in high-quality real assets within our areas of expertise, manage them
proactively and finance conservatively to generate stable, predictable and growing cash flows for clients and
shareholders. Our approach to investing is anchored by a set of core investment principles that guide our
decisions and how we measure success.
Business Philosophy
Build our business and all our 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 client and shareholder money like it’s our own
Investment Guidelines
Invest where we possess competitive advantages
Acquire assets on a value basis with a goal of maximizing return on capital
Build sustainable cash flows to provide certainty, reduce risk and lower our 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, as size does not necessarily add value
2012 ANNUAL REPORT 3
LETTER TO SHAREHOLDERS
Overview
During the last 12 months a number of investments made in recent years started to pay off. This
includes the incredible array of assets we assembled by sponsoring both the recapitalization of
Babcock & Brown and General Growth Properties in 2009 and 2010, respectively. In addition, all
of our operations were very active during 2012 with both new acquisitions and add-on investments.
New asset additions include 23 renewable power facilities, more than 3,200 kilometres of toll roads in
South America, a gas utility business in the UK, office properties in Australia and the city of London,
and a district energy business in Canada.
The fiscal issues in the U.S. and Europe dominated the financial news during most of the year, but this
did not stop the recovery of underlying business fundamentals in most of our operations, which we
expect to continue to improve their performance in the current year.
We advanced our brand internationally by adding many new global clients, and we are honoured
to have their support. In aggregate, we raised $5 billion of private fund capital and increased the
permanent capital base of our listed issuers by a further $5 billion. With the public listing of our
property group imminent, the size and scope of our listed issuers are poised to grow significantly.
This family of flagship listed issuers, Brookfield Infrastructure Partners, Brookfield Renewable Energy
Partners, and the soon to be listed Brookfield Property Partners, in conjunction with our private funds,
should allow us to continue to grow each of these businesses globally with access to a broad array
of capital sources.
Market Environment
Global equity markets were largely up in 2012, led by the strong performance of the S&P 500. Markets
were buoyed by a combination of the aggressive reflationary policies of the world’s central banks,
the perceived lower risk of significant systemic events, and the continuation of positive economic
performance from both the U.S. and China.
In the U.S., both banks and the capital markets are making credit more freely available to businesses
and consumers and this has resulted in positive recoveries in the housing and auto sectors, and
consequently, among other things, rising employment levels. In addition, the U.S. banking system is
healthy and household formation is finally on the rise. With growing investments in housing, energy-
related industries and manufacturing, the U.S. economy has the potential to surprise on the upside as
the year progresses. Of course, the ongoing U.S. fiscal debate and political issues represent a risk to
this view, but we expect common sense to prevail.
In Europe, the banking system is still contracting, with both the amount and availability of credit
shrinking. The economy will not start to grow until this trend is reversed. We expect, however, to
find attractive investment opportunities in Europe as we assist corporations in recapitalizing their
operations.
China has almost finished its once-in-a-decade leadership change and is poised to continue its gradual
transition into an economy that is less dependent on investment-led growth. Retail sales have grown
in a strong and steady fashion and China’s positive trade balance has been maintained, despite the
4 BROOKFIELD ASSET MANAGEMENT
challenges with the economies of some of its major trading partners. Our expectation is that China
will meet the economic objectives disclosed in its recently released five-year plan. This is a positive
development for all of our Australasian and South American investments.
Our View of the Investment Landscape
There are three long-term trends that will drive our future results. First, we believe global institutional
investors will continue to allocate more of their funds to real assets. This bodes well for the continuing
growth of our assets under management. Second, interest rates are unlikely to go much lower. While
we cannot predict timing, interest rates will eventually rise. As a result, we are avoiding long-term
fixed income investments and locking in as much long-term financing as we can. Third, we believe
that equity markets look cheap compared to most alternatives, in particular when compared to fixed
income markets, with many global companies in excellent shape and multiples low.
With the fear of market collapse dissipating, we believe that capital will also start to rotate from bonds
back into equities. The opposite has occurred for the past five years. This, in conjunction with the
global recession, caused the S&P to generate compound returns of approximately 2% in the last five
years versus 7% from bonds. The net impact has been that many investors have given up on equities,
resulting in an allocation to the sector that is now at historic lows.
We believe that markets usually revert to the mean. Therefore, we are positive on the current valuations
in the equity markets. In addition, increasing investor allocations to equities should provide upward
strength to share prices for the foreseeable future.
In addition, the global reflationary policies represent much more to us than just a macro-economic
policy initiative. They represent a compelling opportunity with many sovereign interest rates actually
negative on a “real,” or “net of inflation” basis. The opportunity presented is to capitalize on this by
locking in long-term, low-cost capital on assets whose revenues are expected to grow substantially. In
this regard, during 2012, our various businesses issued approximately $12 billion of long-term fixed
rate financing with an average term of nine years at an average coupon interest rate of 4.75%.
Investment Performance
Our share price increased 35% in 2012. More relevant is that at year-end, the compound annual
performance for our shares over both 10 and 20 years was approximately 20%. This compared well
with most other investment alternatives during these periods.
Investment
Performance
1
3
5
10
20
Brookfield
NYSE
35%
20%
3%
22%
19%
S&P 500
16%
11%
2%
7%
8%
10 Year
Treasuries
4%
9%
7%
6%
6%
In addition to Brookfield’s strong overall performance, the results in virtually all of our listed issuers,
and our private and listed securities funds managed by us, were also excellent during 2012, most
exceeding relevant benchmarks by wide margins.
2012 ANNUAL REPORT 5
2012 Returns
Infrastructure
Renewable Energ y
Property
Private Equity
Timber
Flagship Listed Entities
33%
14%
n/a
n/a
n/a
Private Funds
(Gross)
17%
n/a
18%
19%
7%
Listed
Securities Funds
19%
n/a
33%
n/a
n/a
Our flagship listed entities performed well, with Brookfield Infrastructure generating a 33% return
for shareholders and Brookfield Renewable Energy generating 14%. Both entities increased their cash
distributions and have achieved three-year returns of 28%, results that set these entities up well when
they seek access to capital in order to grow their operations.
Funding Strateg y
We have virtually completed the establishment of our family of flagship operating platforms, which
will run our global businesses in the future. This approach features a flagship publicly listed issuer and
a major private fund in each of our property, power and infrastructure platforms. Our private equity
business is not as well suited to the public markets and, consequently, is funded only with private capital.
In building our business, we have taken great pains to ensure alignment of interest between Brookfield
and all of our investment partners and clients, including investing very significant amounts of our own
capital alongside them. We have also carefully designed these entities to ensure there are no conflicts
between public and private investors.
During the year, we raised $3.6 billion of capital for our private funds from institutional and high net
worth investors. We also increased the equity base of our listed issuers by a further $5 billion and
deployed $7 billion of capital in investments. We continue to have $9 billion of investable capital,
are currently marketing six new funds and expect to raise over $5 billion of additional capital from
institutional clients in the next 24 months.
We expect that over the next 10 years, most institutions will increase their allocations of real assets to
between 25% and 40%. We believe the impact of this trend will be similar to what took place decades
ago, when institutions shifted from bonds to common stocks and valuations on equities soared. While
there is some risk that returns will be driven down by these major capital flows, it is important to note
that there is a confluence of events occurring. That is, the supply of assets available for investment
is also likely to grow dramatically as governments undertake the deleveraging that must occur to get
their fiscal books in order.
As institutions continue to increase allocations to real assets, we believe we are one of a few global
asset managers who have the depth of experience, capital and operational capabilities to participate
meaningfully in this transformation.
Investment Process
Our goal is to generate consistent long-term investment returns for our clients. To meet that objective,
our approach to investing attempts to focus on utilizing our strengths as a company in order to ensure
6 BROOKFIELD ASSET MANAGEMENT
we have a competitive advantage when investing capital. We believe these competitive advantages
to consist of (i) size and access to capital, (ii) our extensive global operating platforms and people,
and (iii) our longer-term investment horizon and disciplined approach to investing developed over
the years. In particular, we believe this investment process allows us to be successful owners and
operators of real assets, despite the fact that the company has grown substantially over the past 20
years.
Our investment process relies on a team approach that brings together the skills of our investment
professionals and our operating teams in developing investment opportunities, executing transactions
and running the businesses we acquire. We believe that we enjoy a competitive advantage as asset
managers, due in part to the depth of our operating teams, many of whom have worked together for
decades. These teams are in turn overseen by our investment professionals, who can draw on their
expertise in capital markets and years of experience in each of these businesses.
Over the past few years, this approach to investing was put to work in various distressed real estate and
infrastructure investments, and more recently in Europe, where our initial thesis was that companies
would need to dispose of assets to recapitalize their balance sheets. We moved senior executives to
Europe, where they indentified owners and operators and worked hard at building relationships.
These relationships resulted in a series of negotiated transactions, most of which featured European
companies refocusing on their home market by selling us their assets in other markets.
Our recent investments also highlight the fact that we attempt to be contrarian in our approach to
investing, which means we often find ourselves acquiring businesses during periods of economic
distress. Our belief is that our value-based investment approach allows us to purchase assets at a
discount to their replacement cost, building a margin of safety into our acquisitions, while our
operating expertise gives us the ability to underwrite decisions when assets and capital structures are
more fluid than many organizations are able to work with.
International Financial Reporting Standards (“IFRS”)
We report under IFRS as we are a Canadian Corporation and this accounting framework is mandated
in Canada. The main difference of IFRS reporting to U.S. GAAP is that a number of asset classes are
carried at fair value under IFRS, as opposed to historical depreciated cost. IFRS is the reporting
framework for most developed economies and is the standard in virtually every country where we
operate, other than the United States.
We also use fair values to report to the investors in our Funds, both under IFRS and under U.S. GAAP
for investment funds which permit fair value accounting. These principles are also widely utilized by
asset managers and therefore clients, auditors and management teams are well versed in applying and
interpreting them. As a result, IFRS accounting is very suitable for a global business of our type and, in
particular, for reporting on the performance of the asset classes in which we invest.
Under IFRS, we carry at fair value virtually all of our commercial office and retail properties, renewable
power facilities, most of our timber operations and many of the assets within our infrastructure
operations. Financial assets are mostly carried at fair value, similar to U.S. GAAP. Changes in the
values are determined at least annually and reported as gains or losses in our financial statements. We
believe this is valuable information that would not otherwise be available to investors under U.S. GAAP.
2012 ANNUAL REPORT 7
There are, however, certain assets that are not carried at fair value under IFRS. These include assets
such as regulatory rate bases and concessions within our infrastructure business and residential
development land.
We describe how valuations are determined in more detail within the notes to our consolidated
financial statements and our MD&A. In summary, however, IFRS values are intended to be the
value at which a buyer will purchase an asset in the absence of any undue influence such as financial
pressure. In the case of physical assets, fair value is typically based on projected future cash flows
using a discounted cash flow analysis; financial assets are valued based on quoted market prices or, if
unavailable, by benchmarking to similar assets or using fundamental analysis.
We prepare most of the analysis internally, however, we also receive external appraisals for roughly
one-third of our assets each year. Furthermore, because many of our assets are held through
our funds, or because we require appraisals for financing purposes, frequently a larger portion of
our assets are appraised externally.
An important concept to note is that while a number of assets that we fair value are held through a
public company, we carry our interest in the public company (in the case of an equity accounting
investment such as General Growth Properties) or the underlying assets (in the case of a consolidated
entity such as Brookfield Infrastructure Partners) based on our proportionate interest in the
fundamental underlying value of the assets. In many cases, the stock market value may differ from
the fundamental value, and can be higher or lower.
For example at year-end this year, our investments that we own through Brookfield Infrastructure
Partners are marked at values based on IFRS that are quite a bit lower than the stock price of
Brookfield Infrastructure Partners that we own. On the other hand, our office assets held through
Brookfield Office Properties are marked at a price slightly higher than the current trading price.
Of course, we pay attention to stock market prices for our businesses, but they are not necessarily
relevant for our accounting.
Our view of IFRS after applying it for a number of years is that it does provide our shareholders with
a useful snapshot of the values of the company. In conjunction with IFRS, we try to provide you
with as much detail as possible so that you can assess these values yourself and therefore make
informed decisions. No accounting regime is perfect, but we believe IFRS is helpful in our efforts to
describe the business to you.
Brookfield Property Partners (“BPY”)
We hope to complete the distribution of BPY units to you shortly. We encourage you to read all of
the materials on BPY so that you can make an informed decision before you decide to hold or sell
your units. There is a prospectus filed with the securities regulators in Canada and the U.S., and
supplemental materials on our website, so you can further your knowledge of what we are doing.
In the simplest terms, BPY is a spin-off to you of a direct interest in our property operations, which
we have benefited significantly from over the past 20 years. This business has generated an annual
compound ±15% return since 1989, and while we cannot promise it, we see no reason why returns
should not be similar.
8 BROOKFIELD ASSET MANAGEMENT
Our property business today is large, but highly focused on using our competitive advantages of scale
and operating expertise to opportunistically acquire and surface value from high-quality real estate on
a global basis. We intend to use these advantages to make BPY one of the best property investments
in the capital markets, and once we are cleared by the securities commissions, we will complete the
distribution of units to you.
Operating Reports
Property Group
Our property operations remain our largest operation and generated $1.25 billion of cash flow. Total
assets under management increased to $103 billion, and we are currently investing capital through
Brookfield Property Partners and our private institutional Opportunity Fund.
We acquired Thakral Holdings, a $1 billion Australian property company, and purchased 80% of
an 18 million square foot industrial portfolio in the southern U.S. and Mexico with a $900 million
enterprise value, along with various other smaller transactions. We collected most of the loans in
the New Zealand portfolio which we bought in 2011 from a European financial institution, earning
exceptional returns. We acquired an office portfolio in the city of London, increased our interest in a
number of retail malls and sold numerous non-core office, industrial and retail properties.
We completed the new Brookfield Place – Perth office tower which houses BHP and is now an iconic
complex in this rapidly growing Australian city. In Toronto, we leased 420,000 square feet at Bay
Adelaide East to Deloitte and started construction on this tower. We also completed the makeover of
First Canadian Place which was well received by tenants and retailers.
Leasing activity in office markets in the U.S. has become much stronger over the past six months which
bodes well for the progress we plan to make on leasing in 2013 and 2014. We leased a total of 7 million
square feet at rental rates 35% higher than what was formerly in place.
Retail sales in the U.S. have been strong, and as a result, GGP’s performance was strong, and expected
to continue to outperform, driven by solid tenant leasing demand and tenant sales. During the year we
acquired 11 Sears stores in our malls, and are now transforming a number of these spaces into more
traditional mall interiors, filled with in-line retailers. In this regard, the redevelopment of the Sears
store at our Ala Moana Mall in Hawaii will be an exceptional addition to one of the best retail centres
in the world.
From an investment perspective, we acquired 18 million additional GGP warrants, GGP repurchased
52 million warrants, and we settled the issues we had with a co-shareholder in a positive manner for
all parties. As a result of all of this, we now own 43% of GGP in our investment group.
Infrastructure Group
Organic growth and acquisitions combined to increase the scale and performance of our infrastructure
business. Cash flow from operations increased to $680 million, an increase of 24% over last year. Total
infrastructure assets under management increased to $27 billion and we are currently investing capital
through Brookfield Infrastructure Partners and our private institutional fund.
2012 ANNUAL REPORT 9
We completed four major transactions in 2012, including the acquisition of the other half of our
Santiago toll road; 50% of the controlling stake in 3,200 kilometres of toll roads in Brazil; a gas utility
business in the UK, which we merged with a similar company we owned; and acquired the Toronto city
district energy company. The Toronto energy business provides heating and cooling to major property
complexes, and we believe we can generate attractive returns given our related property operations.
We sold half of our 50% investment in our western Canadian timberlands and are considering a
number of alternatives for our timber assets, which could include further institutional ownership or
listing in the public market.
Brookfield Infrastructure was established as an investment-grade debt issuer, and completed an
inaugural issuance of C$400 million of bonds at a U.S. swapped coupon for five years of 2.7%.
We also completed our $600 million Australian rail construction project to expand the rail network to
carry iron ore. This project is supported by take-or-pay contracts which will contribute meaningfully
to increased cash flows in 2013.
Power Group
The financial performance of our power group was weak as a result of extremely low water levels and
electricity prices that reflected low natural gas prices during the year. Generation totalled 15,821 gigawatt
hours, which was 13% below plan. However, total assets under management increased to $19 billion
as we are capitalizing on this low price environment to expand the portfolio. We are currently investing
capital through Brookfield Renewable Energy Partners and a private institutional fund.
We own one of the world’s largest renewable power operations, and our ability to undertake large
time-consuming transactions makes us a preferred partner for industrial companies and utilities that
seek to sell their power assets. We committed to invest $2 billion in new acquisitions in 2012, adding
1,000 megawatts of power to our operations. This included two major acquisitions: 378 megawatts of
plants from Alcoa and 351 megawatts from NextEra.
The Alcoa transaction included four facilities in the southeastern U.S. which formerly powered
aluminum smelters. The NextEra transaction, when completed, will include 19 facilities in Maine on
rivers where we already operate, and came about because this highly-rated large utility was refocusing
on their core business. We believe both acquisitions will be strong performers over the longer term
and they increased our total installed capacity of renewable energy to more than 5,000 megawatts.
During the year we continued construction on three new hydro projects in Canada and Brazil, and
acquired a number of smaller facilities.
Brookfield Renewable has flourished since it was established in 2011 as a listed company and the stock
price increased 27% since then. We are currently working on a dual listing of this business on the
NYSE, and expect to complete this in the first quarter of 2013.
10 BROOKFIELD ASSET MANAGEMENT
Private Equity Group
Our private equity group had a good year. We closed the Brookfield Capital Partners Fund III, realized
on a number of investments and saw meaningful increases in the value of investments made in
industries related to the housing sector over the past five years. Total private equity assets under
management increased to $26 billion, and we are currently investing through Capital Partners Fund III
and from our own balance sheet when additional capital is required.
Norbord and Ainsworth, which sell oriented strand board (OSB) to homebuilders, endured five
difficult years, during which time we invested a substantial amount of capital in their franchises. With
recovering housing fundamentals, the share prices of both companies have more or less tripled,
with OSB prices having more than doubled from approximately $160 per board foot to over $350.
Brookfield Residential’s share price more than doubled from $8 to $18 at year-end, and is over $20
today. Investor interest in the housing sector enabled us to complete a primary equity offering and
bond offering. Net proceeds of this capital raising totalled more than $800 million, enabling us to
complete the recapitalization of Brookfield Residential, and allowing them to acquire new tracts of
land in California and Alberta.
We sold our U.S. residential brokerage operations to Berkshire Hathaway for cash and a one-third
ownership interest in the combined business which is now branded under the name Berkshire
Hathaway HomeServices. We believe they will do very well with this business and therefore we will
benefit accordingly on our remaining investment.
Strategy and Goals
Our strategy is to provide world-class alternative asset management services on a global basis, focused
on real assets such as property, renewable power, infrastructure, and private equity investments.
Our business model utilizes 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 established operating platforms to achieve reliable attractive long-term total returns for
the benefit of our shareholders and clients.
Our primary long-term goal is to achieve 12% to 15% compound annual returns 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:
• Offering a focused group of Funds on a global basis to our investment partners; while utilizing
our balance sheet capital to invest beside our partners, and to support our Funds in undertaking
transactions they could not otherwise contemplate without our assistance.
•
•
Focusing the majority of our investments on high-quality, long-life, cash-generating real assets
that require minimal sustaining capital expenditures with some form of barrier to entry, and
characteristics that lead to appreciation in the value of these assets over time.
Utilizing our operating experience, global platform, scale and extended investment horizons to
enhance returns over the long term.
2012 ANNUAL REPORT 11
• 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 proportionately larger contribution to the bottom line.
•
Actively managing our capital. Our strategy of operating our businesses as separate units provides
us with opportunities from time to time to enhance value by buying or selling parts of a business
if the capital markets enable access to capital at attractive terms. As a result, in addition to the
underlying value created in the business, this strategy allows us to earn extra returns over that
which would otherwise be earned on the assets we own.
In the short term, our goals include substantial fund raising for our private funds, listing Brookfield
Renewable Energy Partners on the NYSE, the spin-off of Brookfield Property Partners, and surfacing
value from our timber assets and numerous businesses related to the housing sector.
Summary
We remain committed to being a world-class alternative asset manager, and investing capital for you
and our investment partners in high-quality, simple-to-understand assets which earn a solid 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, increases in per share values 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 you wish to share with us.
J. Bruce Flatt
Chief Executive Officer
February 15, 2013
12 BROOKFIELD ASSET MANAGEMENT
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL RESULTS
Management’s Discussion and Analysis (“MD&A”) is provided to enable a reader to assess our results of operations and
financial condition for the fiscal year ended December 31, 2012. This MD&A should be read in conjunction with our 2012
annual consolidated financial statements and related notes and is dated March 28, 2013. Unless the context indicates otherwise,
references in this Report to the “Corporation” refer to Brookfield Asset Management Inc., and references to “Brookfield,” “us,”
“we,” “our” or “the company” refer to the Corporation and its direct and indirect subsidiaries and consolidated entities. All
amounts are in U.S. dollars, and are based on financial statements prepared in accordance with International Financial Reporting
Standards (“IFRS”), as issued by the International Accounting Standards Board unless otherwise noted.
Additional information about the company, including our 2012 Annual Information Form, is available free of charge on our
website at www.brookfield.com, on the Canadian Securities Administrators’ website at www.sedar.com and on the EDGAR
section of the U.S. Securities and Exchange Commission’s (“SEC”) website at www.sec.gov.
Organization of the MD&A
PART 1 – Overview and Outlook
Our Business
Strategy and Value Creation
Economic and Market Review
and Outlook
Basis of Presentation and Key
Financial Measures
PART 2 – Financial Performance
Review
Selected Annual Financial
Information
Annual Financial Performance
Financial Profile
14
15
16
19
22
23
30
Quarterly Financial Performance
Corporate Dividends
PART 3 – Business Segment Results
Results by Business Segment
Asset Management and
Other Services
Property
Renewable Power
Infrastructure
Private Equity and Residential
Development
32
33
37
39
43
49
54
57
PART 4 – Capitalization and Liquidity
61
Financing Strategy
Capitalization
Liquidity
Contractual Obligations
Exposures to Selected Financial
Instruments
PART 5 – Operating Capabilities,
Environment and Risks
Operating Capabilities
Business Environment and Risks
PART 6 – Additional Information
Accounting Policies and
Internal Controls
Related Party Transactions
61
67
70
70
71
71
80
82
Part 1 provides an overview of our business, including a discussion of our strategy, and the economic environment and outlook
at the time of writing. This section also contains information on the basis of presentation of financial information contained in
the MD&A and key financial measures.
Part 2 provides an overview of our annual and fourth quarter financial results utilizing key financial measures contained in our
Consolidated Statements of Operations, Other Comprehensive Income and Consolidated Balance Sheets over the past three
years including a discussion of variances between the periods.
Part 3 is a discussion of the results of our various business segments based on key financial measures, including certain non-IFRS
measures such as Funds from Operations and Net Operating Income. We also utilize key operating metrics in the discussion.
Part 4 reviews our capitalization and liquidity profile.
Part 5 discusses our operating capabilities and a number of key risks associated with our business and our issued securities.
Further information on risks is contained in our Annual Information Form.
Part 6 contains additional information on our accounting policies, internal control environment and related party transactions.
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS AND USE OF NON-IFRS MEASURES
This Report to Shareholders contains forward-looking information within the meaning of Canadian provincial securities laws
and applicable regulations and “forward-looking statements” within the meaning of the “safe harbour” provisions of the United
States Private Securities Litigation Reform Act of 1995. We may make such statements in the Report, in other filings with
Canadian regulators or the U.S. Securities and Exchange Commission or in other communications. See “Cautionary Statement
Regarding Forward-Looking Statements” on page 145.
We disclose a number of financial measures in this Report that are calculated and presented using methodologies other than
in accordance with IFRS. We utilize these measures in managing the business, including performance measurement, capital
allocation and valuation purposes and believe that providing these performance measures on a supplemental basis to our IFRS
results is helpful to investors in assessing the overall performance of our businesses. These financial measures should not be
considered as a substitute for similar financial measures calculated in accordance with IFRS. We caution readers that these non-
IFRS financial measures may differ from the calculations disclosed by other businesses, and as a result, may not be comparable
to similar measures presented by others. Reconciliations of these non-IFRS financial measures to this most directly comparable
financial measures calculated and presented in accordance with IFRS, where applicable, are included within this MD&A.
Information contained in or otherwise accessible through the websites mentioned does not form part of this Report. All references in this Report to websites are inactive textual references
and are not incorporated by reference.
2012 ANNUAL REPORT 13
PART 1 – OVERVIEW AND OUTLOOK
OUR BUSINESS
Brookfield is a global alternative asset manager with over $175 billion in assets under management. For more than 100 years we
have owned and operated assets on behalf of shareholders and clients with a focus on property, renewable power, infrastructure
and private equity.
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 basis, and enhance the cash flows and values of these assets through our operating platforms to earn
reliable, attractive long-term total returns for the benefit of our clients and shareholders.
We have a range of public and private investment products and services which allow investees and clients to benefit from our
expertise and experience by investing alongside us. These include entities that are listed on major stock exchanges as well as
private funds that are available to accredited investors, typically pension funds, endowments and other institutional investors.
We also manage public securities through a series of segregated accounts and mutual funds.
Our strategy includes having a flagship listed entity within each of our property, renewable power and infrastructure segments,
which will serve as the primary vehicles through which we will invest in each respective segment. As well as owning assets directly,
these entities serve as the cornerstone investors in our institutional private funds, alongside capital committed by institutional
investors. For example, within our infrastructure operations, we have established Brookfield Infrastructure Partners L.P. (“BIP”),
a publicly listed entity that currently has an $7.6 billion market capitalization, which is, in turn, the cornerstone investor in our
Brookfield Americas Infrastructure Fund, a private investment partnership with $2.7 billion of committed capital from BIP and
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 infrastructure funds and timber funds. Brookfield Renewable Energy Partners L.P.,
a $7.8 billion market capitalization publicly listed pure-play renewable energy company, performs a similar function in our
renewable power segment. We recently announced the launch of Brookfield Property Partners L.P., (“BPY”) through which we
will invest in our commercial property operations, with an estimated initial capitalization of approximately $12 billion based on
the IFRS carrying values of the assets and liabilities contributed to BPY by us.
This approach enables us to attract a broad range of public and private investment capital and the ability to match our various
investment strategies with the most appropriate form of capital. Given the nature of our investment strategies, we do not currently
envisage the formation of a listed entity within our private equity operations; however we are giving consideration to forming a
listed entity that will invest in our timber and agricultural resource operations.
The following chart is intended to illustrate the strategy behind our organization structure.
Brookfield
Asset Management
Public
Funds
28%
Brookfield
Infrastructure Partners
(BIP)
68%
Brookfield Renewable
Energy Partners
(BREP)1
92.5%
Brookfield
Property Partners
(BPY)2,4
100%
Brookfield
Capital Partners3,5
Private
Institutional
Funds
Brookfield
Infrastructure
Funds
Brookfield
Property
Funds
Brookfield
Private Equity
Funds
Operating Assets and Investments
1.
2.
3.
4.
5.
In March 2013, we sold 8.1 million units of BREP via a secondary offering decreasing our ownership to 65%
Privately held. A 7.5% interest to be spun-off to Brookfield shareholders through a special distribution on April 15, 2013
Privately held
Also owns our interests in Brookfield Office Properties and General Growth Properties
Includes our interests in Brookfield Residential Properties Inc., Brookfield Incorporações SA and Norbord Inc.
14 BROOKFIELD ASSET MANAGEMENT
STRATEGY AND VALUE CREATION
We focus on assets and businesses that form the critical backbone of economic activity, whether they provide high quality
office space and retail malls in major urban markets, generate reliable clean electricity, 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.
As an asset manager we establish investment products through which our clients can invest in the assets that we own and operate.
These products consist of both listed entities and private funds. We invest alongside our clients with capital from our balance
sheet. This generates management fees and performance-based income that increases the value to our business and adds further
value to the company by providing us with additional capital to grow the business and compete for larger transactions.
We are active managers of capital. We strive to add value by judiciously and opportunistically reallocating capital among our
businesses to continuously increase returns.
Our operating platforms include over 24,000 employees worldwide who are instrumental in maximizing 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 improves our ability 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 more multi-faceted and intensive. We believe these situations
provide much more attractive valuations than competitive auctions and we have considerable experience in this specialized field.
We maintain development and capital expansion capabilities and a large pipeline of attractive opportunities. This provides us
flexibility in deploying growth capital, as we can invest in both acquisitions and organic developments, depending on the relative
attractiveness of returns.
As an asset manager, we create value for shareholders in the following ways:
• We offer attractive investment opportunities to our clients that will, in turn, enable us to earn base management fees based
on the amount of capital that we manage for them, and additional returns such as incentive distributions and carried interests
based on our performance. Accordingly, we create value by increasing the amount of capital under management and by
achieving strong investment performance that leads to increased cash flows and asset values.
• We invest significant amounts of our own capital, alongside our clients in the same assets. This differentiates us from
many of our competitors, creates a strong alignment of interest with our clients and enables us to create value by directly
participating in the cash flows and value increases generated by these assets, in addition to the performance returns that we
earn as the manager.
•
Our operating capabilities enable us to increase the value of the assets within our businesses, and the cash flows they
produce, through our operating expertise, development capabilities and effective financing. We believe this is one of our
most important competitive advantages as an asset manager.
• We aim to finance assets effectively, using a prudent amount of leverage. We believe the majority of our 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. 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.
•
Finally, as an investor and capital allocator with a value investing culture and expertise in recapitalizations and operational
turnarounds, we strive to invest at attractive valuations, particularly in situations that create opportunities for superior
valuation gains and cash flow returns.
2012 ANNUAL REPORT 15
ECONOMIC AND MARKET REVIEW AND OUTLOOK
(As at March 7, 2013)
Overview and Outlook
Despite ongoing macroeconomic volatility and geopolitical uncertainty, 2012 generally represented a year of stabilization within
the global economy. Confidence improved as the year progressed, as central banks around the world eased monetary policy
in order to support a budding economic recovery. Positive catalysts emerged across the globe, with the U.S. housing market
continuing to heal, sovereign debt concerns in Europe beginning to subside, and evidence of stability appearing in China. With
liquidity continuing to flood the market and interest rates remaining near historic lows, the world economy ended the year poised
for a return to normalcy and moderate levels of growth.
Against this backdrop, demand for income-producing asset classes with upside potential accelerated, as investors sought the
unique combination of yield, stability and growth offered by these alternatives. Real Assets, including infrastructure and real estate,
emerged as a particularly compelling investment option, offering attractive current yields, stable bond-like cash flows, equity-like
upside and an important hedge against future inflation. Moving forward, we expect demand for Real Assets to continue to rise, as
investors recognize the ability of the asset class to help navigate the current investment landscape and position existing portfolios
for future growth.
United States
U.S. economic growth decelerated in the fourth quarter of 2012, with Gross Domestic Product (“GDP”) declining by an
annualized rate of 0.1%, compared with growth of 3.1% in the prior quarter, due mainly to fears over the fiscal cliff, the impact
of Hurricane Sandy and reduced government spending. For the full year 2012, the pace of economic growth accelerated, but
remained moderate, with GDP increasing by 2.2% up from 1.8% in 2011. Industrial production continued to recover, increasing
by 3.6% in 2012, bringing it nearly level with the 2007 pre-crisis peak. Importantly, the U.S. housing sector showed preliminary
signs of recovery as housing starts increased steadily throughout the year, averaging a 28% increase compared to 2011. We
expect continued strength in this market during 2013, which should provide a positive catalyst for the rest of the U.S. economy.
On the employment front, 1.8 million new jobs were created in 2012, the same rate as in 2011. As a result, the unemployment
rate declined to 7.8% by the end of 2012, from 8.5% in December 2011. Inflation remained low, averaging 2.1%, leaving room
for the Federal Reserve to maintain the current zero interest rate policy as well as recent asset purchase programs.
Looking ahead, we anticipate the U.S. economy will produce moderate GDP growth of 2.0% in 2013, before re-accelerating to
nearly 3.0% growth in 2014. However, fiscal policy remains uncertain, with mandated spending reductions due to take effect in
March 2013 absent action by the U.S. government to alter the timing or size of the cutbacks. Current forecasts estimate these cuts
may dampen economic growth by as much as one percentage point, should they be enacted as scheduled.
Canada
Canadian economic growth remained sluggish at the end of 2012, due to weaker exports and a cooling housing market. GDP is
estimated to have grown by 1.7% in the fourth quarter, following a tepid increase of 0.6% in the third quarter. On an annual basis,
the pace of GDP growth is expected to have eased to 2.0% in 2012 from 2.6% in 2011. Despite this moderation, employment
growth accelerated over the course of the year, with 312,000 new jobs created in 2012 compared to an increase of 190,000 in
2011. As a result, the unemployment rate ended the year at 7.1%, down from 7.5% at the end of 2011. While the housing sector
began to rebound in 2012, a contraction occurred during the fall, triggered by more restrictive mortgage rules and high levels of
consumer debt. In the fourth quarter, housing starts dropped by 9% compared to the third quarter. However, the pace of inflation
has been dropping and currently stands below the Bank of Canada’s target level, indicating that interest rates will likely remain
low in the near-term to stimulate the economy.
Australia
The Australian economy remained healthy throughout 2012 despite moderately weakening fundamentals. GDP growth
decelerated throughout the year, due to softening consumer demand and a restrained housing market. Nevertheless, full year
GDP growth is forecast to reach 3.5%, with expectations for a decline to 2.7% growth in 2013. The multi-speed nature of
Australia’s economy, with weakening domestic demand offset by a booming mining sector, creates unique challenges for the
Reserve Bank of Australia (“RBA”), as monetary policy seeks to maintain low inflation and unemployment levels. Full year
inflation of 2.2% remains comfortably within the RBA’s target band, providing room for further cuts to the current cash rate of
3.0% should the labour market continue to soften. Looking ahead, positive catalysts are apparent, as the recent rebound in coal
and iron ore pricing, as well as stabilization of the Chinese economy, should translate into favourable trade balance readings in
the near term and provide support for the Australian economy.
Latin America
The divergence in the pace of economic growth between Brazil and other South American countries remained prominent
throughout 2012. Despite Banco Central do Brasil’s reduction in the SELIC monetary policy rate to a record low 7.25% and
a weakening of the Brazilian real, efforts to spur stronger growth have yet to trigger a significant acceleration of economic
16 BROOKFIELD ASSET MANAGEMENT
activity. While the Brazilian economy grew 1.7% year-over-year in the fourth quarter of 2012, full year GDP growth was
more muted at approximately 1%, compared with growth rates of 4% to 6% for Colombia, Chile and Peru. Efforts in Brazil to
support growth via a combination of easing monetary policy and direct intervention in the foreign exchange market weakened
the real by around 10% in 2012, with the currency now trading in a band from 2.0 to 2.1 real to the U.S. dollar. The Chilean
and Colombian pesos remained relatively stable against the dollar while the Peruvian Nuevo Sol continued a long-term
trend of appreciation.
Although falling since 2011, fourth quarter data indicated inflation increased in Brazil to a level near 6%, whereas Colombia,
Chile and Peru continued to experience slowing inflation in a range of 2% to 3%. Labour markets in all four countries remained
healthy, with Brazil and Chile continuing a downward trend in unemployment (5.3% and 6.2%, respectively) while Colombia
(9.3%) and Peru (5.7%) remained stable. Moving forward, we expect the combination of low unemployment and rising inflation
will lead to accelerating economic growth in Brazil through 2013 and 2014.
Europe and the United Kingdom
Authorities took additional steps to combat the Euro zone sovereign debt crisis during 2012, including increased credit market
intervention by the European Central Bank (“ECB”) to provide liquidity to indebted governments and banks. This intervention,
combined with the implementation of the European Stability Mechanism (“ESM”), a new 500 billion Euro rescue fund, lowered
sovereign bond spreads and provided support for European equity markets. However, despite favourable developments in
financial markets, recessionary conditions persisted in many European countries. Euro zone GDP contracted by 0.6% on an
annualized rate during the fourth quarter of 2012, following a contraction of 0.3% in the third quarter. For the full year of 2012,
GDP is expected to contract by 0.4%. The employment situation remained difficult, as the Euro zone unemployment rate ended
2012 at a record high level of 11.8%, up from 10.6% a year before. While inflation is muted and interest rates are supportive
of growth, we believe the Euro zone economy will remain challenged in 2013. We expect flat to modest declines in GDP, as
continued budget cuts and limited credit availability extend the current recession.
The UK experienced a second year of economic stagnation during 2012, as the nation weathered the dual challenges of fiscal
austerity and above-target inflation. GDP growth was essentially flat on the year, as the economic growth spurred by the London
Olympics and Queen’s Jubilee celebration was offset by ongoing pressures on real income levels. Additionally, inflation
continued to trend above the Bank of England’s target levels, ending the year at a 2.7% rate. Despite these challenges, the labour
market remained resilient, as 300,000 new jobs were forecast to have been created during the year, driving the unemployment
rate down to 7.7% as of November 2012. Moreover, credit markets began to re-open, as banks worked through legacy loan issues
and government lending initiatives took effect. While still well below previous levels, mortgage approvals improved and the
housing market appeared to stabilize. Moving forward, while the economy is anticipated to grow modestly in 2013, we expect
any recovery to be slow and grinding. Further monetary and fiscal measures appear likely, as the UK government and Bank of
England attempt to combat below-trend economic growth while containing above-target inflation.
Asia
Following seven consecutive quarters of slowing growth, China’s economy began to rebound in the fourth quarter, supported by
an improving manufacturing environment and strong retail sales. Fourth quarter GDP growth of 7.9% represented a sequential
improvement over the third quarter and resulted in full year 2012 GDP growth of 7.8%. While results have slowed from the 9.3%
GDP growth produced in 2011, the Chinese economy appears to have successfully weathered a soft landing. Conversely, the
Japanese economy remained stagnant, with fourth quarter GDP declining by 0.5% following a 3.5% decline in the third quarter.
However, the election of a new government, with a mandate to push through aggressive economic reform, boosted the Japanese
stock market by 14% during the fourth quarter. The Yen depreciated by approximately 11% over the quarter, but is expected to
rally should the Bank of Japan announce further measures to support economic growth, including higher targets for inflation.
Property
Global property markets continued to benefit from improving capital liquidity and low costs of financing throughout 2012,
leading transaction activity to accelerate. New supply remained relatively benign during the year, providing a strong foundation
for real estate fundamentals, while demand is anticipated to slowly rise as employment growth recovers.
Within the retail property sector, leasing fundamentals remain strong in the U.S., with particular demand from international
retailers seeking to expand in the market. New store openings are at a four-year high, with minimal new supply coming online
over the next decade. Despite concerns of secular changes impacting lower productivity malls, this segment of the retail sector
continues to experience strong tenant demand. Furthermore, attractive opportunities remain to enhance the value of lower
productivity malls through tailored business plans, targeted capital upgrades and improved merchandizing mix.
Within the office property sector there is reluctance among larger scale tenants to make leasing decisions unless pressured by
pending large expirations or consolidation needs, due largely to lingering concerns over the health of the global economy and
uncertainty over U.S. fiscal policy. Property fundamentals continue to rebound, particularly in markets focused upon technology
and energy industries. Transaction activity continues to favour premier assets in gateway markets, leading to a widening valuation
gap between prime and secondary assets and property markets. We expect this gap to narrow in the medium term, as investors
recognize the potential value creation opportunity available in certain secondary markets.
2012 ANNUAL REPORT 17
The multi-family sector is benefiting from several key secular and fundamental trends, including declining home ownership
rates, demand from echo-boomers and limited mortgage credit provision, which have resulted in strong rent and occupancy
growth. Although permits for new multi-family developments are beginning to rise, historical evidence demonstrates that multi-
family demand is driven largely by employment growth, which is expected to accelerate in the near term.
Leasing velocity in the industrial sector is also demonstrating strength, driven by the reconfiguration of supply chains as
e-commerce tenants build their delivery platforms and as tenants consolidate into more efficient space to reduce costs.
In our view, real estate assets should perform well in an environment of rising interest rates and inflation caused by an improving
economic climate. Such an environment should translate into meaningful employment growth, providing support for real estate
fundamentals through higher levels of consumption and leasing activity.
Power
Despite indications of a strengthening economic recovery in the U.S., 2012 drew to a close with no significant increase in
electricity demand over 2011. The substantial gains in gas-fired generation observed in the first half of the year began to recede
through the latter half, with a reversal in fuel switching trends evident by year-end due to higher natural gas prices. On a weather-
adjusted basis, 2012 demand mirrored that of the prior year, while actual demand was fractionally lower, due largely to the
exceptionally mild conditions of the first quarter.
Over the full year, wholesale power markets in New York and New England were significantly down relative to 2011, recording
the lowest average prices in over a decade. However, the markets began to recover in the fourth quarter, reflecting the return
of natural gas prices to mid-$3/MMBtu levels at Henry Hub. From a capacity perspective, both markets are expected to remain
more than comfortably supplied for several years.
Renewable power continued to enjoy a pricing premium over the levels implied by the gas price curve throughout 2012.
Consumers and utility companies are recognizing the benefits of renewable power sources, including lower price volatility,
eco-friendly production methods and protection against future policy initiatives, including potential CO2 pricing and enhanced
regulation surrounding environmental emissions. Moving forward, we expect demand for renewable power to continue to rise,
particularly as recent natural disasters have revived efforts within the U.S. to combat climate change.
Power demand in Brazil rebounded during 2012, growing at 4.5% year-over-year. However, industrial demand was stagnant,
increasing by only 0.3% year-over-year from January through October. A severe drought reduced hydro inflows and storage,
leading power prices higher. As a result, demand for thermal generation has increased, with much of the incremental supply
coming from high-cost imported liquefied natural gas.
Growth in the incentivized free market, where power from small (<30 megawatt capacity) hydro plants can be sold, has
been rapid. Broker quotes in the free market for conventional power to be delivered in 2014 and 2015 now reach a range of
R$130 to $135 per megawatt hour (“MWh”) compared to R$100/MWh one quarter ago.
Infrastructure
The infrastructure asset class witnessed further privatization activity during 2012, as governments across the world sought to
raise capital and introduce private sector discipline into asset operations. This trend is likely to continue, due to a combination of
austerity measures in Europe, rating agency pressures, and budgetary constraints. A secondary trend of diversified conglomerates
selling infrastructure assets such as pipelines, airports and toll roads is also likely to accelerate moving forward, as management
teams recognize the benefits of placing pure-play infrastructure assets into the hands of dedicated infrastructure investors.
Global infrastructure markets continued to benefit from the economic recovery in most regions. Further developments in the
U.S. energy sector resulted in significant change among North American energy infrastructure assets. This was driven primarily
by shale gas exploration and production growth, as well as ongoing growth in the oil sands of western Canada, resulting in
significant investment opportunities. Publicly listed infrastructure companies in the U.S., were active in this market during the
year, and enjoy a favourable cost of capital advantage, as investors are attracted to the income and growth potential offered by
these securities.
The performance of transportation assets was more mixed in 2012, as local economic activity drove operational performance. In
southern Europe, many toll roads experienced significant traffic declines after having weathered the 2008-2009 crisis relatively
well. Other assets in regions with stronger economic activity experienced relatively robust operational and financial metrics.
These mixed results across the globe have been a powerful reminder that not all infrastructure assets are created equally and
regional as well as asset-specific factors can vary significantly.
Regulation and government policies impacted infrastructure assets to varying degrees during the year. Some of the more
noteworthy policy changes in recent years include proposed tax changes for European utilities and concessions and proposed
changes to concession renewal terms for power assets in Brazil.
18 BROOKFIELD ASSET MANAGEMENT
Private Equity and Residential Development
Our private equity portfolio companies operate in a number of sectors, primarily in North America, and with a particular
concentration in businesses whose performance is correlated with the U.S. homebuilding sector and the Alberta energy sector,
while our residential development businesses operate primarily in select U.S. markets, the Alberta market in Canada, and in
Brazil a number of major markets. Economic conditions continue to improve, driven primarily by recovery in the U.S. housing
market. Additionally, the low interest rate environment and ongoing strength of the credit markets has enabled businesses to
recapitalize their balance sheets, lowering overall borrowing costs and extending debt maturity profiles and favourable equity
capital markets are permitting monetization of investments at attractive returns.
The Alberta energy sector, specifically oil and gas production and well servicing, was more challenging during 2012. Persistently
high U.S. natural gas production and the absence of winter heating demand resulted in low realized commodity prices. Additionally,
Canadian energy producers experienced discounted pricing for crude oil, resulting from steadily increasing continental supply.
Looking ahead, we expect commodity pricing will continue to face headwinds in 2013, although results may be mixed. We
believe natural gas pricing is poised to improve, as gas rig counts remain at historical lows, natural gas generated electricity
remains robust and North America returns to a normal winter weather cycle. However, we expect Canadian crude oil differentials
to face ongoing pressure until infrastructure and export opportunities are realized.
As noted previously, we continue to see improvement in the U.S. housing sector. While regional markets in the U.S. progressed
at slightly different rates of recovery, supply generally tightened and demand improved, leading to rising prices. The
S&P/Case-Shiller index of U.S. property values in 20 cities posted a year-over-year increase of 6.8% in December 2012, one of
the largest gains in home prices since mid-2006. Affordability remains high despite these price gains and we expect extremely
low mortgage rates to continue to support home ownership.
Single family residential development operations in both Alberta and Ontario also performed well throughout 2012. Ongoing
investment in the energy sector continued to support migration to Alberta, leading the province to the lowest unemployment
rate in the country. Similarly, strong migration trends and current supply constraints continued to benefit the low-rise market
in Toronto.
Moving forward, we anticipate a much improved U.S. housing market in the year ahead and a generally stable Canadian market.
As momentum in the U.S. housing market accelerates and house prices rise, we expect our land assets will continue to appreciate
in value. In many of our markets, a 10% increase in house prices may translate into a 20% to 30% increase in the underlying
value of finished lots.
BASIS OF PRESENTATION AND KEY FINANCIAL MEASURES
Basis of Accounting
We are a Canadian corporation and are required to prepare our consolidated financial statements in accordance with International
Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board. We are listed on the Toronto
Stock Exchange, New York Stock Exchange and Euronext and recognize that IFRS may not be the generally used accounting
methodology for all readers of this report. A particularly notable feature of IFRS is the use of fair value accounting for assets such
as commercial properties and other physical assets that are not fair valued under U.S. generally accepted accounting principles
(“U.S. GAAP”). Accordingly, the following discussion contains a summary of key features of IFRS that are particularly relevant
to our financial statements and key financial measures. A complete summary of our significant accounting policies are described
in Note 2 to our consolidated financial statements, which also contains a summary of critical judgments and estimates.
Consolidated Financial Information
Our consolidated financial statements to which this MD&A relates include the accounts of a number of the entities that we
manage and invest in on a fully consolidated basis, as well as those which we present using the equity method of accounting.
We consolidate a number of entities even though we hold only a minority economic interest. This is the result of our exercising
sufficient control over the affairs of these entities due to contractual arrangements. As a result, we include 100% of the revenues
and expenses of consolidated entities in the corresponding line items in our consolidated statement of operations, even though
a substantial portion of the net income of the entity is attributable to non-controlling interests. This does not impact net equity
or net income attributable to Brookfield shareholders but it can significantly impact the financial statement presentation. For
example, a large variance in revenues within a business which is largely owned by non-controlling interests may have a relatively
small impact on net income attributable to shareholders.
Interests in entities over which we exercise significant influence, but where we do not exercise control, are accounted for as
equity accounted investments. We record our proportionate share of their comprehensive income on a “one-line” basis as equity
accounted income within net income and as equity accounted investments within other comprehensive income (“OCI”). As
a result, our share of items such as fair value changes, that would be included with other fair value changes if the entity was
consolidated, are instead included with the other components of net income of that entity within equity accounted income.
2012 ANNUAL REPORT 19
Certain of our consolidated subsidiaries and equity accounted investments do not utilize IFRS for their reporting purposes. The
comprehensive income utilized by us is determined using IFRS and may differ significantly from the comprehensive income
pursuant to the accounting principles reported by the investee. For example, IFRS requires a reporting issuer to fair value its
investment properties such as office and retail properties, as described below, whereas other accounting principles such as
U.S. GAAP may not. Accordingly, their stand-alone financial statements may differ from those which we consolidate.
Use of Fair Value Accounting
In accordance with IFRS, we account for a number of our assets at fair value. As at December 31, 2012 approximately 70% of
our consolidated assets were carried at fair value and the remaining 30% were recorded at amortized historical cost or on another
basis of accounting. We utilize a fair value measurement framework for our commercial properties, renewable power assets, and
certain of our infrastructure and financial assets. Property, plant and equipment and inventory included within our private equity
and residential development operations are recorded at amortized historic cost or the lower of cost and net realizable value.
Public service concessions within our infrastructure operations are considered intangible assets and are amortized over the life of
the concession. Other intangible assets and goodwill are recorded at cost or amortized cost. Equity accounted investments follow
the same accounting principles as our consolidated assets and accordingly, include amounts recorded at fair value and amounts
recorded on another basis depending on the nature of the underlying assets. The table on page 30 of this MD&A identifies the
assets within our consolidated balance sheet that are carried at fair value.
We classify the vast majority all of our commercial property assets, including our office and retail property portfolios, as
investment properties. Investment properties are revalued on a quarterly basis and the change in value is recorded as fair value
changes within net income. Standing timber and agricultural assets are classified as sustainable resources and accounted for in a
similar manner as investment properties. Depreciation is not recorded on investment properties or sustainable resources.
Our renewable power facilities are classified as property, plant and equipment and we have elected to record these assets at fair
value using the revaluation method. Unlike investment properties, these assets are revalued only on an annual basis, and positive
changes in value are recorded as revaluation surplus within OCI and accumulated within common equity. If a revaluation results
in the fair value declining below the depreciated cost of the asset, then an impairment is charged to net income. Impairments of
this nature may be subsequently reversed through increases in value. Depreciation is recorded on the revalued carrying values at
the beginning of each year and recorded in net income. We also classify property, plant and equipment within our property and
infrastructure operations using the revaluation method, however, property, plant and equipment within our other operations is
accounted for using the depreciated historical cost method.
A significant amount of the carrying value of our infrastructure operations is recorded as intangible assets. These amounts
typically represent the excess purchase price over the ascribed value of tangible assets on the acquisition of infrastructure
businesses or assets, and reflect the value of the regulatory rate base or other characteristics. Intangible assets are carried at cost,
subject to periodic impairment tests, and are amortized over their useful lives unless they are determined to have an indefinite
life, in which case amortization is not recorded.
Financial assets, financial contracts and other contractual arrangements that are treated as derivatives are carried at fair value in
our financial statements and changes in their value are recorded in net income or OCI, depending on their nature and business
purpose (i.e., whether a security is held for trading, is available-for-sale, or whether a financial contract qualifies for hedge
accounting or not). The more significant and common financial contracts and contractual arrangements employed in our business
that are fair valued include: interest rate contracts; foreign exchange contracts; and agreements for the sale of electricity.
Key Financial Measures
Revenue
Many of the revenues from our asset management activities are not included in consolidated revenues because they are earned
from entities that are consolidated in our financial statements and therefore are eliminated under IFRS consolidation principles.
In addition, we do not recognize performance income such as carried interests that may have accrued due to investment
performance until they are no longer subject to future events (i.e., claw-back provisions). Revenues in our construction business
are recognized on a percentage-of-completion basis and include both our revenues as well as revenues derived by costs that are
recoverable from sub-contractors which are offset by an equivalent amount recognized within direct costs.
We account for our office and retail property leases as operating leases and record the total amount of the contractual rent to
be received over the life of the lease on a straight-line basis, which may differ from the actual amount of cash received in any
given period. Rental revenues also include recoveries of operating expenses (recorded as direct costs), which are recognized in
the period that such costs are charged to tenants. We also record certain revenues within our renewable power and infrastructure
businesses on a straight-line basis.
Revenue from residential development activities is based on the completed project basis meaning that revenue is not recognized
until such time as the risks and rewards of ownership have been transferred and the project is delivered. In the case of larger
projects that are completed over several years, such as the residential condominiums developed in our Brazilian business or
bulk lot sales, the resultant revenues and associated net income may be more irregular than those derived from the single family
development activities that are typical within our North American business.
20 BROOKFIELD ASSET MANAGEMENT
Direct Costs include costs associated with our asset management activities, notwithstanding that most of the associated
income is not included in revenue because the costs are incurred directly or indirectly by Brookfield whereas the revenues are
earned from entities that we consolidate and therefore are eliminated on consolidation. Direct costs in our construction and
office property lines of business include sub-contractor costs and tenant operating costs, respectively. Direct costs also include
subsidiary corporate costs.
Equity Accounted Income represents our share of the components of net income recorded by investments over which we exercise
significant influence, such as our investment in General Growth Properties (“GGP”), and is reported as a single line item in our
consolidated statement of operations. GGP reports under a U.S. GAAP framework, which differs from IFRS primarily in respect
of the accounting treatment of GGP’s retail mall portfolio. Under IFRS, we record GGP’s retail malls at fair value whereas
GGP’s U.S. GAAP reporting follows the depreciated historical cost method, which may result in a significantly different net
income than is reported by GGP in its standalone financial statements.
Interest Expense includes dividends declared on our capital securities, which are treated as liabilities under IFRS even though
they are preferred shares, because they may be redeemed at the holder’s option after a specific date for a variable number of
Class A Limited Voting Shares.
Corporate Costs represent costs that are not attributable to a specific reportable segment.
Fair Value Changes. As noted under “Use of Fair Value Accounting” on page 20, we carry at fair value our commercial
properties, standing timber and agricultural assets, and certain financial instruments and power sales agreements that do not
qualify as hedges. Changes in the values of these items are recorded as “fair value changes” in our consolidated statement
of operations. We record our share of fair value changes recorded by equity accounted investees as a component of equity
accounted income.
Depreciation and Amortization includes the depreciation of property, plant and equipment as well as the amortization of
intangible assets. Two of the largest components of depreciation relate to renewable power and infrastructure facilities, which are
revalued annually in OCI. Depreciation of these assets is based on their fair value at the beginning of each year. We do not record
depreciation on assets that are classified as Investment Properties (i.e., commercial office and retail properties) or Biological
Assets (i.e., standing timber and agricultural assets).
Income Taxes recorded in our consolidated statement of operations generally relate to income and expenses presented therein
while income taxes in OCI relates to items in that statement such as revaluation of property, plant and equipment, available-
for-sale financial assets and financial contracts elected for hedge accounting. Income tax expense includes current and deferred
amounts. Current taxes represent amounts that are paid/payable or received/receivable in the current year while deferred taxes
represent amounts that are not anticipated to become payable or receivable until subsequent fiscal years. Deferred taxes are
typically much larger than current taxes because they relate to timing differences associated with the revaluation of assets in our
financial statements (for which there is no corresponding change in the tax value) that will be realized over time in subsequent
fiscal years through usage or sale. In addition, we maintain large pools of loss carry forwards and generate other forms of tax
attributes each year that are available to reduce current taxes. Deferred tax expense is computed using the applicable local
tax rate applied to the excess of an asset’s carrying value over its tax value and without discounting.
Non-controlling Interests. As noted above under “Basis of Accounting” we consolidate a number of partially owned entities
because of our contractual rights as an asset manager, even though in some cases we own less than 50%. Accordingly, the
net income, other comprehensive income and equity of these and other consolidated entities that is attributable to the other
investors in these entities are reported on one line as “non-controlling interests” while the associated revenues, expenses,
other comprehensive income, assets and liabilities are presented on a “gross” basis within the corresponding line items in our
financial statements.
Valuation Items – Other Comprehensive Income include revaluations of property plant and equipment, such as our power
generating facilities and certain infrastructure assets, as well as changes in the values of financial contracts and power sales
agreements that qualify for hedge treatment, changes in the value of available-for sale securities and equity accounted other
comprehensive income, as well as our share of similar items recorded by equity accounted investments.
Use of Non-IFRS Measures
We disclose a number of financial measures in this Report that are calculated and presented using methodologies other than
in accordance with IFRS. These measures are used primarily in Part 3 of the MD&A. We utilize these non-IFRS measures
in managing the business, including performance measurement, capital allocation and valuation purposes and believe that
providing these performance measures on a supplemental basis to our IFRS results is helpful to investors in assessing the overall
performance of our businesses. These financial measures should not be considered as a substitute for similar financial measures
calculated in accordance with IFRS. We caution readers that these non-IFRS financial measures may differ from the calculations
disclosed by other businesses, and as a result, may not be comparable to similar measures presented by others. Reconciliations
of these non-IFRS financial measures to the most directly comparable financial measures calculated and presented in accordance
with IFRS, where applicable, are included within Part 3 of this MD&A and elsewhere as appropriate.
2012 ANNUAL REPORT 21
PART 2 – FINANCIAL PERFORMANCE REVIEW
SELECTED ANNUAL FINANCIAL INFORMATION
FOR THE YEARS ENDED DECEMBER 31
(MILLIONS, EXCEPT PER SHARE AMOUNTS)
CONDENSED STATEMENT
OF OPERATIONS
Revenues
Direct costs
Equity accounted income
Expenses
Interest
Corporate costs
Valuation items
Fair value changes
Depreciation and amortization
Income taxes
Net income
Non-controlling interests
Net income attributable to shareholders
Net income per share
CONDENSED STATEMENT OF OTHER
COMPREHENSIVE INCOME
Valuation items
Foreign currency translation
Taxes on above items
Other comprehensive income
Non-controlling interests
Other comprehensive income
attributable to shareholders
Comprehensive income attributable
to shareholders
AS AT DECEMBER 31
(MILLIONS)
BALANCE SHEET INFORMATION
Consolidated assets
Borrowings and other long-term financial
liabilities
Equity
2012
2011
2010
2012 vs 2011
2011 vs 2010
Change
$
18,697
(13,909)
1,243
$
15,921
(11,906)
2,205
$
13,623
(9,892)
765
$
2,776
(2,003)
(962)
$
2,298
(2,014)
1,440
(2,497)
(158)
1,150
(1,263)
(516)
2,747
(1,367)
1,380
1.97
1,626
(111)
(434)
1,081
(564)
$
$
$
(2,352)
(168)
1,386
(904)
(508)
3,674
(1,717)
1,957
2.89
1,920
(837)
(147)
936
(141)
$
$
$
(1,829)
(188)
1,651
(795)
(140)
3,195
(1,741)
1,454
2.33
(906)
653
448
195
(421)
$
$
$
$
$
(145)
10
(236)
(359)
(8)
(927)
350
(577)
(294)
726
(287)
145
(423)
$
$
(523)
20
(265)
(109)
(368)
479
24
503
2,826
(1,490)
(595)
741
280
517
795
(226)
(278)
1,021
$
1,897 $
2,752 $
1,228
$
(855) $
1,524
$ 108,644
$
91,022
$
78,131
$
17,622
$
12,891
51,782
44,251
42,311
37,399
37,487
29,192
9,471
6,852
4,824
8,207
Dividends declared for each class of issued securities for the three most recently completed years are presented on page 33.
22 BROOKFIELD ASSET MANAGEMENT
ANNUAL FINANCIAL PERFORMANCE
The following section contains a discussion and analysis of line items presented within our consolidated financial statements.
We have disaggregated several of the line items into the amounts that are attributable to our various business segments in order
to facilitate the review of variances.
The financial data in this section has been prepared in accordance with IFRS for each of the three most recently completed
financial years. Our presentation currency and functional currency was the U.S. dollar throughout each of these years. There were
no changes in accounting principles that have had a material impact on the comparability of the results between financial years.
The condensed statement of operations on page 22 presents the results of consolidated entities on a 100% basis even though
in many cases we own a much smaller interest. The amount of the net income of these partially owned entities that accrues
to other shareholders is recorded as non-controlling interests. Accordingly, the impact of acquisitions and fair value changes
within partially owned entities will often have a disproportionately larger impact on individual line items than it will on net
income attributable to shareholders, once changes in non-controlling interests are taken into consideration. Similarly, changes in
ownership that give rise to consolidation or deconsolidation can also have a significant impact on variances between reporting
periods, as our proportionate share of the revenues and expenses of equity accounted investments are reported on a net basis as
equity accounted income, as opposed to consolidation.
Overview
We reported net income attributable to shareholders of $1.38 billion in 2012, compared to $1.96 billion in 2011 and $1.45 billion
in 2010. On a per share basis, net income per share was $1.97, $2.89 and $2.33 in those three years, respectively. The most
significant contributor to the fluctuations in net income over the three years was the amount of fair value changes recorded in
each year, including our proportionate share of fair value gains recorded by equity accounted investments.
2012 vs. 2011
Net income attributable to shareholders decreased by $577 million year-over-year. The decline is due primarily to a lower level
of equity accounted income, which in turn reflects a lower amount of fair value changes recorded by the investees. This was
partially offset by the contribution from recently acquired property and infrastructure assets, which led to increased revenues
and direct costs, as well as increases in interest expense and non-controlling interests attributable to acquisition and development
borrowings and capital from non-controlling interests.
The largest single factor was a decrease of $422 million in the equity accounted income from General Growth Properties
(“GGP”) in 2012 compared to 2011, almost all of which was attributable to shareholders. The decrease reflects our share of the
reduced amount of fair value gains recorded on GGP’s investment properties in 2012 relative to 2011. We also recorded a lower
level of fair value gains in equity accounted commercial office properties relative to 2011 in part due to the consolidation of our
U.S. Office Fund part way through that year.
Fair value changes related to units held by others in our renewable power fund resulted in a $376 million downward fair value
change in 2011 following an increase in the quoted market price of the units. These units were recorded as liabilities prior to
the reorganization of the fund in late 2011, and were subsequently recorded as non-controlling interests reflecting changes in
the terms of the units upon reorganization. Accordingly, there were no such charges in 2012.
Same store rents increased in both our office and retail portfolios by 3% and 6%, respectively, and net income was also positively
impacted by the contribution from recently acquired properties and the completion of the 1 million square foot Brookfield Place
in Perth beginning in the second quarter of 2012. The contribution from our existing hydroelectric and wind energy generation
facilities was negatively impacted by lower generation levels as a result of poor water flows; however this was partially offset
by the contribution from recently acquired and commissioned facilities.
Our infrastructure business recorded increased revenues and earnings from several acquisitions and capital expansion projects
completed since the beginning of 2011, notably the expansion of our Western Australian rail lines.
Our private equity and residential development operations recorded increased revenues and earnings from operations that have
benefitted from the ongoing U.S. housing recovery, notably our operations and North American residential operations; however
our Brazilian residential development business reported lower revenues and operating losses as a result of a slowdown in project
completions and increased development costs.
2011 vs. 2010
Net income attributable to shareholders increased by $503 million year-over-year. The variance was due mostly to our
proportionate share of fair value changes recorded by equity accounted investments.
The largest single factor was the acquisition of GGP in late 2010. We recorded $1,401 million of equity accounted income
from GGP in 2011 compared to $nil in 2010, representing an increase of $1.4 billion which was almost entirely attributable
to shareholders. The income includes our share of fair value gains recorded by General Growth Properties in 2011, which was
particularly large following the emergence of the company from bankruptcy, the installation of a new management team and
2012 ANNUAL REPORT 23
strategy and continued improvement in tenant sales, as well as improved valuations of high-quality retail properties as an asset
class. We also recorded our proportionate share of the revenues from GGP’s retail properties less direct costs within equity
accounted income, which represented a positive contribution to net income relative to 2010.
We recorded an increased amount of fair value gains on our commercial office properties arising from increasing cash flows and
decreases in discount rates and terminal capitalization rates that reflected lower risk-free rates and improved valuations of high-
quality commercial office properties as an asset class.
These gains were more than offset by a decline of $534 million in gains related to power sales contracts that were not accounted
for as hedges between 2010 and 2011, most of which was attributable to shareholders. We recorded large gains in 2010 following
a decrease in short-term market prices which increased the value of the contracts because they enabled us to sell power at higher
prices. We adopted hedge accounting for several of our power sales agreements in 2011 with the result that mark-to-markets in
this year were recorded as a component of OCI. Offsetting this variance was an increase in the negative mark-to-market of units
held by others in our Renewable Power Fund following an increase in the quoted market price of the units.
We recorded a $405 million gain on the purchase of an infrastructure business in late 2010, which also gave rise to a decrease in
fair value gains in 2011 relative to 2010 as we did not record a similar gain of this magnitude in 2011.
Our commercial office properties reported increases in same store sales relative to 2010. Net income also benefitted from
improved results within our infrastructure reflecting the contribution from acquisitions and capital expansion projects.
Estimated impact of foreign currency translation on our consolidated financial results
The impact of currencies on our results was mixed, with the average rate over the year increasing for the Australian dollar and
declining for both the Canadian dollar and the Brazilian real. The impact on common equity is reflected in the foreign currency
translation component of other comprehensive income, which is discussed on page 29.
The relevant average exchange rates that impact our business are shown in the following table:
Year-end Spot Rate
Average Annual Rate
2012
1.0395
2.0435
1.0079
2011
1.0205
1.8758
0.9787
2010
1.0233
1.6662
1.0017
2012
1.0357
1.9546
1.0004
2011
1.0329
1.8000
1.0109
2010
0.9209
1.6967
0.9709
Australian dollar
Brazilian real
Canadian dollar
Statement of Operations
Revenues
The following table presents consolidated revenues disaggregated into our business segments consistent with Note 3 to our
consolidated financial statements in order to facilitate a review of year-over-year variances:
Change
FOR THE YEARS ENDED DECEMBER 31
(MILLIONS)
2012
2011
2010
2012 vs 2011
2011 vs 2010
Asset management and other services
$ 4,520
$ 3,535
$ 2,374
$
985
$ 1,161
Property
Renewable power
Infrastructure
Private equity and residential
development
Corporate activities
Eliminations and adjustments1
Total consolidated revenues
3,982
1,179
2,109
6,900
230
(223)
2,760
1,128
1,725
6,740
311
(278)
2,659
1,161
962
6,006
623
(162)
1,222
51
384
160
(81)
55
101
(33)
763
734
(312)
(116)
$ 18,697
$ 15,921
$ 13,623
$ 2,776
$ 2,298
1.
Adjustment to eliminate base management fees and interest income earned on/from entities that we consolidate. See Note 3 to our Consolidated Financial Statements
Acquisitions can have a significant impact on revenues, as can changes in the basis of presentation of businesses such as between
consolidation and equity accounting following changes in ownership. Revenues from our property and infrastructure assets
tend to be relatively consistent between periods because they are largely determined by contractual arrangements; whereas
renewable power revenues can be impacted by changes in water availability. Construction and property services revenues
fluctuate significantly with the award of large contracts, and the revenues within our private equity and residential development
operations can vary in line with changes in the level of economic activity.
24 BROOKFIELD ASSET MANAGEMENT
2012 vs. 2011
Asset management and other services revenues increased by approximately $1.0 billion of which approximately $680 million
relates to increases in construction revenues reflecting an increase in the number and scale of projects under construction, and
approximately $200 million relates to increases in property services revenue reflecting the acquisition of a large U.S. relocation
and property brokerage business in late 2011.
Property revenues increased by approximately $1.2 billion due to the acquisition of two large resort properties in March 2011
and April 2012, the consolidation of our U.S. Office Fund and Brookfield Place New York in the second half of 2011 and the
completion of Brookfield Place Perth in May 2012.
Renewable power generation revenues were virtually unchanged as the contribution from acquired and commissioned facilities
was offset by lower generation following unusually low water conditions during the second and third quarters of 2012.
Infrastructure revenues increased by approximately $380 million as a result of a number of acquisitions during the year, as well
as the completion of expansion projects, offset by the impact of lower volumes and pricing on our timber revenues.
The increase in revenues within our private equity and residential development segment were principally due to the impact of
higher prices and increased volumes on our panelboard operations, although this was largely offset by a lower dollar volume of
project completions within our Brazilian residential development operations compared to 2011.
2011 vs. 2010
Asset management and services revenues increased by approximately $1.2 billion primarily as a result of an increase in
construction activity as work-in-hand grew to $5.4 billion in 2011 from $4.3 billion in 2010.
Property revenue increased by approximately $100 million as a result of new leasing activity at higher average in-place net
rents and currency appreciation in our Australian and Canadian properties. The consolidation of the U.S. Office Fund and other
property acquisitions during the second half of the year contributed to the increase but were offset by reduced occupancies in
the United States.
Renewable power generation revenues were relatively consistent with 2010 as weaker hydrology conditions in eastern Canada
offset the contribution from acquired and commissioned facilities, and pricing for our generation in the northeastern United States,
not subject to long-term power contracts, declined in 2011. This was offset partially by a Brazilian hydroelectric acquisition and the
practical completion of a wind facility in eastern Canada.
Infrastructure revenues increased by approximately $750 million primarily due to the consolidation of businesses following the
Prime Infrastructure merger in addition to increases in our utility and timber operations but was partially offset by a decline in our
transport and energy revenues.
The increase in revenues in our private equity and residential development segment was due to an increase in the number of
projects completed in our Brazilian residential development operations.
Direct Costs
FOR THE YEARS ENDED DECEMBER 31
(MILLIONS)
Asset management and other services
Property
Renewable power
Infrastructure
Private equity and development
Corporate activities
Eliminations and adjustments1
1.
Adjustment to reallocate unallocated segment costs
2012
$ 4,171
1,812
475
1,138
6,105
114
94
$ 13,909
2011
$ 3,280
1,077
379
908
6,129
46
87
$ 11,906
2010
$ 1,954
1,120
413
698
5,340
268
99
$ 9,892
Change
$
2012 vs 2011
891
735
96
230
(24)
68
7
$ 2,003
2011 vs 2010
$ 1,326
(43)
(34)
210
789
(222)
(12)
$ 2,014
Direct costs within our asset management and other services and residential development operations are primarily variable in
nature and increase or decrease in line with changes in revenues. Most of our other direct costs are fixed in nature, and therefore
variances tend to relate to acquisitions or dispositions of assets or businesses, or a change in the basis of accounting (i.e., from
equity accounting to consolidation). For example, we acquired a controlling interest in our U.S. Office Fund in August 2011,
resulting in increased property direct costs in 2012. Changes in currency rates also impact the U.S. equivalent of costs incurred
in foreign jurisdictions, particularly Australia, Brazil and Canada.
2012 ANNUAL REPORT 25
2012 vs. 2011
The increase in direct costs within our asset management and other services segment reflects an approximate $700 million
increase in direct costs within our construction services business reflecting a greater number of projects relative to 2011 in
addition to increases in direct costs within our property services business due to the acquisition of a large relocation and property
brokerage business in late 2011.
Property related direct costs increased by approximately $740 million primarily due to the acquisition of two large resort
properties. In addition, the consolidation of the U.S. Office Fund, Brookfield Place New York and other acquisitions contributed
to the increase. The two large resort properties acquired in March 2011 and April 2012 have large operating costs relative to
office and retail properties due to the nature of their business related in particular to much larger work forces.
Direct costs within our renewable power operations increased by approximately $100 million primarily relating to acquisitions
and the impact of increased foreign exchange rates on our Brazilian and Canadian operations.
The increase in our infrastructure direct costs of $230 million reflects additional costs incurred within newly acquired businesses
in addition to costs associated with completed expansion projects.
The decrease in our private equity and residential development segment reflects a lower amount of deliveries recorded within our
Brazilian residential operations offset by increases in costs associated with the increased production experienced at our panelboard
operations.
2011 vs. 2010
Direct costs within our asset management and other services segment increased by approximately $1.3 billion due principally to
increases in construction activity.
Property related direct costs remained relatively flat as the impact of the consolidation of the U.S. Office Fund, Brookfield Place
New York and other acquisitions in the second half of 2011 were offset by decreases in costs associated with the sale of properties
in Boston and New Jersey.
Direct costs within our infrastructure operations increased by approximately $200 million principally due to a merger transaction
in November 2010 that resulted in the consolidation of several businesses that were previously equity accounted.
Direct costs within our private equity and residential development segment increased by approximately $800 million largely due
to a higher number of projects and acquisitions in our residential development operations as well as the consolidation of entities
that were previously equity accounted following increases in our ownership levels.
Equity Accounted Income
Equity accounted earnings represent our share of the net income reported by equity our accounted investments.
Change
FOR THE YEARS ENDED DECEMBER 31
(MILLIONS)
General Growth Properties
U.S. Office Fund1
Other U.S. office properties
Infrastructure operations
Other
2012
979
—
198
15
51
1,243
$
$
2011
1,401
437
216
115
36
2,205
$
$
$
$
2010
2012 vs 2011
(422)
(437)
(18)
(100)
15
(962)
— $
366
296
12
91
765
$
2011 vs 2010
1,401
$
71
(80)
103
(55)
1,440
$
1.
Excludes income from equity accounted investments within the U.S. Office Fund
Equity accounted income increased by $1.4 billion between 2010 and 2011 and declined by $1.0 billion between 2011 and 2012.
The increase between 2010 and 2011 was due primarily to the acquisition in late 2010 of our investment in General Growth
Properties (“GGP”). The decrease in the contribution from GGP in 2012 was due almost entirely to a lower level of fair value
gains recorded in respect of increases in the value of the company’s retail properties, and was offset in part by an increase in our
proportionate share of the net operating income produced by GGP.
We began consolidating the results of our U.S. Office Fund in August 2011 and accordingly did not record any equity accounted
income from that time on, although we did begin to record equity accounted income from partially owned properties within the
fund. Notwithstanding the shortened ownership period during 2011 relative to 2010, the income recorded on this investment
increased reflecting a higher level of fair value gains on increases in the value of the underlying office properties as well as
increased net operating income due to improved leasing.
The changes in the amount of equity accounted income from infrastructure operations over the three years is due primarily to a
larger amount of fair value gains recorded in respect of transmission operations in 2011 relative to 2010 and 2012.
26 BROOKFIELD ASSET MANAGEMENT
Interest Expense
The following table presents interest expense organized by the balance sheet classification of the associated liability, with the
exception of corporate borrowing expense, which includes expenses in respect of subsidiary liabilities that are guaranteed by
the Corporation:
FOR THE YEARS ENDED DECEMBER 31
(MILLIONS)
Corporate borrowings
Non-recourse borrowings
Property-specific mortgages
Subsidiary borrowings
Capital securities
$
$
2012
209
$
2011
197
$
2010
178
2012 vs 2011
12
$
2011 vs 2010
19
$
Change
1,808
405
75
2,497
$
1,724
337
94
2,352
$
1,266
291
94
1,829
$
84
68
(19)
145
$
458
46
—
523
Interest expense from corporate borrowings increased over the three years due to higher average consolidated borrowing levels
over the years, as well as slightly higher exchange rates on Canadian dollar borrowings.
The consolidation of our U.S. Office Fund in 2011, resulted in our recording its interest expenses in our consolidated results,
whereas previously it was presented on a net basis within equity accounted results giving rise to increases in property-specific
and subsidiary borrowing expenses between the three years. Similarly, we began to consolidate a number of infrastructure
operations in late 2010, which contributed to the increase in consolidated interest expense during 2011.
The majority of our borrowings are fixed rate long-term financings. Accordingly, changes in interest rates generally have minimal
short-term impact on our cash flows.
Fair Value Changes
FOR THE YEARS ENDED DECEMBER 31
(MILLIONS)
Investment property
Sustainable resources
Power contracts
Infrastructure
Redeemable units
Interest rate contracts
Private equity
Other
2012 vs. 2011
2012
1,276
132
9
—
(11)
(81)
(119)
(56)
1,150
$
$
2011
1,477
292
54
—
(376)
(64)
(74)
77
1,386
$
$
$
$
Change
2010
835
148
588
405
(159)
(58)
11
(119)
1,651
2012 vs 2011
(201)
$
(160)
(45)
—
365
(17)
(45)
(133)
(236)
$
2011 vs 2010
642
$
144
(534)
(405)
(217)
(6)
(85)
196
(265)
$
Fair value gains from changes in investment property values totalled $1.3 billion in 2012 compared to $1.5 billion in 2011,
representing a decrease of $0.2 billion. Changes in the value of our global office portfolio were $0.9 billion, compared to
$1.2 billion in 2011 representing a decrease of $0.3 billion. In each year the changes were due primarily to lower discount and
terminal capitalization rates as well as increases in projected cash flows.
Fair value changes on redeemable units contributed a positive variance of $0.4 billion. We recorded a valuation charge of
$363 million in 2011 that related primarily to increases in the stock market price of units held by others in our listed renewable
power entity, which we were required to record as a liability and mark-to-market. Following the reorganization of this entity into
Brookfield Renewable Energy Partners L.P. in late 2011, the successor units are now treated as non-controlling interests and no
longer marked to market.
2011 vs. 2010
We recorded a $0.6 billion increase in the amount of investment property gains, mostly related to our global office portfolio
which in turn reflected both lower discount rates and higher projected cash flows.
We recorded a large mark-to-market gain in 2010 on the revaluation of long-term power sales agreements and which increased
in value when electricity prices decreased relative to the price that we were able to sell the power under the contracts. We elected
hedge accounting for the agreement in 2011 and accordingly changes in fair value are now recorded in OCI.
2012 ANNUAL REPORT 27
We recorded a $405 million gain within our infrastructure operations during 2010 relating to the purchase of a large infrastructure
business at a discount to fair values, and the negative mark-to-market on redeemable units was $217 million higher in 2011 due
to a larger increase in the stock market price of our listed renewable power entity than what occurred in 2010.
Depreciation and Amortization
Depreciation and amortization is summarized in the following table:
FOR THE YEARS ENDED DECEMBER 31
(MILLIONS)
Renewable power
Private equity
Infrastructure
Property
Asset management and corporate
2012
499
251
248
225
40
1,263
$
$
$
$
2011
455
227
147
33
42
904
$
$
Change
2010
488
197
33
12
65
795
2012 vs 2011
44
$
24
101
192
(2)
359
$
2011 vs 2010
(33)
$
30
114
21
(23)
109
$
Depreciation relates mostly to our renewable power generating operations, with smaller amounts arising from infrastructure
operations and industrial businesses held within our private equity operations. We do not recognize depreciation or depletion on
our commercial office and retail properties, standing timber, and agricultural assets, respectively, as these assets are classified as
investment properties and revalued on a quarterly basis in net income as part of “fair value changes.”
Depreciation and amortization on our renewable power facilities increased by $44 million in 2012 compared to 2011, following a
decrease of $33 million in the preceding year. We recorded increases in the value of our power facilities at the end of 2011, which
increased the amount of depreciation during 2012 whereas we reduced the value of the facilities at the end of 2010, which led to
a lower amount of depreciation in 2011. Acquisitions and commissioning of new assets contributed to increases in depreciation
in each year.
Private equity depreciation is primarily the depreciation of assets owned by investments held in our private funds.
Infrastructure depreciation and amortization increased by $101 million between 2011 and 2012 due to increased asset valuations,
acquisitions and the commencement of depreciation on developments coming on line. The increase of $114 million between
2010 and 2011 is due to the consolidation of several operating units in late 2010.
Although most of our property assets are considered investment properties and are not depreciated under IFRS, we acquired
hotel operations in 2011 and 2012, which are considered property plant and equipment and utilize the revaluation method. The
increase in depreciation in 2012 is a result of depreciation and amortization recorded on tangible and intangible assets within
these operations.
Income Taxes
2012 vs. 2011
The provision for income taxes in the statement of operations increased slightly to $516 million in 2012 from $508 million in
2011. The change from prior year is attributable to various items including the $71 million income tax expense in 2011 reflecting
the decrease in value of deferred tax assets arising from a decline in the Canadian corporate income tax rate which did not recur
in 2012 offset by a $132 million income tax expense in the current year resulting from an internal reorganization within our
property operations.
2011 vs 2010
The provision for income taxes in the statement of operations increased to $508 million in 2011 from $140 million in 2010.
This increase was attributable to various items including (i) a one-time derecognition of deferred tax liabilities of $149 million
in 2010 in our property operations which arose from the wind-up of a joint venture arrangement; (ii) the $71 million expense in
2011 referred to above; and (iii) larger increases in the fair value of assets relative to their tax basis in 2011 than what occurred
in 2010, as reflected in the variance in fair value changes between the two periods.
Non-Controlling Interests
Net income attributable to non-controlling interests decreased by $350 million from 2011 to 2012 and was relatively unchanged
between 2010 and 2011. The decrease during 2012 reflects the decline in net income prior to non-controlling interests of
$927 million, which is attributable to the variances discussed in this section. Net income prior to non-controlling interests
increased by $479 million between 2010 and 2011. A corresponding change in non-controlling interests did not occur because
these interests participate in each area of our business to different extents. For example, in 2011 we recorded a large increase in
equity accounted income relating to our investment in General Growth Properties, which accrues almost entirely to Brookfield.
28 BROOKFIELD ASSET MANAGEMENT
Other Comprehensive Income
Revaluation Items
2012 vs. 2011
Fair value changes in OCI during 2012 included a $825 million increase in the valuation of our renewable power facilities
reflecting the positive impact of lower discount rates offset in part by the impact of lower price forecasts on projected cash flows.
The 2011 results included a $2.3 billion gain, which reflected a larger decrease in discount rates than in 2012.
We recorded an approximate $350 million increase in the valuation of our Western Australian rail project following a
$276 million gain in 2011. The gains reflect the completion in stages of a major capital expansion. The revaluation of property
plant and equipment in other infrastructure units resulted in a further $200 million of fair value gains in 2012, reflecting capital
improvements, lower discount rates and improved cash flows.
2011 vs. 2010
Fair value gains included in other comprehensive income include an increase of $2.3 billion in the carrying value of our
renewable power assets, reflecting increases in the property, plant and equipment which were partially offset by a reduction in
the carrying values of associated power sales agreements. Revaluation gains also include $300 million in respect of renewable
power development projects that was not previously included in IFRS fair values.
Other items in OCI include changes in the fair values of contracts pursuant to which we manage interest rate and currency risks,
which occurred primarily in our property and corporate segments.
Foreign Currency Translation
We record the impact of changes in foreign currencies on the carrying value of our net investment in non-U.S. operations in other
comprehensive income. As at December 31, 2012, our IFRS net equity of $18.2 billion was invested in the following currencies,
principally in the form of net investments which are revalued through other comprehensive income: United States – 56%;
Australia – 16%; Brazil – 14%; Canada – 7%; and other – 7%. From time to time, we utilize financial contracts to adjust these
exposures. Changes in the value of currency contracts that qualify as hedges are included in foreign currency translation. During
2012, the value of the Brazilian real declined by 9% compared to the U.S. dollar, which resulted in a loss of $111 million after
considering the impact of other currency movements and hedging activities. During 2011, the value of our principal non-U.S.
currencies (Australia, Brazil and Canada) all declined against the U.S. dollar, giving rise to a total decrease of $837 million after
the mitigating impact of hedges, or $443 million after non-controlling interests.
Income Taxes
2012 vs. 2011
The provision for income taxes in the statement of other comprehensive income increased to $434 million in 2012 from
$147 million in 2011, representing an increase of $287 million. The prior year’s amount includes a $327 million recovery
resulting from the formation of Brookfield Renewable Energy Partners L.P. in that year.
2011 vs 2010
The provision for income taxes in the statement of other comprehensive income was an expense of $147 million in 2011
compared to a recovery of $448 million in 2010. The $595 million increase is mainly attributable to increases in the fair value
of assets relative to their tax basis that are recorded in other comprehensive income in 2011. The recovery in 2010 is largely due
to a decrease in the revaluation of property plant and equipment in our renewable power operations that reduced the amount by
which the book values exceeded the related tax basis.
Non-controlling Interests
Non-controlling interests in other comprehensive income declined by $423 million between 2011 and 2012, notwithstanding an
increase in total other comprehensive income of $145 million. A greater proportion of fair value gains occurred within business
units that had larger non-controlling ownership interests, whereas several business units that experienced a decrease in fair
value gains year-over-year where those in which we had a greater interest. The variances between 2010 and 2011 represent
similar anomalies.
2012 ANNUAL REPORT 29
FINANCIAL PROFILE
Consolidated Assets
The following table disaggregates our consolidated balance sheet for the past three year-ends into assets that are carried at fair
value and those that are carried on another basis such as historical cost:
Carried at
Fair Value Basis
Carried on
Other Basis
Total Consolidated Assets
AS AT DECEMBER 31
(MILLIONS)
2012
2011
2010
2012
2011
2010
2012
2011
2010
Investment properties
$ 33,161
$ 28,366
$ 22,163
$
— $
— $
— $ 33,161
$ 28,366
$ 22,163
Property, plant and equipment
28,202
20,036
15,953
2,912
2,796
2,567
31,114
22,832
18,520
Sustainable resources
Investments
Cash and cash equivalents
Financial assets
Accounts receivable and other
Inventory
Intangible assets
Goodwill
Deferred income tax asset
3,283
8,487
—
2,630
1,614
—
—
—
—
3,155
7,272
—
2,314
1,502
—
—
—
—
2,834
5,124
—
2,343
1,823
—
—
—
—
—
3,202
2,844
481
5,331
6,579
5,764
2,490
1,664
—
2,129
2,027
1,459
5,221
6,060
3,968
2,607
2,110
—
1,505
1,713
2,076
6,046
5,849
3,805
2,546
1,784
3,283
11,689
2,844
3,111
6,945
6,579
5,764
2,490
1,664
3,155
9,401
2,027
3,773
6,723
6,060
3,968
2,607
2,834
6,629
1,713
4,419
7,869
5,849
3,805
2,546
2,110
1,784
$ 77,377
$ 62,645
$ 50,240
$ 31,267
$ 28,377
$ 27,891
$ 108,644
$ 91,022
$ 78,131
Consolidated balance sheet assets increased to $108.6 billion at the end of 2012. This represents an increase of $17.6 billion over
the 2011 year-end, which followed a $12.9 billion increase between 2010 and 2011. The increases relate primarily to investment
properties, property, plant and equipment, and investments and reflect acquisitions and fair value changes. In addition, the
consolidation of investments that were previously equity accounted resulted in an increase in consolidated assets.
We do not fair value our equity accounted investments under IFRS; however, certain of our investments own assets that are
recorded at fair value. This includes, for example, our investment in General Growth Properties, in which we record GGP’s
investment properties at fair value on an quarterly basis. We have separated investments into those in which the underlying assets
are recorded at fair value or amortized cost in the above table to provide a more a complete analysis for users.
Investment Properties and Property, Plant and Equipment
The following table presents the major contributors to the year-over-year variances for our investment properties and property,
plant and equipment balances:
Investment
Properties
Renewable
Power
Infrastructure
Property
Private Equity
and Other
Property, Plant and Equipment
AS AT AND FOR THE YEARS ENDED DECEMBER 31
(MILLIONS)
2012
2011
2012
2011
2012
2011
2012
2011
2012
2011
Balance, beginning of year
$ 28,366 $ 22,163 $ 14,727 $ 12,443 $ 4,669 $ 3,510 $
640 $ — $ 2,796 $ 2,567
Fair value changes
1,276
1,477
830
2,319
706
—
—
(489)
(453)
(201)
4,508
7,288
1,530
(1,136)
(2,150)
852
(35)
(399)
3,472
1,034
2,490
(48)
104
(127)
(84)
—
—
(20)
(46)
424
(88)
4
(166)
—
—
640
—
—
640
(58)
(283)
469
(64)
52
116
27
(197)
668
(225)
(44)
229
Foreign currency translation
147
(412)
Net increase
4,795
6,203
1,805
2,284
4,033
1,159
2,328
Depreciation
Acquisitions
Dispositions
Balance, end of year
$ 33,161 $ 28,366 $ 16,532 $ 14,727 $ 8,702 $ 4,669 $ 2,968 $
640 $ 2,912 $ 2,796
Acquisitions and developments were the major contributor to increases along with fair value gains and increases revaluation
surplus. In addition, we consolidated our U.S. Office Fund in 2011, which added $4 billion of consolidated assets in that year,
and consolidated a number of infrastructure businesses in late 2010 following an increase in ownership of those businesses.
30 BROOKFIELD ASSET MANAGEMENT
Investments
Note 8 to our consolidated financial statements presents a listing of our investments in associates and equity accounted joint
ventures. Investments increased by $2.3 billion during 2012 and by $2.8 billion during 2011. The 2012 increase relates primarily
to our share of the undistributed net income recorded by General Growth Properties, including fair value gains. We also acquired
several equity accounted investments within our infrastructure operations. The 2011 increase includes $3.1 billion relating to our
investment in GGP, which includes our share of undistributed net income, including fair value gains, as well as the acquisition
of $1.7 billion of additional equity of GGP in early 2011. This increase was offset by the consolidation during 2011 of the
U.S. Office Fund, which was carried at $1.8 billion at the end of 2010.
Borrowings and Other Long-term Financial Liabilities
We present our consolidated balance sheets on a non-classified basis, meaning that we do not distinguish between current and
long-term assets or liabilities. We believe this classification is appropriate given the nature of our business strategy. Liabilities
are disaggregated into current and long-term components in the relevant notes to our consolidated financial statements.
AS AT DECEMBER 31
(MILLIONS)
Corporate borrowings
Non-recourse borrowings
Property-specific borrowings
Subsidiary borrowings
Long-term accounts payable
and other liabilities1
Capital securities
Other long-term financial
liabilities
2012
3,526
$
2011
3,701
$
2010
2,905
2012 vs 2011
(175)
$
2011 vs 2010
796
$
$
33,648
7,585
5,407
1,191
28,415
4,441
3,771
1,650
23,454
4,007
3,852
1,707
425
51,782
$
333
42,311
$
1,562
37,487
$
$
5,233
3,144
1,636
(459)
92
9,471
4,961
434
(81)
(57)
(1,229)
4,824
$
1.
Excludes accounts payable and other liabilities that are due within one year. See Note 15 to our Consolidated Financial Statements for 2012 and 2011 balances
The increase in property-specific borrowings of $5.2 billion during 2012 is due primarily to acquisitions within our property and
infrastructure operations. The increase of $5.0 billion during 2011 reflects the consolidation of debt held within our U.S. Office
Fund, which was equity accounted at the end of 2010, and acquisitions within our Private Equity operations.
The increase in subsidiary borrowings of $3.1 billion during 2012 reflects acquisitions as well as the issuance of long-term
corporate bonds by our managed listed issuers.
Accounts payable and other liabilities with a maturity greater than one year increased in 2012 as a result of long-term liabilities
assumed on acquisitions within our property and infrastructure operations and continued expansion of our residential development
operations.
We redeemed $506 million of capital securities during 2012 with the proceeds from the issuance of preferred shares at lower
rates.
Other long-term liabilities represent interests of others in consolidated funds that are classified as liabilities because they contain
terms such as redemption features. We reorganized our Renewable Power Fund in 2011 with the result that the units held by
other investors were reclassified as non-controlling interests and therefore no longer treated as long-term liabilities. These units
represented $1.4 billion of long-term liabilities at the end of 2010.
Equity
Shareholders’ equity increased by $6.9 billion during 2012 following an $8.2 billion increase during 2011. Increases in
non-controlling interests provided $4.7 billion of the increase in 2012 and $3.8 billion of the 2011 increase. In each year
this reflects the acquisition of consolidated businesses, particularly within our infrastructure operations in 2012 as well as the
undistributed comprehensive income and increases in revaluation surplus attributable to non-controlling interests, including
fair value changes, which totalled $1.9 billion in each of 2012 and 2011 and $2.2 billion in 2010. Common equity increased by
$1.4 billion in 2012, reflecting comprehensive income for shareholders and increases in revaluation surplus less shareholder
distributions. The 2011 increase in common equity of $3.9 billion includes similar items as 2012 as well as the issuance of
$1.5 billion in common equity net of share buybacks.
We provide a more detailed discussion of our capitalization in Part 4 of the MD&A.
2012 ANNUAL REPORT 31
QUARTERLY FINANCIAL PERFORMANCE
Total revenues, net income for the eight most recent quarters are as follows:
2012
2011
THREE MONTHS ENDED
(MILLIONS)
Revenues
Direct costs
Equity accounted income
Expenses
Interest
Corporate costs
Valuation items
Fair value changes
Depreciation and amortization
Income taxes
Net income
Net income for shareholders
Per share
- diluted
- basic
Summary of Quarterly Results
$
$
$
$
Q3
Q2
Q4
Q1
$ 5,622 $ 4,644 $ 4,411 $ 4,020 $ 4,122 $ 4,423 $ 3,963 $ 3,413
(2,455)
211
(3,407)
256
(3,035)
584
(2,850)
390
(3,452)
393
(2,964)
1,017
(4,380)
339
(3,272)
258
Q3
Q4
Q2
Q1
(637)
(40)
(593)
(41)
415
(352)
(191)
776 $
493
(327)
(153)
872 $
(613)
(35)
(100)
(287)
17
379 $
(654)
(42)
(620)
(40)
(622)
(42)
(564)
(43)
342
(297)
(189)
720 $
434
(228)
(257)
960 $
330
(224)
(90)
716 $ 1,428 $
374
(231)
(124)
(546)
(43)
248
(221)
(37)
570
492 $
334 $
138 $
416 $
588 $
253 $
838 $
278
0.72 $
0.74 $
0.48 $
0.48 $
0.17 $
0.17 $
0.60 $
0.63 $
0.86 $
0.90 $
0.36 $
0.36 $
1.26 $
1.26 $
0.41
0.42
The company’s quarterly results vary primarily due to the impact of seasonality on our operations, fair value changes recognized
on our consolidated assets as well as fair value changes recorded within equity accounted income, the impact of acquisitions or
dispositions of assets or businesses and fluctuations in foreign currency exchange rates on non-U.S. operations.
The amount and timing of fair value changes vary on a quarterly basis depending on changes in the fair value of our assets
which are recorded at fair value in net income. We recorded $544 million and $357 million of fair value changes on our equity
accounted investment in General Growth Properties in the second and fourth quarters of 2011, respectively, resulting in an
increase in both equity accounted income and net income in those periods. Fair value changes in the fourth quarter of 2011
include the reversal of $276 million of previously recorded gains, upon realization, resulting in a lower amount of unrealized
gains in the period. We recorded $94 million of mark-to-market losses on power sales contracts in the second quarter of 2012.
Water flows and pricing within our renewable power operations are seasonal in nature. 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 they are in the
summer and winter seasons due to the more moderate weather conditions during the fall and spring and associated reductions in
demand for electricity.
Our private equity and residential development operations include our Brazilian and North American residential developers,
which 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, revenues and direct costs vary 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. Also included within private equity is our special situations
operations which 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.
Fee revenues generated within our asset management operations are contractual in nature and have increased over the past eight
quarters due to higher amounts of fee bearing capital under management. Our construction business line is seasonal in nature
and revenues are typically higher in the third and fourth quarters compared to the first half of the year, as weather conditions are
more favourable in the latter half of the year.
Our property operations generate consistent results on a quarterly basis due to the long-term nature of contractual lease
arrangements subject to the intermittent recognition of disposition and lease termination gains.
Our infrastructure operations are generally stable in nature, as a result of the long-term sales and volumes contracts which with
our clients.
32 BROOKFIELD ASSET MANAGEMENT
We generally finance our operations with long-dated fixed rate borrowings which results in interest expense being relatively
consistent on a quarterly basis.
Depreciation and amortization increased in 2012, as a result of a higher valuation on our renewable power assets and increased
in the third and fourth quarter of 2012 following the acquisition of depreciable assets.
In August 2011, we restructured and acquired an additional interest in our U.S. Office Fund, within our property operations,
increase revenues, direct costs and interest expense. In addition, we acquired and commenced consolidating a number of
businesses within our property and infrastructure businesses in the fourth quarter of 2012.
Fourth Quarter Results
We recognized $776 million of net income in the fourth quarter of 2012, $492 million of which was attributable to shareholders.
Net income to shareholders in the prior year comparable period was $588 million. Our property and infrastructure operations
benefited from the contribution of newly acquired assets and completed development projects coming online. We also realized
$34 million of performance-based income in our private funds, $17 million of which was on the close-out of our initial private
equity fund. These amounts were offset by lower levels of equity accounted income, primarily a decrease in GGP’s fair value
changes and increased depreciation on higher asset values and newly acquired assets.
CORPORATE DIVIDENDS
The dividends paid by Brookfield on outstanding securities during the past three years are as follows:
Class A Limited Voting Shares
Class A Preferred Shares
Series 2
Series 4 + Series 7
Series 8
Series 9
Series 101
Series 112
Series 12
Series 13
Series 14
Series 15
Series 17
Series 18
Series 21
Series 22
Series 243
Series 264
Series 285
Series 306
Series 327
Series 348
1.
2.
3.
4.
5.
6.
7.
8.
Redeemed April 5, 2012
Redeemed October 1, 2012
Issued January 14, 2010
Issued October 29, 2010
Issued February 8, 2011
Issued November 2, 2011
Issued March 13, 2012
Issued September 12, 2012
Distribution per Security
2012
0.55
$
2011
0.52
$
2010
0.52
$
0.52
0.52
0.75
0.95
0.37
1.02
1.35
0.52
1.88
0.42
1.19
1.19
1.24
1.75
1.35
1.12
1.15
1.20
0.89
0.32
0.53
0.53
0.76
1.10
1.45
1.40
1.36
0.53
1.91
0.43
1.20
1.20
1.27
1.77
1.36
1.14
1.03
0.19
—
—
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
—
—
—
—
Dividends on the Class A Limited Voting Shares are declared in U.S. dollars whereas Class A Preferred Share dividends are
declared in Canadian dollars.
2012 ANNUAL REPORT 33
PART 3 – BUSINESS SEGMENT RESULTS
BASIS OF PRESENTATION
How We Measure and Report Our Business Segments
For management purposes, we have organized our business into five segments in which we make operating and capital allocation
decisions and assessing performance. In late 2012 we combined the oversight of our timber and agricultural development
business lines and have reallocated the results of our agricultural development operations business line from Private Equity
and Residential Development to Infrastructure. The comparative results have been revised to conform to our new basis of
segment presentation.
i.
ii.
iii.
iv.
v.
Asset Management and Services comprises our asset management, construction and property services businesses. These
operations generate contractual service fees earned from consolidated entities included in our other segments and third
parties for performing management services, including management of our institutional private funds and listed entities,
management of construction projects and residential relocation, franchise and brokerage operations. These operations are
also characterized by utilizing relatively low levels of tangible assets relative to our other business segments.
Property operations are predominantly office properties, retail properties, real estate finance, opportunistic investing
and office developments located primarily in major North American, Australian, Brazilian and European cities. Income
from property operations is primarily comprised of property rental income and, to a lesser degree, interest and dividend
income. Virtually all of these operations will be held through Brookfield Property Partners L.P., in which we will own a
92.5% interest following the distribution of a 7.5% interest to our shareholders in April, 2013.
Renewable power operations consist primarily of hydroelectric power generating facilities on river systems in North
America and Brazil and wind power generating facilities in North America. The company’s power operations are
owned and operated through our 68% interest in Brookfield Renewable Energy Partners L.P. (“BREP”) and a wholly
owned subsidiary of the company which engages in the purchase and sale of energy, primarily on behalf of BREP.
Infrastructure operations are predominantly utilities, transport and energy, timberland and agricultural development
operations located in Australia, North America, Europe and South America, and are primarily owned and operated
through a 28% interest in Brookfield Infrastructure Partners L.P. and direct investments in certain of the company’s
sustainable resources operations.
Private equity and residential development operations include the investments and activities overseen by our private
equity group. These include direct investments as well as investments in our private equity funds. Our private equity funds
have a mandate to invest in a broad range of industries, although currently the portfolios contain a number of investments
whose performance is significantly impacted by the North American home building industry. Direct investments include
interests in Norbord Inc., a panelboard manufacturer, and two publicly listed residential development businesses: which are
predominantly a North American homebuilder and land developer, Brookfield Residential Properties Inc. and a Brazilian
condominium developer, Brookfield Incorporações S.A. The operations in this segment are generally characterized by
an investment approach that is more opportunistic in nature. Furthermore, these businesses are not integrated into core
operating platforms, unlike the assets within our property, renewable power or infrastructure operations.
All other company level activities that are not allocated to these five business segments are included within Corporate operations,
such as the company’s cash and financial assets, corporate borrowings, capital securities and preferred equity and net working
capital.
We have presented the costs associated with conducting asset management activities in the asset management segment. These
include the costs of centralized activities as well as costs of asset management activities performed within other segments.
Certain corporate costs such as technology and operations are on behalf of the business segment and accordingly allocated to
each business segment based on an internal pricing framework.
Segment Operating and Performance Measures
The following section contains a description of key operating and performance measures that we employ in discussing our
segmented results and elsewhere in our MD&A on a selective basis. As noted below, these measures include non-IFRS financial
measures and operating measures. The non-IFRS measures are reconciled to the most comparable financial statement component
in Note 3 to our consolidated financial statements on page 38 of this report.
Funds from Operations
Funds from Operations (“FFO”) is a key measure of our financial performance. We define FFO as net income prior to fair value
changes, depreciation and amortization, and future income taxes, and including certain disposition gains that are not otherwise
included in net income as determined under IFRS. When determining funds from operations, we include our proportionate share
of the FFO of equity accounted investments and exclude transaction costs incurred on business combinations, which are required
to be expensed as incurred under IFRS. We include disposition gains in FFO because we consider the purchase and sale of assets
to be a normal part of the company’s business. We use FFO to assess operating results and our business. We do not use FFO as
34 BROOKFIELD ASSET MANAGEMENT
a measure of cash generated from our operations. We derive funds from operations for each segment and reconcile total FFO to
net income in Note 3 of the consolidated financial statements.
Our definition of funds from operations may differ from the definition used by other organizations, as well as the definition of
funds from operations used by the Real Property Association of Canada (“REALPAC”) and the National Association of Real
Estate Investment Trusts, Inc. (“NAREIT”), in part because the NAREIT definition is based on U.S. GAAP, as opposed to IFRS.
When reconciling our definition of funds from operations to the determination of funds from operations by REALPAC and/or
NAREIT, key differences consist of the following: the inclusion of disposition gains or losses that occur as normal part of our
business and cash taxes payable on those gains, if any; foreign exchange gains or losses on monetary items not forming part of
our net investment in foreign operations; and gains or losses on the sale of an investment in a foreign operation.
Components of FFO
The segment amounts for the following items are derived from Note 3 to our consolidated financial statements. The totals of
these amounts for all segments are non-IFRS measures and are reconciled to the most comparable measures under IFRS using
the adjustments described in Note 3(c) to our consolidated financial statements.
–
Equity Accounted FFO represents our share of what an equity accounted investee would report as FFO determined on a
consistent basis with how we determine FFO from consolidated entities.
– Disposition Gains/Losses include gains or losses arising from transactions during the reporting period adjusted to
include fair value changes and revaluation surplus recorded in prior periods. Disposition gains also include amounts that
are recorded directly in equity as changes in ownership as opposed to net income because they result from a change in
ownership of a consolidated entity.
–
Interest Expense represents consolidated interest expense, including dividends declared on our capital securities.
– Unallocated Costs within business segments include costs that are not allocated to a specific business line within
the segment. These costs are included in direct costs in our consolidated statement of operations, with the exception
of unallocated corporate costs, which are presented as corporate costs in our consolidated statement of operations.
Unallocated costs in our segment analysis also include expenses associated with asset management services provided by
us that are eliminated in our consolidated financial statements.
–
–
Current Income Taxes represent the portion of consolidated income tax expense attributable to each segment that is paid/
payable or received/receivable in the current year.
Non-controlling Interests in FFO represents the interests of non-controlling interests in the FFO of partially-owned
consolidated entities.
The following two measures, net operating income and segment operating income, are non-IFRS measures both on a segment
basis and an entity basis. These items are reconciled to Revenues in Note 3 of our consolidated financial statements and on
page 39.
–
–
Net Operating Income or NOI is defined as revenues less direct costs, where direct costs exclude costs such as general
and administrative expenses that are not directly attributable to specific operating activities (presented separately as
unallocated costs). We use net operating income to assess the amount of cash flows generated from our consolidated
businesses and assets, prior to the impact of borrowings.
Segment Operating Income shows the performance of our assets prior to the impact of borrowings and is determined by
the aggregate of net operating income, equity accounted FFO and disposition gains/losses.
Valuation Items
Valuation Items include our share of fair value changes and depreciation and amortization included in net income and valuation
items included in OCI, after deducting non-controlling interests. Segment balances have been derived from Note 3 to our
consolidated financial statements and the total amount of valuation items, which is a non-IFRS measure, is reconciled to the
financial statement line items from which it is derived also in Note 3.
Components of Segment Financial Position
The following are components of segment financial position and are derived from Note 3 to our consolidated financial statements.
The totals of these amounts for all segments are non-IFRS measures and are reconciled to the most comparable financial statement
line items also in Note 3.
–
–
–
Segment Assets represent total consolidated assets in a segment or business line other than equity accounted investments,
less accounts payable and other liabilities and any deferred tax liabilities.
Borrowings includes corporate borrowings, non-recourse borrowings, and capital securities which represent the
financing associated with the particular segment or business line.
Segment Non-Controlling Interests includes interests of others in consolidated funds and non-controlling interests,
which represent the interest of other investors in common equity by segment.
2012 ANNUAL REPORT 35
–
Common Equity by Segment is the amount of common equity allocated to a business segment. This metric is intended to
present the net assets associated with the FFO of the segment.
Operating Measures
The following are operating measures that we employ to assess the performance of our asset management activities, as well as
a description of how certain asset management income is recorded in our consolidated financial statements and our business
segment analysis. The calculation of these measures may differ from other asset managers and, as a result, may not be comparable
to similar measures presented by other asset managers.
–
Asset Management Revenues include base management fees, incentive distributions, transaction and advisory fees and
performance income. Many of these items are not included in consolidated revenues because they are earned from
consolidated entities and are eliminated on consolidation.
Base management fees are determined by contractual arrangements and are typically equal to a percentage of the Capital
Under Management and are accrued quarterly. Base fees are earned on Capital Under Management from both clients and
ourselves.
We are entitled to a percentage of distributions paid by our managed listed entities above a predetermined threshold. We
call these “incentive distributions” and accrue them when declared by the board of directors of the entity.
Performance income includes arrangements where we are compensated for exceeding pre-determined investment
returns. In most cases, these are carried interests whereby we receive a fixed percentage of investment gains generated
within a fund that we manage provided that the investors receive a predetermined minimum return. Carried interests are
typically paid out towards the end of the life of a fund after the capital has been returned to investors and may be subject
to “claw back” until all investments have been monetized and minimum investment returns are sufficiently assured. We
defer recognition of carried interests in our financial statements until they are no longer subject to adjustment based on
future events; however we include them in our discussion of asset management segment results, in order to provide a
more complete representation of performance. Unlike fees and incentive distributions, we only include carried interests
earned in respect of third party capital in our segment results.
–
Capital Under Management represents the capital committed, pledged or invested in our private funds, listed issuers
and public securities and includes both called and uncalled amounts and other investments that we manage. Capital
under management is the basis for determining base management fees, when held in a fee bearing vehicle such as a
private fund or listed entity. We determine client capital in a manner consistent with the determination of the contractual
base management fees for fee bearing vehicles. Capital under management also includes the capital committed by us,
or entities managed by us, other than capital on which we are not entitled to earn fees (i.e., the fees are credited against
other fee arrangements).
–
Fee Bearing Capital represents capital under management that is managed by us under contractual arrangements that
entitle us to earn Asset Management Revenues.
– Uninvested Capital (or “Dry Powder”) represents capital that has been committed or pledged to us to invest on behalf of
a client. We typically, but not always, earn base management fees on this capital from the time that the commitment or
pledge to our private fund is effective until such time as the capital is invested, commonly referred to as the investment
period. 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.”
36 BROOKFIELD ASSET MANAGEMENT
SUMMARY OF RESULTS BY BUSINESS SEGMENT
Overview
Operating Segments
Property
Renewable
Power
Infrastructure
Private
Equity and
Residential
Development
Corporate/
Unallocated
Total
$
1,179
$
2,109
$
6,900
$
704
13
214
931
(412)
(36)
(12)
(158)
313
264
971
223
63
1,257
(399)
(144)
(16)
(474)
224
161
$
$
$
$
795
15
31
841
(276)
(28)
(79)
(197)
261
(180)
$
$
230
116
25
100
241
(369)
(160)
(19)
(25)
(332)
(29)
$
18,920
5,105
666
359
6,130
(2,532)
(540)
(135)
(1,567)
1,356
1,314
$
$
Asset
Management
and Services
$
4,520
$
349
4
—
353
—
—
—
3,982
2,170
386
(49)
2,507
(1,076)
(172)
(9)
—
353
(56)
$
$
(713)
537
1,154
$
$
$
$
$
AS AT AND FOR THE YEAR ENDED
DECEMBER 31, 2012
(MILLIONS)
Financial results
Revenues
Net operating income
Equity accounted FFO
Disposition gains
Segment operating income
Interest expense
Corporate/unallocated costs
Current income tax
Non-controlling interests in
FFO
Funds from operations
Valuation items
Financial position
Segment assets
Investments
Borrowings
Segment non-controlling
interests
Preferred equity
1,855
$
37,622
$
14,325
$
14,463
$
9,476
$
1,196
$
78,937
67
(351)
(1)
—
8,143
(21,471)
(11,336)
344
(6,119)
(3,559)
2,606
(7,988)
(6,510)
236
(5,030)
(2,107)
293
(4,991)
(102)
11,689
(45,950)
(23,615)
—
—
—
—
(2,901)
(2,901)
Common equity by segment
$
1,570
$
12,958
$
4,991
$
2,571
$
2,575
$
(6,505)
$
18,160
The information presented in the table above has been extracted from Note 3 to our consolidated financial statements and is
reconciled to the most closely related financial statement line item within that note.
Summary of Business Segment Results
The following table presents segment measures on a year-over-year basis for comparison purposes:
AS AT AND FOR THE YEARS ENDED DECEMBER 31
(MILLIONS)
Operating platforms
Asset management and other services
Property
Renewable power
Infrastructure
Private equity and residential development
Total operating segments
Corporate/unallocated
Total
Common Equity
by Segment
Funds from
Operations
2012
2011
2012
2011
$
$
1,570
12,958
4,991
2,571
2,575
24,665
(6,505)
18,160
$
$
1,492
10,943
5,109
2,507
2,616
22,667
(5,924)
16,743
$
$
353
537
313
224
261
1,688
(332)
1,356
$
$
269
687
232
172
248
1,608
(397)
1,211
FFO from asset management and other service activities increased by $84 million principally due to a higher level of fee-bearing
capital, which was in turn a result of capital committed to our private funds, capital issuances by our listed entities, and increases
in market values. We also recorded a higher level of performance income during 2012 as a result of the final return of capital to
clients from a private equity fund.
2012 ANNUAL REPORT 37
Property segment FFO declined by $150 million, consisting of an increase in FFO excluding gains of $158 million, offset by a
negative variance on disposition gains of $308 million. The increase in FFO excluding disposition gains was due primarily to the
contribution from recently acquired and developed properties, improved leasing within our office portfolios, and increased rental
revenues within our U.S. retail portfolio reflecting continued growth in tenant sales. The disposition gains and losses reflect the
recognition in FFO of fair value changes previously recorded in net income upon the sale of properties. We recorded disposition
gains of $203 million in 2011 compared to disposition losses of $105 million in 2012.
Renewable power FFO increased by $81 million, consisting of a $108 million decrease in FFO excluding gains offset by a
$189 million increase in disposition gains. The 2012 gain of $214 million arose on the sale of a partial interest in Brookfield
Renewable. The 2011 results included a $25 million gain. FFO excluding gains decreased from $207 million in 2011 to
$99 million in 2012 primarily as a result of lower generation that was caused by water flows that were meaningfully below both
long-term averages and the prior year’s results. The decrease was partially offset by the contribution from recently acquired and
commissioned facilities.
Infrastructure FFO increased by $52 million, consisting of a $7 million increase in FFO excluding disposition gains, and a
$45 million positive variance in disposition gains. The increase in FFO excluding gains reflects the contribution from acquisitions
and capital expansions within our transport and energy operations, offset by a lower contribution from our timber operations
which in turn reflects lower pricing and volumes arising from reduced Asian demand. The disposition gains arose on the partial
sale of timberlands located in western Canada and agricultural lands in Brazil.
FFO from our private equity and residential development operations increased by $13 million, consisting of a $65 million
increase in FFO excluding disposition gains, and a decrease of $52 million in gains. The increase in FFO excluding gains was
due primarily to increased pricing and volumes within our North American panelboard operations, which are benefitting from
increased demand associated with the recovery in the U.S. home building sector. This improvement also contributed to improved
results from our North American residential development operations. These improvements were partially offset by a lower
contribution from our Brazilian residential development operations, which experienced a slowdown in activity and higher costs
during 2012.
Corporate and unallocated FFO improved by $65 million, consisting of a $52 million increase in net FFO outflows which
principally represent carrying charges on corporate borrowings and unallocated operating costs, offset by a $183 million positive
variance from disposition gains. The increase in FFO outflows was due to a higher level of borrowing costs arising from higher
average debt levels during the year, a $35 million break fee on the early redemption of high coupon debt and increased corporate
costs that reflect a higher level of activity during the year. We recorded negative mark-to-markets on corporate securities
portfolios in 2011 and positive mark-to-markets in 2012. In addition, these results include a $70 million gain in 2012 on the
partial sale of our U.S. residential brokerage business.
Reconciliation of Non-IFRS Measures
The following table reconciles total funds from operations to consolidated net income:
FOR THE YEARS ENDED DECEMBER 31
(MILLIONS)
Funds from operations
Adjustments
Less: FFO measures
Gains not recorded in net income
Equity accounted FFO
Current income taxes
Non-controlling interests in FFO
Add: financial statement components not included in FFO
Equity accounted income
Fair value changes
Depreciation and amortization
Income taxes
Total adjustments
Net income
38 BROOKFIELD ASSET MANAGEMENT
2012
1,356
$
2011
1,211
$
(259)
(666)
135
1,567
1,243
1,150
(1,263)
(516)
1,391
(601)
(674)
97
1,462
2,205
1,386
(904)
(508)
2,463
$
2,747
$
3,674
The following tables reconcile net operating income and segment operating income to Note 3 of our consolidated financial
statements:
Operating Segments
FOR THE YEAR ENDED
DECEMBER 31, 2012
(MILLIONS)
Asset
Management
and Services
Renewable
Property
Power Infrastructure
Private
Equity and
Residential
Development
Corporate/
Unallocated
Total
Reportable
Segments Adjustments Consolidated
$
4,520
$
3,982
$
1,179
$
2,109
$
6,900
$
230
$ 18,920
$
(223)
$ 18,697
(4,171)
(1,812)
(475)
(1,138)
(6,105)
(114)
(13,815)
(94)
(13,909)
349
2,170
4
—
386
(49)
704
13
214
971
223
63
795
15
31
116
25
100
5,105
(317)
666
359
(666)
(359)
income
$
353
$
2,507
$
931
$
1,257
$
841
$
241
$
6,130
$
(1,342)
Operating Segments
FOR THE YEAR ENDED
DECEMBER 31, 2011
(MILLIONS)
Asset
Management
and Services
Renewable
Property
Power Infrastructure
Private
Equity and
Residential
Development
Corporate/
Unallocated
Total
Reportable
Segments Adjustments Consolidated
$
3,535
$
2,760
$
1,128
$
1,725
$
6,740
$
311
$ 16,199
$
(278)
$ 15,921
(3,280)
(1,077)
(379)
(908)
(6,129)
(46)
(11,819)
(87)
(11,906)
255
1,683
14
—
428
433
749
25
25
817
193
—
611
23
177
265
4,380
(365)
(9)
(83)
674
552
(674)
(552)
income
$
269
$
2,544
$
799
$
1,010
$
811
$
173
$
5,606
$
(1,591)
The adjustments in the foregoing tables are described in Note 3 to our consolidated financial statements.
ASSET MANAGEMENT AND OTHER SERVICES
Revenues
Direct costs
Net operating
income
Equity accounted
FFO
Disposition gains
Segment operating
Revenues
Direct costs
Net operating
income
Equity accounted
FFO
Disposition gains
Segment operating
—
—
—
—
—
—
—
—
Asset
Management
Construction and
Property Services
Total
Segment
2012
2011
2012
2011
2012
2011
$ 4,100
159
$ 3,204
150
$ 4,520
349
$ 3,535
255
AS AT AND FOR THE YEARS ENDED DECEMBER 31
(MILLIONS)
Segment financial results
Revenues
Net operating income
Equity accounted FFO
Funds from operations
Valuation items
Segment financial position
Segment assets
Investments
Borrowings
Segment non-controlling interests
Common equity by segment
$
$
$
$
$
$
420
190
4
194
$
331
105
14
119
—
159
$
— $
— $
(56)
— $
—
—
—
— $
— $
—
—
1,855
67
(351)
(1)
—
— $ 1,570
$
$
$
—
150
(34)
1,930
2
(439)
(1)
$
$
$
4
353
(56)
1,855
67
(351)
(1)
$
$
$
14
269
(34)
1,930
2
(439)
(1)
$ 1,492
$ 1,570
$ 1,492
2012 ANNUAL REPORT 39
Asset Management and Other Fees
Asset management and other fees contributed the following revenues during the year:
FOR THE YEARS ENDED DECEMBER 31
(MILLIONS)
Revenues
Base management fees
Incentive distributions
Transaction and advisory fees
Direct costs
Performance based income5
Realized
Direct costs
Net performance income
Funds from operations
Annualized
2012
$
$
385 1,2
303
554
470
$
352
$
15
53
420
(252)
168
34
(8)
26
194
$
$
2011
269
4
58
331
(212)
119
—
—
—
119
1.
2.
3.
4.
5.
Based on capital committed or invested and contractual arrangements at December 31, 2012
Includes $140 million of annualized base fees on Brookfield capital
Based on Brookfield Infrastructure Partners L.P.’s annual distribution in the amount of $1.72 per unit
Equal to simple average of 2012 and 2011 revenues
Excludes net performance based income subject to clawback
Base management fees increased by 31% to $352 million compared to $269 million in 2011. This reflects the contribution
from new funds and an increase in capital committed, particularly in our property and infrastructure operations. Annualized
base management fees totalled approximately $385 million at December 31, 2012. Base management fees include 100% of the
amounts earned by us, including amounts in respect of Brookfield’s capital. We do this in order to present the operating margins
in an appropriate manner given that we record 100% of the costs incurred in providing these services. Base management fees do
not include any contribution from approximately $1.5 billion of private funds on which our compensation is derived primarily
from performance-based measures and carried interests, as opposed to base management fees. The weighted average term of the
commitments related to the base fees is nine years, and our goal is to increase the level of base management fees as we continue
to expand our asset management activities.
Brookfield Property Partners L.P., which will be launched in April 2013, will add an annual base management fee of $50 million
for the initial capital and 1.25% of future increases in capitalization.
Transaction and advisory fees totalled $53 million in 2012, compared to $58 million in 2011. Our advisory business reported
increased revenues compared to 2011, reflecting continued expansion and a number of successful mandates; however we
recorded a lower level of transaction gains relative to 2011. We have expanded our investment banking activities into the U.S.
and the UK, and continue to advise on a number of mandates in Canada and Brazil. Our primary focus is on real estate and
infrastructure transactions.
Direct costs consist primarily of employee expenses and professional fees, as well as allocations of technology costs and
other shared services. These costs increased by $40 million year-over-year in particular due to geographic expansion in our
infrastructure, public securities and advisory businesses. We have expanded our operating resources considerably in recent
years to establish the necessary capabilities to execute and manage these activities; however we believe that we can expand our
operating margins in the future now that much of the operating infrastructure is in place.
40 BROOKFIELD ASSET MANAGEMENT
Net
221
107
—
328
Our share of accumulated performance income totalled $689 million at December 31, 2012. This represents an increase of
$310 million compared to the prior year. We estimate that direct expenses of approximately $57 million will arise on the
realization of the income accumulated to date. We recognized $34 million of third party performance income and $8 million of
associated expenses in our financial statements and deferred the balance as our accounting policies defer recognition until the
end of any determination or clawback period which is typically at or near the end of the fund’s term. The amount of unrealized
performance income net of associated costs was $632 million at year end (2011 – $328 million) as shown in the following table:
2012
2011
Unrealized
Performance
Based Income Direct Costs
Unrealized
Performance
Based Income
Net
Direct Costs
$
379 $
(51) $
328 $
260 $
(39) $
AS AT DECEMBER 31
(MILLIONS)
Unrealized balance, beginning
of year
In year performance based
income
Unrealized
Realized
Unrealized balance, end of year $
689 $
(57) $
Capital Under Management
344
(34)
(14)
8
330
(26)
632 $
119
—
(12)
—
379 $
(51) $
Capital under management is determined in a manner consistent with the determination of the contractual base management fees
for fee bearing vehicles and is defined on page 36.
The following table summarizes the capital managed for clients, co-investors and ourselves:
AS AT DECEMBER 31
(MILLIONS)
Property
Renewable power
Infrastructure
Private equity
December 31, 2012
December 31, 2011
Private
Funds1
13,183
498
6,843
2,720
23,244
20,454
$
$
$
Fee Bearing
Listed
Issuers1
3,077
10,061
$
8,163
—
21,301
16,488
$
$
$
$
$
Public
Securities
1,873
—
Other Listed
Entities
6,512
—
$
$
1,491
12,160
15,524
19,833
$
$
—
3,266
9,778
7,486
Total
24,645
10,559
16,497
18,146
$
69,847
n/a
2011
24,094
9,031
12,974
18,162
n/a
64,261
$
$
$
1.
Includes Brookfield capital of $8.4 billion in private funds and $10.3 billion in listed issuers
Fee bearing capital includes all capital on which we receive some form of asset management revenue, including capital
committed or invested by us. For example, we include 100% of the market capitalization of listed issuers such as Brookfield
Infrastructure Partners L.P. and private funds such as Brookfield Capital Partners II because we are entitled to earn fees on all
of this capital, including our own. We do not, however, include the capital invested or committed by one Brookfield managed
entity into another because the fees otherwise payable to us on this capital are credited against the fees payable to us by the other.
Fee bearing capital in the above table includes the following amounts from us: private funds – $8.4 billion; managed listed
entities – $10.3 billion.
Capital under management increased by $5.6 billion during 2012, resulting in a $100 million increase in annualized base fees
from December 31, 2011 to December 31, 2012. The principal variances are set out in the following table:
FOR THE YEAR ENDED DECEMBER 31, 2012
(MILLIONS)
Balance, December 31, 2011
$
Commitments/contributions
Return of capital/distributions
Market appreciation (depreciation)
Other
Private
Funds
20,454
5,036
(2,301)
—
55
Listed
Issuers
16,488
Public
Securities
19,833
$
Other Listed
Entities
7,486
$
$
$
Annualized
Base Fees
285
$
2,090
(704)
3,331
96
2,318
(2,549)
(1,139)
(2,939)1
(4,309)
15,524
$
—
—
—
2,292
2,292
9,778
Total
64,261
9,444
(5,554)
2,192
(496)
5,586
$
69,847
$
50
(5)
55
—
100
385
Change
Balance, December 31, 2012
2,790
23,244
$
4,813
21,301
$
$
1.
Represents termination of joint venture
2012 ANNUAL REPORT 41
Private Funds
Private fund capital increased by $2.8 billion during the year to $23.2 billion. The increase reflects $5.0 billion of new commitments
offset by distributions of capital to investors and expiry of uninvested commitments. Our approach to value investing means that
we will on occasion let investment periods lapse without fully investing available capital if we are not satisfied with potential
returns, although our objective is to fully invest the capital entrusted to us by our clients. The invested capital within our private
funds of $15.9 billion has an average term of nine years. Private fund capital includes $5.2 billion of client capital that has not been
invested to date but which is available to pursue acquisitions within each fund’s specific mandate. Of the total uninvested capital,
$3.0 billion relates to property funds, $1.2 billion relates to infrastructure funds and $1.0 billion relates to private equity funds. This
uncalled capital has an average term during which it can be called of approximately three years.
Listed Issuers
Listed issuers capital includes the market capitalization of our listed issuers: Brookfield Renewable Energy Partners L.P.,
Brookfield Infrastructure Partners L.P., Brookfield Canada Office Properties, Acadian Timber and several smaller listed entities.
Capital also includes corporate debt and preferred shares issued by these entities to the extent these are included in determining
base management fees.
The increase in listed issuer capital of $4.8 billion includes the issuance of $2.1 billion of new capital including $0.5 billion of
equity capital, $1.6 billion of corporate debt and preferred equity, and a $3.3 billion increase in the market value of our listed
issuers, offset by $0.7 billion in distributions.
Brookfield Property Partners L.P. (“BPY”) when launched in April 2013, will add an estimated $12 billion to listed issuers
capital based on the book values of the assets and liabilities contributed to BPY by us.
Public Securities
In our public securities operations, we manage fixed income and equity securities with a particular focus on real estate and
infrastructure, including high yield and distress securities. Capital under management in this business line decreased by
$4.3 billion during the year. The cessation of a joint venture arrangement resulted in the elimination of $2.9 billion of associated
assets we managed. Net outflows were $0.2 billion and we experienced an approximate $1.1 billion valuation decrease. We have
continued to refocus the business on higher margin products and have eliminated several lower margin offerings. To this end,
we have expanded our range of higher margin mutual fund and similar products and have received strong interest from clients
supported in part by excellent performance in many of our funds.
Construction and Property Services
The following table summarizes funds from operations from our construction and property services operations:
YEARS ENDED DECEMBER 31
(MILLIONS)
Revenues
Operating costs and interest
Funds from operations
Construction Services
Property Services
Total Services
2012
3,188
(3,075)
113
$
$
2011
2,505
(2,385)
120
$
$
$
$
2012
912
(866)
46
$
$
2011
699
(669)
30
2012
4,100
(3,941)
159
$
$
2011
3,204
(3,054)
150
$
$
Construction revenues increased relative to 2011 as we were managing a larger volume of projects during the year.
Operating margins across the construction business decreased to 8.2% from 9.3% in 2011 as a result of increased general and
administrative costs associated with the expansion of our engineering and infrastructure operations in Australia and construction
operations in Canada.
The remaining work-in-hand totalled $4.3 billion at the end of December 31, 2012, and represented approximately 1.1 years
of scheduled activity. We continue to pursue and secure new projects which should position us well for future growth. The
following table summarizes the work-in-hand at the end of 2012 and 2011:
AS AT DECEMBER 31
(MILLIONS)
Australasia
Middle East
United Kingdom
Canada
2012
$ 2,626
1,047
606
44
4,323
$
2011
$ 3,091
533
1,780
—
5,404
$
Property services fees include property and facilities management, leasing and project management and a range of real estate
services. FFO from this business increased to $46 million in 2012 compared to $30 million last year reflecting the continued
expansion of our property services business. We acquired a large relocation and residential brokerage business in late 2011 that
42 BROOKFIELD ASSET MANAGEMENT
significantly expanded our market position in the relocations business which also led to higher revenues in 2012. We merged
our U.S. residential brokerage business with another industry participant in late 2012 with the objective of creating a highly
competitive business and retained a one-third interest in the combined entity, while at the same time receiving $127 million of
cash proceeds and recording a disposition gain of $70 million which has been included in unallocated investment income.
Outlook and Growth Initiatives
We continue to witness increased interest by institutions and other investors in real asset investments, which is the focus of
most of our investment strategies and products. The addition of $5.6 billion of capital under management and $100 million
of associated annualized base management fees should both lead to increased contribution from this segment, as well as the
potential to earn performance income and incentive distributions.
We believe the performance of our funds through the recent economic crisis, and the attractiveness of our investment strategies to
our clients should enable us to achieve our goal of increasing capital under management and the associated fees substantially in
the coming years. We are actively raising capital for six funds over the course of 2013 and 2014, seeking to obtain approximately
$5.0 billion of additional commitments from third-party investors; four of the funds have already held first and subsequent
closings. The recent issuance of additional equity by Brookfield Infrastructure Partners L.P. and the formation of Brookfield
Renewable Energy Partners L.P. are important steps forward in our continued expansion of listed entities.
PROPERTY
Overview
Our property assets are currently owned through a number of public and private entities. We are in the final stages of launching
Brookfield Property Partners L.P. (“BPY”), a publicly traded partnership through which we will own virtually all of our
commercial property businesses. BPY is intended to be listed on the New York and Toronto stock exchanges under the symbol
BPY and is anticipated to have an initial IFRS equity of approximately $12 billion. We will distribute approximately 7.5% of
BPY to our shareholders by way of a special dividend in April of this year.
BPY will operate in a similar manner as our two other flagship listed entities, Brookfield Infrastructure Partners L.P. and
Brookfield Renewable Energy Partners L.P., in that we intend that these entities will be the primary vehicles through which we
will invest our capital into each of the property, power and infrastructure sectors. We are the manager of BPY and the majority
of the private funds whereas Brookfield Office Properties manages the core office funds.
Our property operations are organized into three business lines:
Office properties, which are primarily held through 50% owned Brookfield Office Properties and consist of high quality well
located office buildings in major cities in Australia, Canada and the United States. We also hold a 22% interest in Canary Wharf
Group, which includes similar high quality properties in London, UK.
Our commercial property portfolio consists of interests in 125 properties totalling 80 million square feet, including 10 million
square feet of parking. Our development portfolio comprises interests in 20 sites totalling 18 million square feet. Our primary
markets are the financial, energy and government center cities of New York, Washington, D.C., Houston, Los Angeles, Toronto,
Calgary and Ottawa in North America as well as Sydney, Melbourne and Perth in Australia and London in the United Kingdom.
Landmark assets include the Brookfield Place complexes in New York, Toronto, and Perth, Bank of America Plaza in
Los Angeles, Bankers Hall in Calgary, and Darling Park in Sydney.
Our commercial property investments are held through wholly or partially owned subsidiaries, which are fully consolidated on
our balance sheets, and through entities that we jointly control with our partners, for which we recognize our interests in the net
assets of such entities using the equity method of accounting.
Retail properties, located in the United States, are held through our 43% consortium interest in General Growth Properties
(“GGP”), our 52% consortium interest in Rouse Properties, in Brazil through our 35% owned institutional fund, and direct
interests in Australia.
GGP’s portfolio is comprised of 126 regional malls in the United States comprising approximately 129 million square feet
of gross leaseable area. GGP’s U.S. mall portfolio includes 70 Class A malls generating tenant sales of $635 per square foot.
These malls are located in core markets defined by population density, household growth, and a high-income demographic. The
regional malls had 2012 average tenant sales of $545 per square foot.
Rouse Properties is among the largest regional mall owners in the United States with a portfolio that consists of 32 malls in
19 states encompassing 23 million square feet of retail space.
Our Brazilian portfolio, which consists of 3 million square feet of retail space, is owned through a private institutional fund that
we manage and in which we own a 35% interest. GGP also holds a 45.6% interest in Aliansce, a listed company which owns a
7 million square foot portfolio, also located in Brazil. We hold most of our 3 million square foot Australian portfolio directly,
and continue to monetize these assets selectively as we focus our retail operations on markets in which we have a larger retail
presence.
2012 ANNUAL REPORT 43
Office development, opportunity investing and real estate finance activities: Office developments are conducted primarily through
Brookfield Office Properties, and our opportunity and real estate finance activities are conducted primarily through a number of
institutional funds with total committed capital at year end of $5.3 billion, including $1.8 billion from Brookfield entities.
Highlights for the year included the following:
•
•
•
•
•
•
Secured commitments of $2.9 billion for private funds within our property segment.
Acquired $6.4 billion of property assets enabling us to invest $1.9 billion of equity capital including:
–
–
–
–
–
a 884,000 square foot office portfolio in London, UK
a mixed use portfolio in Australia, including a prime office development site in Sydney
a 4,000 room hotel and casino
a portfolio of 19 apartment communities with approximately 5,000 units
a company which owns and operates approximately 18 million square feet of industrial properties and over 20,000 acres
of land
–
731,000 square feet of retail properties
Leased 7.3 million square feet in our core office portfolio and 13.2 million square feet in our retail portfolio at meaningful
increases in net rents over the expiring leases. Occupancy in our global office portfolio decreased from 93.3% to 92.1%
during the year due to the disposition of higher occupancy assets and acquisition of lower occupancy opportunistic assets as
well as expected vacancies in Denver, New York, and Washington, D.C., and increased from 93.5% to 95.1% in our retail
portfolio.
Refinanced $11.7 billion of debt during the year, extending term and decreasing cost of capital.
Completed the development of the 1 million square foot Brookfield Place office tower in Perth and advanced work
on 6 million square feet of office development projects, including the 5 million square foot Manhattan West project in
New York City.
Our two primary listed entities within this group, Brookfield Office Properties and General Growth Properties, produced
total returns to investors during 2012 of 10.6% and 36.0%, respectively, based on share price appreciation and distributions.
The following table disaggregates the financial results of our property operations into our principal business lines:
AS AT AND FOR THE YEARS ENDED DECEMBER 31
(MILLIONS)
Segment financial results
Office
Properties
Retail
Properties
Development,
Opportunity
and Finance
Total
Segment
2012
2011
2012
2011
2012
2011
2012
2011
Revenues
$ 2,612 $ 2,006 $
215 $
245 $ 1,155 $
509 $ 3,982 $ 2,760
Net operating income
Equity accounted FFO
Disposition gains/losses
Segment operating income
Interest expense
Unallocated costs
Current income taxes
Non-controlling interests in FFO
Funds from operations
Valuation items
Segment financial position
Segment assets
Investments
Borrowings
Segment non-controlling interests
Common equity by segment
44 BROOKFIELD ASSET MANAGEMENT
1,601
92
(63)
1,630
(810)
(134)
—
(499)
187 $
1,271
191
326
1,788
(718)
(116)
—
(563)
391 $
161
283
(20)
424
(102)
(6)
(9)
(48)
259 $
166
236
58
460
(173)
(8)
(10)
(32)
237 $
408
11
34
453
(164)
(32)
—
(166)
91 $
246
1
49
296
(123)
(20)
—
(94)
59 $
2,170
386
(49)
2,507
(1,076)
(172)
(9)
(713)
537 $
1,683
428
433
2,544
(1,014)
(144)
(10)
(689)
687
291 $
720 $
801 $ 1,170 $
62 $
33 $ 1,154 $ 1,923
$
$
$ 24,389 $ 22,446 $ 3,331 $ 3,026 $ 9,902 $ 5,796 $ 37,622 $ 31,268
6,905
(17,433)
(9,797)
$ 5,706 $ 5,337 $ 5,929 $ 4,590 $ 1,323 $ 1,016 $ 12,958 $ 10,943
8,143
(21,471)
(11,336)
2,418
(13,545)
(7,556)
2,449
(12,773)
(6,785)
5,212
(1,003)
(1,611)
270
(3,289)
(1,761)
4,186
(1,371)
(1,251)
513
(6,923)
(2,169)
Segment FFO excluding the impact of disposition gains increased from $484 million to $642 million. Segment FFO including
disposition gains decreased from $687 million to $537 million, as the 2011 results included a larger amounts of gains.
Our share of valuation items was $1.2 billion compared to $1.9 billion. We recorded increases across almost all of our portfolios
and, while favourable, the valuation increases were not as large as 2011.
Office Properties
Net operating income from our office property portfolio is presented in the following table which shows net operating income
from existing properties based on 2012 foreign currency exchange rates as well as assets which have been acquired, developed
or sold. Normalizing existing property net operating income for foreign currency variations is a non-IFRS measure, which we
utilize to illustrate the stability that arises from the high occupancy levels and long-term lease profile.
FOR THE YEARS ENDED DECEMBER 31
(MILLIONS)
Existing properties
United States
Canada
Australasia
Europe
Currency variance
Acquired, developed and sold
U.S. Office Fund
Other
Investment and other income
Net operating income
% Leased
Average
In-place Rent
2012
2011
2012
2011
2012
2011
90.8%
96.9%
97.5%
100.0%
93.3%
90.6% $ 24.68
26.80
96.3%
48.80
97.2%
63.29
100.0%
93.0% $ 28.28
$ 23.60
26.40
46.74
63.19
$ 26.97
$
$
397
258
292
32
979
—
979
385
247
290
31
953
9
962
311
208
103
$ 1,601
127
111
71
$ 1,271
Existing properties are those that the company owned and operated throughout both the current and prior reporting periods.
Properties classified as redevelopment properties, when applicable, are excluded from existing properties, since they are not
in operation for both of the reported periods. There were no properties undergoing redevelopment during either 2012 or 2011.
We use in-place net rents as a measure of leasing performance, and calculate this as the annualized amount of cash rent receivable
from leases on a per square foot basis including tenant expense reimbursements, less operating expenses. This measure represents
the amount of cash generated from leases in a given period and excludes the impact of concessions such as straight-line rent
escalations and free rent amortization.
Net operating income from existing properties in 2012 increased by 2.7% over 2011 on a constant currency basis, following
an increase of 3.0% between 2010 and 2011. This reflects the renewal of leases at rental rates that exceed the expiring leases,
which increased average in-place rents on existing properties to $28.28 from $26.97. Occupancy was relatively unchanged over
the period.
The contribution from properties acquired, developed and sold since the beginning of the comparative period includes the
U.S. Office Fund, which was consolidated midway through 2011 as well as acquisitions in Seattle, Washington, D.C., Denver,
Melbourne, and Perth, partly offset by the sale of properties in Boston, Minneapolis, Calgary, Melbourne and Brisbane. The
decrease in income from unconsolidated properties reflects the consolidation of the U.S. Office Fund, Brookfield Place in
New York and First Canadian Place in Toronto offset by an increase in income from the acquisition of unconsolidated interests
in a new property in Manhattan.
The increases in interest expense and non-controlling interests are due respectively to financing of acquired properties, the
consolidation of the U.S. Office Fund and the attribution of the increase in total FFO prior to non-controlling interests which
partially offsets the NOI from properties acquired and consolidated.
Segment FFO attributable to our office properties excluding disposition gains was $281 million in 2012 compared to $232 million
in 2011. The increase reflects the improvement in NOI from existing properties, the impact of lower interest expense on borrowings
refinanced during the year, and the contribution from acquisitions and developments. We recorded losses on the sales of properties
during the year that had accumulated unrealized losses relative to their invested cost (i.e., the losses represent fair value losses
recorded in prior years) whereas we sold properties in 2011 that had accumulated unrealized gains. Net disposition losses after
non-controlling interests were $94 million in 2012 compared to net gains of $159 million in 2011.
2012 ANNUAL REPORT 45
Valuation gains in 2012 included increases in the valuations of our office portfolio, of which our share was $0.3 billion.
Segment assets increased by $1.9 billion, borrowings and segment non-controlling interests by $1.5 billion, and common
equity by segment by $369 million. The increases reflect acquisitions, valuation gains, favourable currency revaluations and
the completion of Brookfield Place in Perth at a total cost of $1 billion, which was previously included in our Development,
Opportunity and Finance business line.
Portfolio Valuation
The key valuation metrics of our commercial office properties are presented in the following table on a weighted average
basis. The valuations are most sensitive to changes in the discount rate and terminal capitalization rates. It is important to note
that changes in cash flows and discount/terminal capitalization rates are usually inversely correlated as the circumstances that
typically give rise to increased interest rates (i.e., strong economic growth, inflation) also give rise to increased cash flows.
AS AT DECEMBER 31
Discount rate
Terminal capitalization rate
Investment horizon (years)
United States
2012
7.3%
6.3%
11
2011
7.5%
6.3%
12
2010
8.1%
6.7%
10
Canada
2011
6.7%
6.2%
11
2012
6.4%
5.7%
11
Australasia
2010
6.9%
6.3%
11
2012
8.8%
7.1%
10
2011
9.1%
7.5%
10
2010
9.1%
7.4%
10
Discount rates decreased in each of our regions by 20 to 30 basis points, reflecting continued decline in interest rates and a
favourable investment climate for high quality commercial office properties. Terminal capitalization rates decreased in Canada
by 50 basis points and by 40 basis points in Australia for similar reasons as discount rates, but remained unchanged in average
in the U.S. as forecasted long-term growth remains consistent with last year.
These changes, together with increases in projected cash flows, gave rise to total fair value gains of $0.7 billion which
occurred almost entirely in our North American properties, of which our share after non-controlling interests was $0.3 billion.
Approximately 70% of the gains were due to lower discount and capitalization rates and 30% to increases in projected cash
flows. Total gains in 2011 were $1.3 billion, of which our share was $0.7 billion. We realized $94 million of disposition losses
in 2012 and $167 million of disposition gains in 2011, net of non-controlling interests. Valuation gains net of non-controlling
interest were $0.4 billion in 2012 and $0.6 billion in 2011.
Leasing Profile
An important characteristic of our portfolio is the strong credit quality of our tenants. We direct special attention to credit quality,
particularly in the current economic environment, in order to ensure the long-term sustainability of rental revenues through
economic cycles. Major tenants with over 1,000,000 square feet of space in the portfolio include government and government
agencies, Bank of America/Merrill Lynch, CIBC World Markets, Suncor Energy, RBC, Morgan Stanley, and Bank of Montreal.
Our strategy is to sign long-term leases in order to mitigate risk and reduce our overall retenanting costs. We typically commence
discussions with tenants regarding their space requirements well in advance of the contractual expiration, and although each
market is different, the majority of our leases, when signed, have terms ranging between 10 and 20 years. As a result of this
strategy, only 7% of our leases, on average, will mature annually over the next five years.
The overall portfolio occupancy rate in our office properties at the end of 2012 was 92.1% and our average remaining lease term
is seven years. Occupancy levels in the United States and Europe declined overall from the prior year as a result of opportunistic
acquisitions of certain assets at lower occupancy rates in addition to large expiries in Denver, New York, and Washington, D.C.
Occupancy levels elsewhere in our portfolio remain favourable. We leased approximately 7.3 million square feet this year and
have a leasing pipeline of two million square feet at this time, which would further improve our leasing profile.
%
Leased1
Average
Term
Net Rental
Area
Currently
Available
2013
2014
2015
2016
2017
2018
2019 &
Beyond
Expiring Leases (000’s sq. ft.)
AS AT DECEMBER 31, 2012
North America
United States
Canada
Australasia
Europe
Total/Average
Percentage of total
89.0%
96.9%
97.7%
85.3%
92.1%
7.0
8.2
6.4
10.7
7.2
42,447
16,735
10,253
905
70,340
100.0%
4,649
523
233
133
5,149
1,697
401
4
5,538
7,251
7.9% 10.3%
2,907
321
792
1
4,021
5.7%
2,960
1,486
1,137
5
2,141
1,630
1,115
59
2,304
2,732
19,605
645
990
88
679
899
2
9,754
4,686
613
5,588
4,945
4,027
4,312
34,658
7.9%
6.6%
7.0%
9.4%
5.7%
6.9%
6.1%
4.8%
49.4%
48.8%
As at December 31, 2011
6.7%
5.3% 11.5%
1.
Occupancy was 93.3% at December 31, 2011 with the following breakdown by geography: United States 91.3%, Canada 96.3%, Australasia 96.6% and Europe 100%.
46 BROOKFIELD ASSET MANAGEMENT
We reduced the lease rollover profile for the 2013–2017 period by 310 basis points compared to the end of 2011.
In North America, average in-place net rents across our portfolio approximate $27 per square foot compared to $25 per square
foot at the end of 2011. Net rents represent a discount of approximately 21.3% to the average market rent of $33 per square foot.
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.
In Australasia, average in-place rents in our portfolio are A$52 per square foot, which represents an 1% discount to market rents.
The occupancy rate across the portfolio remains high at 97.7% and the weighted average lease term is approximately six years.
Leases in Australia typically include annual escalations, with the result that in-place lease rates tend to increase along with
long-term increases in market rents.
Retail Properties
Our net share of GGP’s funds from operations on an IFRS basis, which is recorded in this segment as equity accounted FFO, was
$251 million compared to $213 million in 2011. GGP reported 14% growth in core FFO on a U.S. GAAP basis, which reflects
increases in both net rents and occupancy. Initial rental rates for leases commencing in 2012 on a suite-to-suite basis increased
by 10.2% or $5.74 per square foot, to $61.84 per square foot when compared to the rental rate for expiries leases. Tenant sales
were $545 per square foot on a trailing 12-month basis as of year-end 2012, representing a 6.6% increase over year-end 2011 on
a comparable basis. The net contribution to FFO from GGP after non-controlling interests was $248 million in 2012 compared
to $208 million in 2011. The remaining FFO of $11 million includes the results of Rouse Properties, which was spun out of
GGP during 2012, returns from the capital invested in our Brazilian retail property fund and direct interests in retail properties
in Australia offset by net disposition losses of $27 million. FFO from these activities in 2011 was $29 million and included
$29 million of disposition gains and a nominal contribution from other operations.
GGP completed 9.7 million square feet of new and renewal leasing in 2012, excluding anchor tenants. Regional mall percentage
leased was 96.1% at year-end 2012, an increase of 60 basis points over year-end 2011 and in-place rents increased by 2.0% to
$69.12 per square foot.
GGP issued $8.0 billion ($7.0 billion at GGP’s share) of mortgage notes over the course of 2012 at a weighted average interest
rate of 4.20% and average term of 9.4 years. The average interest rate of the original loans was 5.30% and the remaining
term to maturity was 2.6 years. The transactions generated approximately $1.4 billion of incremental proceeds and eliminated
approximately $1.3 billion of recourse debt to the company.
We recorded fair value gains of $1.1 billion, of which our share was $0.8 billion. Approximately $0.8 billion of the total gains
relate to our investment in GGP ($0.7 billion net to Brookfield) with the balance relating primarily to our Brazilian portfolio
($50 million net to Brookfield). The GGP valuation gains were the result of the impact of improved leasing, a future cash flow
(40%) and a more favourable discount rate (60%). The Brazil valuation gains were due principally to a 110 basis-point reduction
in the discount rate used to value the properties reflecting a general increase in interest rates in that country.
Portfolio Valuation
The blended capitalization rate utilized on our U.S. portfolio for the direct capitalization method was approximately 5.7%
(2011 – 6.0%).
Our Brazilian portfolio was valued on a discounted cash flow basis using a discount rate of 8.5% (2011 – 9.6%), a terminal
capitalization rate of 7.2% (2011 – 7.3%) and an investment horizon of 10 years (2011 – 10 years).
Leasing Profile
AS AT DECEMBER 31, 2012
%
Leased2
Average
Term
Net Rental
Area
Currently
Available
2013
2014
2015
2016
2017
2018
2019 &
Beyond
Expiring Leases (000’s sq. ft.)
United States1
Brazil
Australasia
Total/Average
95.0%
94.7%
98.2%
95.1%
5.8
7.1
6.7
5.9
Percentage of total
As at December 31, 2011
60,545
2,992
6,215
6,468
5,960
5,794
6,238
5,231
21,647
2,802
3,037
66,384
100%
149
55
732
131
301
69
421
134
279
794
231
377
39
40
650
1,437
3,196
7,078
6,838
6,515
6,867
6,846
5,310
23,734
4.8% 10.7% 10.3%
9.8% 10.3% 10.3%
8.0% 35.8%
6.5% 10.7%
9.9%
9.5%
8.7%
9.8%
8.2% 36.7%
1.
2.
Represents regional malls only and excludes leases on traditional anchor stores and specialty leasing license agreements
Occupancy was 93.5% at December 31, 2011 with the following breakdown by geography: United States 93.2%, Australasia 97.7% and Brazil 94.7%.
Our retail portfolio reported strong leasing with 13.2 million square feet leased during the year at rates that were 6.6% higher
than expiring rates. This increased our overall occupancy by 150 basis points to 95.1%.
2012 ANNUAL REPORT 47
Office Development, Opportunity and Finance
We reached practical completion of our Brookfield Place development in Perth and reclassified the property to our office
properties portfolio in May 2012. In addition, in the second quarter of 2012, we announced the launch of our Bay Adelaide East
development, a one million square foot project in Toronto.
We own development rights on Ninth Avenue between 31st Street and 33rd Street in New York City, which includes 5 million
square feet of commercial office space entitlements. We expect that this will be one of the first sites for office development in
Manhattan, once new office properties become economic, and are commencing work to build the necessary foundations. We
recently acquired an adjacent property during the year to further expand this important development initiative. We also hold
several well positioned development sites in London, UK. In all cases, full construction will be dependent on securing leases.
Our opportunity investment funds have committed capital of $4.0 billion, including $2.6 billion from clients and $1.4 billion
from ourselves, of which $1.0 billion is currently invested. One of our early funds is fully invested and we have been selling
properties, while we are actively investing the capital in the two more recent funds. We deployed nearly $1.2 billion of capital
during 2012 in several transactions, which included the acquisition of Thakral Holdings in Australia with a $1 billion portfolio of
prime office assets in Sydney, a portfolio of 19 multi-family communities and approximately 5,000 units as well as an industrial
company which owns and operates approximately 18 million square feet of industrial properties and over 20,000 acres of land.
Our net invested capital in the funds is $681 million (December 31, 2011 – $429 million) and our share of the underlying FFO
for 2012 was $72 million (2011 – $31 million).
Our three real estate finance funds have committed capital of $1.3 billion, including $1.0 billion from clients and $0.3 billion
from ourselves, of which $0.8 billion is currently invested. Our share of capital invested in these operations was $255 million
at December 31, 2012 (December 31, 2011 – $371 million). These activities contributed $19 million of FFO and gains during
2012, compared to $28 million in 2011.
We continue to pursue a number of opportunistic real estate investments, primarily in the United States, where refinancing
requirements and recapitalization opportunities are resulting in increased transaction activity.
Outlook and Growth Initiatives
We remain focused on the following strategic priorities:
•
•
•
•
Realizing value from our properties through proactive leasing and select redevelopment initiatives;
Prudent capital management, including refinancing mature properties and disposition of select mature or non-core assets;
Advancing development assets as the economy rebounds and supply constraints create opportunities; and
Renewing and extending borrowings to take advantage of the current low interest rate environment.
We expect to increase the cash flows from our office and retail property activities through continued leasing activity as described
above. In particular, we are operating at least 400 basis points below our normal office occupancy level in the United States,
which provides the opportunity to expand cash flows through higher occupancy. Most of our markets have favourable outlooks,
which we expect will also lead to strong growth in lease rates. We do, however still face a meaningful amount of office lease
rollover in 2013, which may restrain FFO growth from this part of our portfolio in the near term.
In our North American retail business, we continue to improve the profitability of the business by rationalizing the portfolio and
leases, refinancing debt and reducing costs.
Transaction activity is picking up across our global office markets and we are considering a number of different opportunities
to acquire single assets, development sites and portfolios at attractive returns. In our continued effort to enhance returns through
capital reallocation, we are also looking to divest of all, or a partial interest in a number of mature assets to capitalize on existing
market conditions.
Given the small amount of new office development that occurred over the last decade and the near total development halt during
the global financial crisis, we see an opportunity to advance our development inventory in the near term in response to demand
we are seeing in our major markets. We are currently focused on five development projects totalling approximately eight million
square feet. This pipeline could add more than $7.2 billion in assets and we are actively advancing planning and entitlements
and seeking tenants for these sites. In addition, we continue to reposition and redevelop existing retail properties, in particular, a
number of the fortress shopping centres in the United States.
48 BROOKFIELD ASSET MANAGEMENT
RENEWABLE POWER
Overview
Our renewable power assets are held through Brookfield Renewable Energy Partners L.P. (“Brookfield Renewable” or “BREP”),
in which we owned 68% at year end. BREP operates renewable power facilities and owns them both directly as well as through
joint ventures and our institutional infrastructure funds. In addition to our role as the manager of BREP, we entered into
arrangements where we purchase a portion of BREP’s power at predetermined prices, providing a stable revenue profile for
unitholders of BREP and providing us with continued participation in future increases (or decreases) in power prices.
Highlights for the year included the following:
•
•
•
•
•
Provided a total return to BREP unitholders of 13.5% as compared to 7.1% for the benchmark S&P/TSX Composite Index,
and increased annualized cash distributions by 7.4% between late 2011 and February 2013.
Announced the acquisition of nearly 1,000 megawatts (“MW”) of renewable power facilities capacity through our
institutional funds including two large scale hydroelectric portfolios. These acquisitions are expected to increase annual
generation by 3,500 gigawatt (‘GWh”) based on long-term average generation. Equity capital deployed during the year by
our managed entities totalled $600 million.
Completed nearly $2.4 billion of financing and capital markets activities, which have meaningfully reduced borrowing costs
while increasing the overall term to maturity.
Achieved generation of 15,821 GWh, unchanged from prior years, as the increase from newly acquired and commissioned
facilities (+1,357 GWh) was offset by the impact of below average hydrology conditions on existing facilities (-1,413 GWh).
Completed the construction and commissioned a 19 MW hydroelectric facility in Brazil earlier than expected and commenced
construction of a 45 MW hydroelectric facility in British Columbia, scheduled for completion in 2014.
The following table summarizes the operating results and financial profile of our renewable power operations by operating region:
AS AT AND FOR THE YEARS ENDED DECEMBER 31
(MILLIONS)
Segment financial results
United States
Canada
Brazil
Corporate/
Unallocated
Total
Segment
2012
2011
2012
2011
2012
2011
2012
2011
2012
2011
Revenues
$ 420
$ 444
$ 408
$ 357
$ 332
$ 327
$
Net operating income
Equity accounted FFO
Disposition gains
Segment operating income
Interest expense
Unallocated costs
Current income taxes
218
6
—
224
294
13
12
319
264
2
—
266
(160)
(143)
(109)
—
2
—
2
—
—
237
6
13
256
(91)
—
5
Non-controlling interests in FFO
(66)
(43)
(76)
(102)
208
5
—
213
(58)
—
(16)
(59)
218
6
—
224
(92)
—
(15)
(13)
19
14
—
214
228
(85)
(36)
2
43
$ — $ 1,179
$ 1,128
—
—
—
—
704
13
214
931
749
25
25
799
(68)
(412)
(394)
(2)
(5)
—
(36)
(12)
(2)
(13)
(158)
(158)
Funds from operations
$ — $ 135
$
81
$
68
$
80
$ 104
$ 152
$
(75) $ 313
$ 232
Valuation items
$ 136
$ 127
$ 212
$ 585
$
(22) $
(92) $
(62) $ — $ 264
$ 620
Segment financial position
Segment assets
Investments
Borrowings
Segment non-controlling interests
(1,609)
(743)
(1,548)
(1,060)
$ 6,964
$ 5,525
$ 7,405
$ 6,828
$ 2,775
$ 2,990
$ (2,819) $ (2,568) $ 14,325
$ 12,775
196
184
81
89
(2,243)
(1,968)
(1,756)
(1,584)
67
(348)
(937)
85
—
—
344
358
(645)
(1,772)
(1,323)
(6,119)
(5,520)
(813)
535
112
(3,559)
(2,504)
Common equity by segment
$ 3,308
$ 2,998
$ 4,182
$ 4,273
$ 1,557
$ 1,617
$ (4,056) $ (3,779) $ 4,991
$ 5,109
2012 ANNUAL REPORT 49
The following table presents our generation results:
FOR THE YEARS ENDED DECEMBER 31
(GIGAWATT HOURS)
Hydroelectric generation
United States
Canada
Brazil
Total hydroelectric operations
Wind energy
Co-generation
Total generation
% Variance
– Total
– Hydroelectric
Actual Production
Long-Term
Average
Variance of Results
Actual vs.
Long-term
Average
Actual
vs. Prior
Year
2012
2011
2012
2011
2012
2011
2012
5,913
3,832
3,470
13,215
1,709
897
15,821
7,150
4,056
3,307
14,513
662
702
15,877
7,205
4,972
3,470
15,647
2,034
521
18,202
6,812
5,061
3,307
15,180
710
406
16,296
(1,292)
(1,140)
—
(2,432)
(325)
376
(2,381)
338
(1,005)
—
(667)
(48)
296
(419)
(1,237)
(224)
163
(1,298)
1,047
195
(56)
(13%)
(16%)
(3)%
(4)%
(0%)
(9%)
Generation from our hydroelectric portfolio was 9% or 1,298 GWh lower than the prior year as a result of lower inflows from
drier than normal conditions in eastern Canada, New York State, and in the mid-western United States in the second and third
quarter of the year. The decrease was partially offset by the first quarter generation that was higher than long-term average, as
well as from improved hydrology conditions in the fourth quarter. Generation from our wind portfolio was 1,047 GWh higher
than the prior year resulting from the contribution of acquired or commissioned facilities in California and New England, and
from an Ontario facility commissioned in 2011. Results in the second and third quarters of 2012 were below long-term average
as a result of lower wind conditions across the U.S and Canadian assets.
Revenues totalled $1.18 billion compared to $1.13 billion in 2011. Total generation was 15,821 GWh, virtually unchanged from
the 15,877 GWh produced in 2011. Generation from facilities owned throughout both years declined by 1,413 GWh and were
1,855 GWh below long-term averages, reducing revenue by $160 million. Facilities acquired or commissioned since January 1,
2011 contributed 1,357 GWh and $130 million of revenue. Foreign currency variances reduced revenues by $51 million, while
changes in realized prices in local currency terms reduced revenues by $18 million.
FFO and gains totalled $313 million in 2012 compared to $232 million in 2011. The 2012 and 2011 results included $214 million
and $25 million of disposition gains. Excluding disposition gains, FFO was $99 million in 2012 compared to $207 million in
2011. While revenues were relatively unchanged overall, the decline in generation and revenues from existing facilities of
$160 million reduced the corresponding FFO by $94 million, as the associated direct costs and interest costs are relatively
fixed (i.e., the change in revenue results in a fairly commensurate change in FFO after adjusting for non-controlling interest),
whereas the revenue increase of $130 million from recently acquired and commissioned facilities contributed incremental FFO
of $29 million after taking into consideration the associated direct costs and interest expenses. Interest expense for the segment
was largely unchanged year-over-year as borrowing costs on new debt financing acquisitions and commissioned projects was
offset by lower cost of debt refinanced during the year. We sold 13 million units of BREP in the first quarter of 2012 for total
proceeds of $345 million, decreasing our ownership by 5% to 68% and realizing a $214 million disposition gain. The 5%
decrease in our ownership resulted in $9 million reduction in FFO, compared to our ownership level in the prior year.
We estimate that FFO would have been $118 million and $37 million higher during 2012 and 2011, respectively, had we
achieved long-term average generation, with no change in realized prices.
Valuation gains of $264 million in 2012 represent our share of increases in the value of our renewable energy portfolio. In 2011,
valuation gains of $620 million included a net portfolio revaluation gain of $1.3 billion offset by the recapture of depreciation
that was expensed during the year.
50 BROOKFIELD ASSET MANAGEMENT
The following table provides further analysis of net operating income which, for this purpose, includes equity accounted FFO:
FOR THE YEARS ENDED
DECEMBER 31
(GIGAWATT HOURS AND $ MILLIONS)
Production
(GWh)
Realized
Revenues
Direct
Costs
Net
Operating
Income
Production
(GWh)
Realized
Revenues
Direct
Costs
Net
Operating
Income
2012
2011
Hydroelectric
United States
Canada
Brazil
Total hydroelectric
Wind energy
Co-generation
Total
Per Megawatt hour (MWh)
Total generation
Hydroelectric generation
$
5,913
3,832
3,470
13,215
1,709
897
$
$
365
221
334
920
187
59
171
78
123
372
54
44
15,821
$
1,166
$
470
$
194
143
211
548
133
15
696 1
$
$
$
7,150
4,056
3,307
477
238
333
14,513
1,048
662
702
70
56
168
72
109
349
18
33
15,877
$
1,174
$
400
$
309
166
224
699
52
23
774 2
$
$
74
70
$
$
30
28
$
$
44
42
$
$
74
72
$
$
25
24
$
$
49
48
1.
2.
Includes equity accounted FFO of $13 million and excludes investment income of $21 million that is included in net operating income
Includes equity accounted FFO of $25 million
Net operating income declined by $78 million from 2011. NOI from hydroelectric facilities declined by $151 million due
to lower revenues while direct costs increased due to the addition of newly acquired and commissioned facilities to the portfolio.
Costs are largely fixed and therefore do not decline to the same extent as revenues when generation is lower. NOI from
our wind energy facilities increased by $81 million due to the contribution from recently acquired and commissioned wind
energy facilities.
Realized prices on a per MWh basis were unchanged at $74 year-over-year on a total portfolio basis, which represents a decline
from $72 to $70 for the hydroelectric portfolio offset by a greater proportion of higher price wind energy generation following
the acquisition and commissioning of wind energy facilities over the past two years. The decline in hydroelectric prices reflects
the impact of lower spot pricing on uncontracted generation in the northeast United States and reduced generation from facilities
that sell power under higher priced long-term contracts. Operating costs per unit on a total portfolio basis increased from $25
to $30, reflecting an increase in hydroelectric unit costs from $24 to $28 and a greater proportion of higher cost wind energy.
The increase in hydroelectric unit costs is primarily due to the impact of lower generation levels over a relatively fixed cost base
and costs incurred from newly acquired assets. Average realized prices and direct costs for our wind facilities were unchanged
year-over-year on a per MWh basis.
Currency fluctuations reduced the U.S. equivalent of both revenues and operating costs, resulting in an approximate $1 decrease
in net operating income on a per unit basis.
Portfolio Valuation
We recorded a valuation gain of $825 million in Other Comprehensive Income to revalue our portfolio at year-end. After
taking into consideration $500 million of accounting depreciation booked during the year, the net portfolio revaluation gain
year-over-year was $325 million. This reflects a $650 million increase as a result of lower discount rates, which in turn reflect
lower interest rates, offset by a $250 million reduction relating to lower expected electricity prices in the short term and a
$100 million reduction reflecting the impact of exchange rates on projected cash flows. Our share of the net portfolio revaluation
after non-controlling interests was approximately $270 million.
The assets deployed in our renewable power operations are revalued on an annual basis using discounted cash flows. The
key valuation metrics of our hydro and wind generating facilities at the end of 2012 and 2011 are summarized below.
The valuations are impacted primarily by the discount rate and long-term power prices. Discount rates are based on our after-tax
cost of capital and are adjusted to reflect whether revenues are subject to long-term contracts or spot market pricing. Projected
cash flows are based on in-place contracts and expected market prices for non-contracted power. Forward market prices are used
for the first four years, during which time there is adequate liquidity permit appropriate price discovery, and thereafter prices are
determined using internal projections that reflect our view of future market capacity, cost of capital, costs of fuel for competing
forms of generation and competitive attributes of renewable energy. 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 $1.6 billion
and $0.5 billion, respectively.
2012 ANNUAL REPORT 51
AS AT DECEMBER 31
Discount rate
Terminal capitalization rate
Exit date
United States
2012
6.5%
7.0%
2032
2011
6.7%
7.2%
2031
Canada
Brazil
2012
5.4%
6.5%
2032
2011
5.7%
6.8%
2031
2012
9.4%
n/a
2029
2011
9.9%
n/a
2029
The discount and terminal capitalization rates decreased in both the United States and Canada due to improved economic outlook
and lower risk-free rates. The discount rates in Brazil decreased as a result of lower risk free rates. We reduced expected pricing
in the near future to reflect lower spot and forward market prices; however our longer term price projections remain relatively
unchanged. Our generation facilities in Brazil are held under concessions and authorizations which have a fixed maturity date
and accordingly, we do not ascribe a terminal value to these assets under IFRS, although we believe that we will be able to renew
these concessions upon maturity.
Segment Financial Position
Segment assets increased by approximately $1.5 billion in total, which includes a $1.5 billion increase in the U.S. primarily as a
result of acquisitions of hydroelectric and wind energy assets, a $0.6 billion increase in Canada reflecting a composition of the
continued development of wind and hydroelectric assets and the revaluation of property, plant and equipment and a 3% increase
in currency exchange rates, and a $0.2 billion decrease in Brazil reflecting a 9% decrease in currency exchange rates offset by
investment in acquisitions and development projects.
Approximately 600 MW of capacity was acquired by our institutional fund during the year, with a total enterprise value of
$1.2 billion, which enabled us to invest $600 million of equity. BREP’s average interest in these facilities is 22%. This included
two California wind projects closed in the first quarter of 2012 with estimated annualized generation of 550 GWh and a 24-year
power purchase agreement and a group of hydroelectric facilities in Tennessee with estimated annual generation of 1,360 GWh
that closed in November 2012.
We completed the construction of two wind facilities and one hydroelectric facility, adding over 600 GWh of estimated long-
term annual generation.
Segment borrowings and segment non-controlling interests increased by $0.6 billion and $1.1 billion, respectively. The additional
borrowings primarily reflect acquisition financing. The increase in segment non-controlling interests represents capital called
from third party investors to fund generation assets acquired during the year, and the sale by us of a 5% interest in Brookfield
Renewable.
Common equity by segment declined by $0.1 billion, as the reduction in our interest in Brookfield Renewable was partially
offset by valuation gains.
Contract Profile
We have contracted 77% and 69% of our long-term average generation for 2013 and 2014, respectively. Approximately 70% of
the expected generation is hedged with long-term contracts that have an average term of 11.6 years, while 5% of our revenue for
2013 is hedged with shorter-term financial contracts.
Almost all of Brookfield Renewable’s generation in Brazil is sold under power sales agreements, as is all of the wind energy
in North America. Our wholly-owned energy marketing group has entered into purchase agreements and price guarantees with
Brookfield Renewable that fix the prices for most of the North American hydroelectric generation that is not already sold under
a long-term contract. The majority of these arrangements are offset by us with long-term contracts such as our 20-year power
sales agreement with the Ontario Power Authority, which has the full credit support of the Ontario provincial government. Our
primary exposure to price fluctuations relates to approximately 5,000 GWh of annual generation that we have committed to
purchase from Brookfield Renewable at an average price of $73 per MWh for which we have no offsetting long-term sales
agreements. We estimate that a $10 per MWh negative variance results in an approximate $16 million decrease in FFO based on
our 68% ownership of Brookfield Renewable at year-end, because we recover our proportionate share of any negative variance
through our ownership interest. On the other hand, we will record annual FFO increases of $50 million for every $10 per MWh
of positive variance from the contracted price, which we believe will add significant value over the longer term as demand and
prices for renewable hydroelectric generation increase. Realized prices were below contract prices for the most of the year which
resulted in a net reduction in FFO of approximately $40 million from these arrangements during 2012.
52 BROOKFIELD ASSET MANAGEMENT
The following table profiles our contracts over the next five years for generation from our existing facilities, assuming long-term
average hydrology:
FOR THE YEARS ENDED DECEMBER 31
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, 2012
% of total generation
Price (per MWh)
2013
2014
2015
2016
2017
11,534
2,104
398
14,036
906
14,942
4,578
19,520
10,266
2,104
134
12,504
876
13,380
5,988
19,368
8,920
2,104
—
11,024
—
11,024
8,258
19,282
8,782
2,104
—
10,886
—
10,886
8,396
19,282
8,140
2,104
—
10,244
—
10,244
9,038
19,282
77%
84
$
69%
85
$
57%
93
$
56%
94
$
53%
93
$
The average contracted price fluctuates from period to period as existing contracts expire and we enter into new contracts, and
as a result of changes in currency exchange rates for contracts in Brazil and Canada.
We acquired facilities during 2012 with estimated contracted generation of 1,400 gigawatt hours that is sold under contract at
what we consider to be low prices that can be exceeded in the near term markets. These contracts terminate during 2013 and
2014, resulting in a decrease in the proportion of contracted generation; however, we are confident that we can ultimately secure
much longer term contracts at higher prices.
The decrease in the amount of annual generation contracted under long-term power sales agreements prior to 2017 also reflects
the expiry of contracts in Brazil. Given the continued economic expansion in that country and the increasing need for generation
capacity, we are confident that we will be able to sell our power at increasing rates and secure long-term contracts on favourable
terms.
We have reduced the amount of power sold under financial contracts, which primarily relate to generation in the Quebec and
New York markets, relative to previous years, as we believe the current low spot price environment provides more upside
potential than downside risk. In the meantime, we continue to pursue opportunities to secure long-term contracts at pricing that
reflects the favourable renewable characteristics of our energy production in North America.
Outlook and Growth Initiatives
Acquisition and development activities completed during the year increased our estimated annualized generation by 2,582 GWh,
which, together with the expected closing of a previously-announced acquisition of a large-scale hydroelectric portfolio in the
northeast U.S., will increase overall portfolio generation by 15% at attractive projected returns. In addition, we continue to
advance two hydroelectric facilities with a total expected construction cost of $315 million and estimated long-term average
generation of 275 GWh and maintain a development pipeline of approximately 2,000 MW of capacity.
Notwithstanding the current low price environment for electricity prices in our North American markets, we believe electricity
prices will increase strongly over the long-term due to the challenges facing many forms of generation technologies, including
environmental concerns and possible carbon pricing, desires for energy independence and security and other potential legislative
and market driven factors. In the short term, most of our revenues are secured through long-term contracts although the
uncontracted power is being sold at the low prices that prevail in the current market. In the long term, we are well positioned to
benefit from increasing electricity prices.
2012 ANNUAL REPORT 53
INFRASTRUCTURE
Overview
We own and operate our infrastructure operations primarily through Brookfield Infrastructure Partners L.P. (“BIP”), which had
a market capitalization of $8 billion at year-end and is listed on the New York and Toronto stock exchanges. We hold a 28%
interest in BIP, consistent with our ownership level through 2012 and 2011. BIP owns a number of infrastructure businesses
directly as well as through infrastructure funds and joint ventures that we manage, the largest of which is the Brookfield Americas
Infrastructure Fund (“BAIF”). BAIF has total committed capital of $2.7 billion, 90% invested at year end, of which Brookfield
committed $0.7 billion. We also hold direct interests in our timber funds and our agriculture business outside of BIP.
During 2012 we transferred our remaining directly held transmission interests to BIP and sold our direct interests in our western
Canadian timberlands, thereby monetizing the capital invested and simplifying our ownership structure. We are currently
exploring alternatives to similarly monetize or reorganize our remaining directly held timber operations with similar objectives.
Highlights during 2012 include the following:
•
•
•
•
•
•
•
Achieved total return for unitholders of BIP of 33% on the NYSE during 2012 (3-year – 35%) compared to 16%
(3-year – 14%) for the Dow Jones Brookfield Global Infrastructure Index.
Increased BIP’s annualized distribution rate by 15% in February 2013, representing a compound annual growth rate of 10%
over the past five years, exceeding our targeted distribution growth rate of 3 – 7% per annum.
Earned segment FFO of $224 million compared with $172 million in 2011. This 30% increase in FFO reflects the contribution
from recently commissioned expansion projects as new investments.
Successfully commissioned our $600 million Australian railroad expansion below budget and ahead of schedule and
significantly advanced our $750 million Texas electricity transmission system, which we expect will be up and running in
mid-2013.
Deployed $2 billion of capital into investments in the utility, transportation and energy sectors, including $1 billion of
capital in European businesses or in assets acquired from European owners.
Completed $3.3 billion of financings and capital markets activities that increased liquidity.
Negotiated favourable rate base renewals covering $265 million of operating assets.
The following table sets out the operating performance of our infrastructure segment by business line as well as its financial position:
AS AT AND FOR THE YEARS
ENDED DECEMBER 31
(MILLIONS)
Segment financial results
Utilities
Transport
and Energy
Sustainable
Resources
Corporate /
Unallocated
Total
Segment
2012
2011
2012
2011
2012
2011
2012
2011
2012
2011
Revenues
$ 868
$ 580 $ 672
$ 541
$ 559
$ 598
$
10
$
Net operating income
Equity accounted FFO
Disposition gains
Segment operating income
Interest expense
Unallocated costs
Current income taxes
489
126
—
615
399
116
—
515
(184)
(144)
(1)
(8)
(2)
—
295
86
—
381
(98)
—
—
195
70
—
265
(82)
—
1
Non-controlling interests in FFO
(313)
(251)
(213)
(137)
176
8
63
247
(89)
(21)
(2)
(51)
217
6
—
223
(88)
(17)
(2)
(61)
11
3
—
14
(28)
(122)
(6)
103
6
6
1
—
7
(26)
(99)
(3)
73
$ 2,109
$ 1,725
971
223
63
817
193
—
1,257
1,010
(399)
(144)
(16)
(474)
(340)
(118)
(4)
(376)
Funds from operations
$ 109
$ 118
$
70
$
47
$
84
$
55
$
(39) $
(48) $ 224
$ 172
Valuation items
$
8
$
35
$
32
$
95
$ 125
$ 153
$
(4) $ — $ 161
$ 283
Segment financial position
Segment assets
Investments
Borrowings
$ 4,707
$ 3,166
$ 5,254
$ 2,600
$ 4,482
$ 4,183
$
1,122
931
1,384
696
80
69
(3,195)
(2,336)
(2,322)
(962)
(1,525)
(1,506)
Segment non-controlling interests
(2,041)
(1,168)
(3,381)
(1,706)
(1,747)
(1,482)
20
20
(946)
659
$ 130
$ 14,463
$ 10,079
— 2,606
1,696
(114)
(7,988)
(4,918)
6
(6,510)
(4,350)
Common equity by segment
$ 593
$ 593
$ 935
$ 628
$ 1,290
$ 1,264
$ (247) $
22
$ 2,571
$ 2,507
54 BROOKFIELD ASSET MANAGEMENT
Funds from operations increased to $224 million from $172 million in 2011. Disposition gains contributed $45 million to FFO
during 2012 after non-controlling interests, whereas there were no such gains in 2011. The gains related to the sale of a portion of
our western Canadian timber to an institutional investor ($34 million) and the disposition of our agricultural land ($11 million).
FFO excluding gains increased by $7 million year-over-year, to $179 million. The increase reflects the contribution from capital
expansion projects such as our western Australian rail lines and acquisitions such as our South American toll roads, offset
by lower timber prices and a reduced interest in our South American transmission business.Valuation gains in 2012 totalled
$190 million reflecting value appreciation in our Utilities and Sustainable Resources businesses. In 2011, valuation gains
totalled $283 million due to increased valuations of many of our operating assets and standing timber.
Segment assets and equity accounted investments increased by $5.3 billion to $17.1 billion at year-end as a result of the
acquisition of several large businesses during the year by BIP directly and through our private funds. Borrowings increased by
$3.1 billion and segment non-controlling interests increased by $2.2 billion reflecting acquisition financing of long-term debt
capital provided by clients and investment partners.
Common equity by segment increased by $64 million, which reflects our share of undistributed earnings and our $140 million
participation in BIP’s equity issue during 2012, offset by the sale of our direct interest in western Canadian timberlands and the
sale of our direct interest in our Chilean transmission business to BIP.
Utilities
These businesses typically earn a pre-determined return based on their asset base, invested capital or capacity and the applicable
regulatory frameworks and long-term contracts. Accordingly, the returns tend to be highly predictable and typically not impacted
to any great degree by short-term volume or price fluctuations.
Net operating income increased by 23% to $489 million from $399 million last year reflecting the acquisition of a
South American electricity distribution company and the expansion of our UK connections business by way of a merger that
doubled the size of the business.
Segment FFO decreased by $9 million to $109 million. A substantial proportion of the contribution from new assets is attributable
to non-controlling interests in our private funds and BIP. In addition, we held a lower effective interest in our Chilean transmission
business following the sale of our direct interest to BIP during the year.
Common equity by segment in this business line was unchanged year-over-year as our share of the equity deployed in the
acquisitions was offset by our reduced interest in our Chilean transmission operations.
We invested approximately $75 million for a 25% interest in a district energy system that serves commercial customers in
downtown Toronto, Ontario which we acquired in partnership with institutional investors. In November, we completed the
recapitalization of our recently acquired UK regulated distribution business, enabling BIP to invest $525 million in the business
and more than doubling our installed base of gas and electricity connections to over 1 million. We subsequently sold a 20%
interest in this business for proceeds of $235 million.
Transport and Energy
These businesses operate, in most cases, under long-term contracts or regulatory frameworks that govern prices, but not volumes.
As a result, financial performance may fluctuate due to changes in activity levels or short-term price variances; however, these
are usually within a narrow band of fluctuation.
Net operating income increased to $295 million in 2012, from $195 million in 2011. The increase was primarily driven by the
commissioning of our Australian rail line expansion and the contribution from South American toll road businesses acquired
during 2012 and late 2011. Our North American gas transmission business continues to be adversely impacted by weak market
conditions caused by excess capacity and low natural gas prices.
The net impact of the acquisitions and capital expansions led to a 49% increase in segment FFO, which was $70 million in 2012
compared to $47 million in 2011. Non-controlling interests increased by $76 million reflecting the interest of these investors in
the increased operating results.
Valuation gains relating to our transport and energy operations totalled $32 million compared to $95 million in 2011. In each
year the gains relate primarily to the increased value of our Australian rail operations reflecting the capital expansion and the
procurement of associated long-term contracts.
Common equity by segment in this business line increased by $307 million, reflecting our pro rata share of the capital invested
in the Australian rail lines and the toll road acquisitions.
2012 ANNUAL REPORT 55
We completed the acquisition of an additional interest in our Chilean toll road for $170 million, increasing our ownership to
approximately 50%. In December, we acquired a 60% interest in the largest toll road operator in Brazil, in partnership with
Abertis Infraestructuras and institutional investors for $310 million. These roads benefit from long-term concession agreements
in proven regulatory regimes, as well as significant opportunities to deploy additional capital to expand the networks to meet
increased road traffic due to GDP growth.
Sustainable Resources
Net operating income for our sustainable resources business decreased to $176 million from $217 million last year, due to lower
volumes and pricing in our timber business following a decline in demand from Asian markets. For the year, exports represented
41% of total log sales, compared to 47% in 2011. In December, we sold our direct 12.5% interest in our Canadian timberlands
business as well as the 12.5% of interest held by BIP for aggregate proceeds at $170 million, resulting in a disposition gain of
$63 million, of which our share after non-controlling interests was $45 million. This led to an increase in our proportionate share
of FFO to $67 million from $46 million last year.
We recorded valuation gains of $125 million based on increases in expected cash flows reflecting improved log prices and
increased harvest levels and increased values of our Brazilian agricultural lands. The carrying values of our timber assets are
based on external appraisals that are completed annually. Key valuation assumptions include a weighted average discount and
terminal capitalization rate of 6.2% (2011 – 6.6%) and an average terminal valuation date of 90 years. Timber prices were based
on a combination of forward prices available in the market and the price forecasts of each appraisal firm.
Our R$674 million Brazil Agriland Fund is currently 53% invested. Our total investment, including our historical business as
well as new investments through the Fund, is approximately $535 million, and is carried at fair value under IFRS and revalued
in the normal quarterly process.
Common equity by segment in this business line increased by $26 million, as the impact of valuation gains and additional
agriculture investments was largely offset by the sale of interests in our western Canadian timber operations.
Corporate/Unallocated
Our proportionate share of net corporate expenses, which relate primarily to interest expense, unallocated corporate costs, and
management fees paid to Brookfield was $39 million compared to $48 million in 2011. Interest expenses and management fees
both increased reflecting unsecured borrowings incurred to finance acquisitions and an increase in the amount of capital under
management; however this was offset by an increase in the amounts attributable to non-controlling interests.
Common equity by segment that has not been specifically allocated to one of the business lines decreased reflecting our
proportionate share of unsecured financings completed during 2012.
We also completed refinancings at a number of our operations, capitalizing on opportunities to issue long-term debt in this
historically low interest rate environment. In total, we refinanced $3.3 billion of debt at an average rate of 4.6%. These efforts
have positioned us very well going into 2013 as our business now has a well laddered debt maturity profile, with an average
maturity of eight years.
Outlook and Growth Initiatives
The completion of strategic initiatives in the fourth quarter of 2012 has established a very solid foundation for our business to
prosper across a wide range of economic environments. Based on our current profile, over 85% of projected 2012 cash flow
will be generated under regulatory frameworks or long-term contracts, a significant amount of which is not dependent on usage.
Furthermore, approximately 60% of our projected 2012 revenue is indexed to inflation and 65% of projected cash flow is
generated by assets with excess capacity whereby we have upside from increased throughput of our networks, such as our toll
roads in South America and our ports in Europe.
We continue to advance a number of other growth initiatives. A number of our businesses, such as our UK connections business,
our electricity transmission operations, our European ports and our Australian railroad, have considerable organic growth
investment opportunities that earn very attractive returns on invested capital. A key focus for 2013 will be the replenishment of
our capital backlog by identifying and advancing organic growth opportunities such as our Dudgeon Point coal terminal project.
Our timber operations are expected to benefit from continued demand from Asia as we are also participating in the recovery
of North American markets which we believe in time will allow us to achieve optimal pricing and increase our harvest levels.
We remain confident that we can achieve attractive returns within our Brazilian agricultural operations based on the country’s
strong competitive position as a leading agricultural producer and will endeavour to deploy additional capital on behalf
of ourselves and our clients. We have an active pipeline for investments in 39 properties with an approximate total value
of R$1.7 billion. We are in the process of concluding investments requiring total capital of approximately $100 million which
has been recently called from our Brazil Agriland Fund.
56 BROOKFIELD ASSET MANAGEMENT
PRIVATE EQUITY AND RESIDENTIAL DEVELOPMENT
Our private equity and residential development operations are conducted through a series of institutional private equity funds
operated under the Brookfield Capital Partners brand with total committed capital of $2.7 billion as well as direct investments in
several public companies including Norbord Inc., Brookfield Residential Properties Inc. and Brookfield Incorporações S.A. We
also have residential development operations in Australia that we are in the process of winding down.
Highlights during 2012 include the following:
•
•
•
•
•
Completed the final close of Brookfield Capital Partners III with $1 billion of capital commitments, and secured $450 million
of pledge commitments to a bridge lending strategy, including $250 million and $200 million, respectively, from Brookfield.
Completed $1.8 billion financing and capital markets transactions, including the recapitalization of our North American
residential development business with equity and the debt issuances of $800 million.
Increased segment FFO modestly to $261 million as increased FFO from our private equity operations and our
North American residential business was more than offset losses from our Brazilian residential operations.
Increased aggregate net operating income within our private equity operations by $301 million due primarily to the ongoing
recovery in the North American housing markets. Our share of FFO from these operations totalled $234 million compared
to $127 million in 2011.
Closed out Brookfield Capital Partners I with the return of remaining capital to investors for a gross IRR of 31% (Net IRR
after fees and carry was 25%) and a gross multiple of capital of 2.2 times (net capital multiple of 1.9 times). Our share of the
gains earned by our partners totalled $17 million ($26 million since inception) and is included as performance based income
in our Asset Management and Other Services segment.
The following table sets out the operating performance of our private equity and residential development segment during 2012
as well as its financial profile:
AS AT AND FOR THE YEARS ENDED DECEMBER 31
(MILLIONS)
Segment financial results
Revenues
Net operating income
Equity accounted FFO
Disposition gains
Segment operating income
Interest expense
Unallocated costs
Current income taxes
Non-controlling interests in FFO
Funds from operations
Valuation items
Segment financial position
Segment assets
Investments
Borrowings
Segment non-controlling interests
Common equity by segment
Private
Equity
Residential
Development
Total
Segment
2012
2011
2012
2011
2012
2011
4,424 $
598
8
15
621
(133)
(28)
(12)
(221)
227 $
3,890 $
298
1
177
476
(128)
(22)
(8)
(148)
170 $
2,476 $
197
7
16
220
(143)
—
(67)
24
34 $
2,850 $
313
22
—
335
(135)
—
(37)
(85)
78 $
6,900 $
795
15
31
841
(276)
(28)
(79)
(197)
261 $
6,740
611
23
177
811
(263)
(22)
(45)
(233)
248
(134) $
(236) $
(46) $
(13) $
(180) $
(249)
3,584 $
26
(1,682)
(970)
958 $
3,514 $
25
(1,790)
(799)
950 $
5,892 $
210
(3,348)
(1,137)
1,617 $
5,380 $
236
(2,655)
(1,295)
1,666 $
9,476 $
236
(5,030)
(2,107)
2,575 $
8,894
261
(4,445)
(2,094)
2,616
$
$
$
$
$
Revenues, net operating income and funds from operations all increased compared to 2011 reflecting the ongoing recovery in the
U.S. housing market. This had a particularly favourable impact on the two panelboard investments in our private equity funds, as
well as our North American residential development business. These increases were partially offset by a slowdown in activity in
our Brazilian residential operations. Disposition gains totalled $31 million in 2012 compared to $177 million in 2011.
2012 ANNUAL REPORT 57
Private Equity
We operate six institutional private equity funds with total invested capital of $1.1 billion and uninvested capital commitments
from clients of $1 billion, $1.6 billion including Brookfield’s commitments. We also directly own a number of investments
that are outside the mandates of our private equity funds or other operating entities. Common equity by segment is $1.0 billion
consistent with the prior year.
The private equity fund portfolios include 14 investments in a diverse range of industries. Our average investment is $34 million
and our largest single exposure is $245 million of common equity by segment and $67 million and $391 million, respectively, at
fair value, based on internal valuations. We concentrate our investing activities on businesses with tangible assets and cash flow
streams in order to better protect our capital.
Our largest direct investment is a 63% interest in Norbord Inc. (“Norbord”), which is one of the world’s largest producers of
oriented strand board. The market value of our investment in Norbord at December 31, 2012 was approximately $900 million
based on stock market prices, compared to our carrying value of $200 million.
The results of our private equity activities are shown in the following table. Our share of FFO from private equity investments
increased to $227 million from $170 million in 2011.
AS AT AND FOR THE YEARS ENDED DECEMBER 31
(MILLIONS)
Industrial and forest products
Energy and related services
Business services
Property and other
Bridge lending
Other
Disposition gains
Carrying
Values
Revenues
2012
592
149
139
3
75
—
958
—
958
$
$
2011
506
154
233
2
55
—
950
—
950
$
$
2012
$ 4,088
183
101
—
52
—
4,424
—
$ 4,424
2011
$ 3,673
155
32
—
30
—
3,890
—
$ 3,890
Funds from
Operations
2012
166
22
11
—
18
(5)
212
15
227
$
$
2011
59
17
11
—
7
(7)
87
83
170
$
$
Revenues increased by $534 million, due principally to increased prices and volumes within our panelboard businesses, which are
benefitting from the U.S. housing recovery. This led to an increase in FFO from our industrial and forest products businesses to
$166 million, a $107 million increase over 2011. Asset monetization gains were higher in 2011 due to a $61 million monetization
gain relating to the recapitalization of one of our portfolio companies. As a result of these factors, FFO from these operations
increased by $57 million to $227 million in 2012.
Residential Development
Our North American business is conducted through Brookfield Residential Properties Inc. We hold approximately 69% of
Brookfield Residential which is listed on the New York and Toronto stock exchanges. We are active in 10 principal markets
located primarily in Alberta, California and Washington, D.C. area, and control over 100,000 lots in these markets. Our major
focus is on entitling and developing land for building homes or for the sale of lots to other builders.
Our Brazilian business is conducted through Brookfield Incorporações S.A. (“BISA”). We hold approximately 44% of BISA
which is listed on the principal stock exchange in Brazil. BISA is one of the leading developers in Brazil’s real estate industry.
These operations include land acquisition and development, construction, and sales and marketing of a broad range of “for sale”
residential and commercial office units, with a primary focus on middle income residential. The operations are conducted in
Brazil’s main metropolitan areas, including São Paulo, Rio de Janeiro, the Brasilia Federal District, and the five other markets
that collectively account for the majority of the Brazilian real estate market.
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.
58 BROOKFIELD ASSET MANAGEMENT
The following table sets out the operating results and financial profile of our residential development activities for the past
two years:
AS AT AND FOR THE YEARS ENDED DECEMBER 31
(MILLIONS)
Segment financial results
Brazil
North America
Australia/UK
Total
2012
2011
2012
2011
2012
2011
2012
2011
Revenues
Net operating income
Equity accounted FFO
Disposition gains
Segment operating income
Interest expense
Current income taxes
Non-controlling interests in FFO
Funds from operations
$ 1,006
29
(3)
1
27
(87)
(22)
47
(35)
$
$ 1,775
195
21
—
216
(90)
(18)
(62)
46
$
$ 1,340
163
10
15
188
(41)
(45)
(23)
79
$
$
$
818
126
1
—
127
(34)
(19)
(23)
51
Valuation items
Segment financial position
Segment assets
Investments
Borrowings
Segment non-controlling
interests
Common equity by segment
$ 3,340
44
(2,175)
$ 3,028
80
(1,863)
$ 2,219
155
(1,051)
$ 1,922
144
(599)
$
$
$
$
$
$
130
5
—
—
5
(15)
—
—
(10)
333
11
(122)
257
(8)
—
—
(8)
(11)
—
—
(19)
$ 2,476
197
7
16
220
(143)
(67)
24
34
$
$ 2,850
313
22
—
335
(135)
(37)
(85)
78
$
$
(46)
$
(13)
430
12
(193)
$ 5,892
210
(3,348)
$ 5,380
236
(2,655)
(727)
482
$
(785)
460
$
(410)
913
$
(510)
957
$
—
222
$
—
249
(1,137)
$ 1,617
(1,295)
$ 1,666
$
Our Brazilian operations experienced lower levels of sales and project launches during 2012, although both results were
consistent with expectations. The slowdown reflects lower levels of permitting throughout our principal development areas
following several years of expansion and consistent with the experience of other developers. We have also experienced some
margin pressure from cost increases; however margins remained healthy at 13%.
The following table presents project completions, contracted sales and new project launches for the last three years in Brazilian
currency:
FOR THE YEARS ENDED DECEMBER 31
(R$ MILLIONS)
Project completions
Contracted sales
Project launches
$
2012
1,073
3,358
3,072
$
2011
1,952
4,387
3,930
$
2010
922
3,621
2,981
Our North American operations demonstrated strong growth reflecting the recovery in U.S. housing markets, and while the
contribution from our U.S. business was negligible during the year, we believe it has the potential to deliver strong results over
the coming years. Funds from operations increased from $51 million to $79 million due largely to an increase in gross margin of
$61 million, offset in part by associated income taxes. Brookfield Residential completed an equity offering in the fourth
quarter and we participated at a reduced share, diluting our ownership from 72% to 69% and recognizing a disposition gain
of $15 million.
We delivered 1,808 homes and 2,142 lots during the year, compared to 1,295 and 1,869, respectively, in 2011, resulting in
revenues of $1.3 billion compared to $0.8 billion in 2011. The gross margin on our Canadian operations was 34.2% compared to
36.8% in 2011 reflecting a slight change in mix between the projects being delivered and between home and lot sales.
The 2011 results for Australia and the UK include the bulk sale of residential holdings in Perth.
2012 ANNUAL REPORT 59
Outlook and Growth Initiatives
We believe our North American activities will continue to benefit from the continuing recovery of the North American housing
industries which should favourably impact our residential development and industry and forest product businesses. In addition,
our residential development business benefits from our strong market share within the energy-focused Alberta market. New
home orders totalled 2,057 during 2012 compared to 1,635 during 2011, with much of the increase occurring within our U.S.
operations. At the end of 2012, the North American backlog of homes sold but not delivered was 834, with a sales value of
$365 million, compared to 659 homes with a value of $264 million at the same time last year.
The continued economic expansion within Brazil, combined with favourable demographics and supportive government policies
have all contributed to increased sales and are expected to continue. We have focused our operations on major markets, and
have established a “top-three” presence in the core markets that represent over 60% of the country’s GDP, which positions us to
continue to participate in this growth.
Business conditions for most of the investee companies within our private equity portfolios are improving, which should lead
to improved FFO. In addition, favourable capital markets may facilitate their sale, consistent with our strategy. We recently
completed the final close of our Brookfield Capital Partners III private fund, with over $1 billion of capital commitments,
$250 million of which was from Brookfield.
60 BROOKFIELD ASSET MANAGEMENT
PART 4 – CAPITALIZATION AND LIQUIDITY
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.
The following are the key elements of our capital strategy:
•
Co-invest with partners through listed and unlisted funds to broaden sources of equity capital;
• 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.
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 corporate, 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.
CAPITALIZATION
Overview
We review key components of our consolidated capitalization in the following sections. In several instances we have disaggregated
the balances into the amounts attributable to our business segments in order to facilitate discussion and analysis.
Borrowings
Corporate Borrowings
AS AT DECEMBER 31, 2011
(MILLIONS)
Commercial paper and bank borrowings
Term debt
Average Term
Maturity
2012
4
9
8
2011
2013
2014
2015
2016 &
After
4 $
8
7 $
— $
75
75 $
— $
178
178 $
— $
—
— $
744 $
2,529
3,273 $
Total
744
2,782
3,526
Commercial paper and bank borrowings represent shorter-term borrowings pursuant to, or backed by, $2.2 billion of committed
revolving term credit facilities of which $1.9 billion have a five-year term and the remaining $300 million have a four-year term.
As at December 31, 2012, approximately $253 million (December 31, 2011 – $204 million) of the facilities were utilized for
letters of credit issued to support various business initiatives.
Term debt consists of public bonds and private placements, all of which are fixed rate and have maturities ranging from 2013 until
2035. These financings provide an important source of long-term capital and an appropriate match to our long-term asset profile.
Our corporate borrowings have an average term of eight years (December 31, 2011 – seven years). The average interest rate on
our corporate borrowings was 4.7% at December 31, 2012 (December 31, 2011 – 5.2%).
2012 ANNUAL REPORT 61
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.
AS AT DECEMBER 31
(MILLIONS)
Property
Office
Retail
Opportunity, finance and development
Renewable power
Infrastructure
Private equity
Other
Total
Average Term
Consolidated
2012
2011
2012
2011
4
6
3
12
6
3
2
5
4
5
3
10
7
2
2
5
$ 12,261
1,003
5,445
4,347
7,021
3,210
361
$ 33,648
$ 11,398
1,371
2,927
4,197
4,802
3,174
546
$ 28,415
Property-specific borrowings increased during 2012 due to our share of debt acquired through acquisitions in our property and
infrastructure operations.
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
Property
Renewable power
Infrastructure
Private equity
Contingent swap accruals1
Total
1.
Guaranteed by the Corporation
Average Term
Consolidated
2012
2011
2012
2011
3
8
4
5
3
4
3
8
2
3
4
4
$ 1,896
1,772
967
1,820
1,130
$ 7,585
$
743
1,323
116
1,271
988
$ 4,441
Our property, renewable power, infrastructure and residential development businesses all completed unsecured borrowings
during the year through the issuance of public bonds or term bank facilities, with the proceeds used to refinance higher cost
property-specific borrowings or to fund acquisitions.
Subsidiary borrowings have no recourse to the Corporation with only a limited number of exceptions. As at December 31, 2012,
subsidiary borrowings included $1,130 million (December 31, 2011 – $988 million) of contingent swap accruals that are
guaranteed by the Corporation.
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 October 2015. Our financial statements include an accrual of $1,130 million
(December 31, 2011 – $988 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 $257 million (December 31, 2011 – $274 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.
62 BROOKFIELD ASSET MANAGEMENT
Accounts Payable and Other
AS AT DECEMBER 31
(MILLIONS)
Accounts payable
Other liabilities
Consolidated
Corporate
2012
7,183
4,416
11,599
$
$
$
$
2011
5,342
3,924
9,266
$
$
2012
416
967
1,383
$
$
2011
249
1,263
1,512
Accounts payable and other liabilities increased by $2.3 billion on a consolidated basis, of which $1.2 billion represent amounts
acquired through business acquisitions, as shown in Note 4 to our consolidated financial statements.
Corporate accounts payable and other decreased $129 million as a result of the continued wind-down of our insurance operations,
partially offset by an increased amount of unsettled securities at December 31, 2012.
Capital Securities
Capital securities are preferred shares that are mostly denominated in Canadian dollars and 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 Class A Limited Voting Shares, or Brookfield Office Properties common shares at that time unless previously
redeemed by us. The dividends paid on these securities are recorded in interest expense.
The average distribution yield on the consolidated capital securities at December 31, 2012 was 5.4% (December 31, 2011 – 5.5%)
and the average term to the holders’ conversion date was two years as at December 31, 2012 (December 31, 2011 – three years).
AS AT DECEMBER 31
(MILLIONS)
Issued by the Corporation
Issued by Brookfield Office Properties
Average Term
to Conversion
Consolidated
Corporate
2012
3
2
2
2011
2
3
3
$
2012
325
866
$ 1,191
$
2011
656
994
$ 1,650
2012
325
—
325
$
$
2011
656
—
656
$
$
The decrease during the year reflects the redemption of capital securities by both the Corporation and Brookfield Office Properties.
Interest Rate Profile
As at December 31, 2012, our net floating rate liability position on a proportionate basis was $4.9 billion
(December 31, 2011 – $4.7 billion). As a result, a 10 basis-point increase in interest rates would decrease funds from operations
by $5 million. Notwithstanding our practice of match funding long-term assets with long-term debt, we do believe that the values
and cash flows of certain assets are more appropriately matched with floating rate liabilities. We utilize interest rate contracts to
manage our overall interest rate profile so as to achieve an appropriate floating rate exposure on these assets while preserving a
long-term maturity profile.
The impact of a 10 basis-point increase in long-term interest rates on financial instruments recorded at market value is
estimated to increase net income by $1 million on an annualized basis before tax, based on our positions at December 31, 2012
(December 31, 2011 – $2 million).
We have been active in taking advantage of low long-term rates to fix the coupons on floating rate debt and near-term maturities.
This has resulted in an increase in our current borrowing expense but we believe this will result in lower costs in the long
term. We have entered into $3.6 billion notional amount (2011 – $2.8 billion) of interest rate contracts, $2.2 billion net to the
Corporation (2011 – $1.8 billion), to lock in the risk-free component of interest rates for debt refinancings over the next three
years at an average risk-free rate of 2.39% (2011 – 2.79%). The effective rate will be approximately 3.34% (2011 – 3.76%) at
the time of issuance which reflects the premium relating to the projected steepness of the yield curve during this period. This
represents approximately 50% of expected issuance into the North American and UK markets (2011 – 50%). The value of
these contracts is correlated with changes in the reference interest rate, typically the U.S. 10-year government bond such that a
10 basis-point change in the interest rate would result in a $35 million change (2011 – $31 million) in mark-to-market, $25 million
net to Brookfield (2011 – $21 million), being recorded in OCI.
2012 ANNUAL REPORT 63
Preferred Equity
Preferred equity is comprised of perpetual preferred shares and therefore represents permanent non-participating equity that
provides attractive low-cost leverage to our common equity. The shares are categorized by their principal characteristics in the
following table:
AS AT DECEMBER 31
(MILLIONS)
Floating rate
Fixed rate
Fixed rate-reset
Average Rate
2012
2.12%
4.79%
5.00%
4.48%
$
2011
2.12%
4.75%
5.28%
4.42% $
2012
480
355
2,066
2,901
2011
480
355
1,305
2,140
$
$
We issued C$300 million of 4.5% perpetual rate-reset preferred shares in March 2012, C$250 million of 4.2% perpetual
rate-reset preferred shares in September 2012, and C$200 million of 4.85% perpetual fixed rate preferred shares in November 2012.
Fixed rate-reset preferred shares have an initial rate that is fixed for an initial five to seven year period and is then reset after that
time at a pre-determined spread to the government bond yield.
Non-controlling Interests
Interests of co-investors in net assets are comprised of three components: participating equity interests, participating interests
held by other investors in funds that are treated as liabilities for accounting purposes, and non-participating preferred equity
issued by subsidiaries.
AS AT DECEMBER 31
(MILLIONS)
Participating equity interests
Properties
Brookfield Office Properties Inc.
Property funds and other
Renewable power
Brookfield Renewable Energy Partners L.P.
Infrastructure
Brookfield Infrastructure Partners L.P.
Private equity, development and corporate
Brookfield Incorporações S.A.
Brookfield Residential Properties Inc.
Other
Interest of others in funds
Non-participating interests
Brookfield Office Properties Inc.
Brookfield Renewable Energy Partners L.P.
Other
2012
2011
$
6,183 $
2,858
5,410
2,803
3,059
2,272
6,157
4,082
727
851
1,001
20,836
425
21,261
1,443
500
411
2,354
$
23,615 $
784
510
828
16,689
333
17,022
1,190
231
406
1,827
18,849
Common Equity
We repurchased 3.4 million Class A Limited Voting Shares during 2012 for $106 million of which 2.3 million shares ($70 million)
back grants of escrowed shares to employees.
The company holds 5.5 million Class A Limited Voting Shares (2011 – 3.2 million) for management long-term share ownership
programs, which have been deducted from the total amount of shares outstanding.
64 BROOKFIELD ASSET MANAGEMENT
Issued and Outstanding Shares
Changes in the number of issued and outstanding Class A Limited Voting Shares for the past two years are as follows:
FOR THE YEARS ENDED DECEMBER 31
(MILLIONS)
Outstanding at beginning of year
Issued (repurchased)
Share issuances
Repurchases
Management share option plan1
Dividend reinvestment plan
Outstanding at end of year
Unexercised options1
Total diluted shares at end of year
2012
619.3
—
(2.6)
2.7
0.2
619.6
38.4
658.0
2011
577.7
45.1
(6.1)
2.5
0.1
619.3
37.9
657.2
1.
Includes management share option plan and escrowed stock plan
In calculating our book value per share, the cash value of our unexercised options of $912 million (December 31,
2011 – $840 million) is added to the book value of our common equity of $18,160 million (December 31, 2011 – $16,743 million)
prior to dividing by the total diluted shares presented above.
As of March 28, 2013, the Corporation had outstanding 615,907,041 Class A Limited Voting Shares and 85,120 Class B Limited
Voting Shares.
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)
Net income
Preferred share dividends
Capital securities dividends1
Net income available for shareholders
Weighted average shares
Dilutive effect of the conversion of options using treasury stock method2
Dilutive effect of the conversion of capital securities1,3
Shares and share equivalents
Net Income
2012
$ 1,380
(129)
1,251
25
$ 1,276
2011
$ 1,957
(106)
1,851
38
$ 1,889
618.9
12.1
18.0
649.0
616.2
10.8
26.0
653.0
1.
2.
3.
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 Limited
Voting 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 Series
10 and 11 shares were redeemed on April 5, 2012 and October 1, 2012, respectively
Includes Management Share Option Plan and Escrowed Stock Plan
The number of shares is based on 95% of the quoted market price at period-end
Debt to Capitalization
The following table presents our debt to capitalization on a corporate (i.e., deconsolidated), a proportionally consolidated and
consolidated basis.
We define capitalization to include accounts payable and other liabilities and deferred income taxes, as well as borrowings,
capital securities, interests of others in consolidated funds and equity, which is consistent with how we assess our leverage ratios
and how we present them to our rating agencies.
2012 ANNUAL REPORT 65
AS AT DECEMBER 31
(MILLIONS)
Corporate borrowings
Non-recourse borrowings
Property-specific mortgages
Subsidiary borrowings1
Accounts payable and other
Deferred tax liabilities
Capital securities
Interests of others in consolidated funds
Equity
Non-controlling interests
Preferred equity
Common equity
Total capitalization
Debt to capitalization2
Consolidated
Corporate
Proportionate
2012
3,526
2011
3,701
2012
3,526
$
$
$
2011
3,701
2012
3,526
2011
3,701
$
$
$
33,648
7,585
44,759
11,599
6,419
1,191
425
28,415
4,441
36,557
9,266
5,817
1,650
333
—
1,130
4,656
1,199
870
325
—
—
988
4,689
1,287
796
656
—
21,794
4,928
30,248
7,144
2,339
758
—
19,083
3,679
26,463
6,128
2,255
1,153
—
23,190
2,901
18,160
44,251
$ 108,644
18,516
2,140
16,743
37,399
$ 91,022
—
2,901
18,160
21,061
$ 28,111
—
2,140
16,743
18,883
$ 26,311
—
2,901
18,160
21,061
$ 61,550
—
2,140
16,743
18,883
$ 54,882
41%
41%
17%
18%
49%
48%
1.
2.
Includes $1,130 million (December 31, 2011 – $988 million) of contingent swap accruals which are guaranteed by the Corporation and are accordingly included in
Corporate Capitalization
Determined as the aggregate of corporate borrowings and non-recourse borrowings divided by total capitalization
Consolidated Capitalization
Consolidated capitalization reflects the full consolidation of partially-owned entities, notwithstanding that our capital exposure
to these entities is limited in almost all cases to our invested capital. The debt-to-capitalization ratio on this basis is 41%
(December 31, 2011 – 41%).
We note 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.
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 investment in General Growth Properties and several of our infrastructure businesses.
The increase in borrowings on this primarily reflects the assumption of non-recourse asset specific borrowings on newly acquired
or consolidated assets and businesses. These changes had little impact on our proportionate consolidation as the borrowings
were already reflected in that basis of presentation or our share of the borrowings is substantially reduced, after considering the
amounts attributable to our partners.
Corporate Capitalization
Our corporate (deconsolidated) capitalization shows the amount of debt that is recourse to the Corporation, and the extent to
which it is supported by our invested capital and remitted cash flows. Corporate borrowings decreased by $175 million as a result
of retained cash flow, asset monetizations and financing activities. We completed two corporate bond issues during the year for
total proceeds of $846 million and used the proceeds in part to redeem $775 million of higher cost debt. These activities reduced
the average coupon by 3.63% compared to the redeemed bonds, provided incremental proceeds of $71 million and extended
the average term of our corporate term debt from seven years to eight years. Preferred equity increased by $761 million
representing the permanent capital raised on three issues of rate-reset preferred shares during the year with an average rate of
4.49%. The proceeds were used in part to redeem $350 million of capital securities with an average rate 5.68%. Our strategy is to
maintain a relatively low level of debt at the parent company level and finance our operations primarily at the asset or operating
unit level with no recourse to the Corporation. Subsidiary borrowings included in our corporate capitalization are contingent
swap accruals issued by a subsidiary that are guaranteed by the Corporation.
Common and preferred equity totals $21 billion and represents 75% of our corporate capitalization. The average term to maturity
of our corporate debt is eight years.
Proportionate Capitalization
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 49%
debt-to-capitalization ratio at December 31, 2012 (December 31, 2011 – 48%) 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.
66 BROOKFIELD ASSET MANAGEMENT
LIQUIDITY
Overview
Our principal sources of short-term liquidity are cash and financial assets together with undrawn committed credit facilities,
which we refer to collectively as core liquidity. As at December 31, 2012 core liquidity at the corporate level was $2.3 billion,
consisting of $1.1 billion in net cash and financial assets and $1.2 billion in undrawn credit facilities. Aggregate core liquidity
includes the core liquidity of our principal subsidiaries, which consist for these purposes of Brookfield Office Properties Inc.,
Brookfield Renewable Energy Partners L.P. and Brookfield Infrastructure Partners L.P., and was $4.1 billion at year-end,
approximately $300 million higher than at the end of 2011. The majority of the underlying assets and businesses in these asset
classes are funded by these entities, and they will continue to fund our ongoing investments in these areas and, accordingly, we
include the resources of these entities in assessing our liquidity. We continue to maintain elevated liquidity levels because we
continue to pursue a number of attractive investment opportunities.
The following table presents core liquidity on a corporate and consolidated basis:
AS AT DECEMBER 31
(MILLIONS)
Cash and financial assets, net
Undrawn committed credit facilities
Corporate
Principal
Subsidiaries
Total
2012
$ 1,133
1,154
$ 2,287
2011
$ 1,461
913
$ 2,374
$
2012
497
1,364
$ 1,861
$
2011
348
1,136
$ 1,484
2012
$ 1,630
2,518
$ 4,148
2011
$ 1,809
2,049
$ 3,858
Our two largest normal course capital requirements on a consolidated basis are the funding of debt maturities and acquisitions.
As a result of our financing strategy, the quality of our assets and emphasis on investment grade borrowings and diversification
of capital sources, we have consistently refinanced maturities in the normal course, even in difficult capital market environments,
and frequently do so in advance of the scheduled maturity. Most of our acquisitions are completed by private funds or listed
entities that we manage. In the case of private funds, the necessary equity capital is obtained by calling on commitments made by
the limited partners in each fund, which include commitments made by us or our managed entities. In the case of listed entities,
capital requirements are funded through their own resources and access to capital markets, which may be supported by us from
time to time through participation in equity offerings or bridge financings.
Our principal liquidity needs at the corporate level include: debt service and principal repayment obligations; capital calls
from funds to which we have committed capital; discretionary investments to fund acquisitions and capital expansion projects;
payments related to financial instruments such as interest rate and foreign currency contracts; sustaining capital expenditures;
ongoing corporate operating costs; and dividend payments declared by our Board of Directors. We describe our contractual
obligations on page 70.
We and our listed subsidiaries enter into commitments to provide capital to the private funds that we manage, similar to the
commitments that our clients make. In the case of our property, infrastructure and timber funds, these commitments are expected
to be funded by our listed entities, specifically Brookfield Renewable Energy Partners L.P. and Brookfield Infrastructure L.P.,
although the agreements provide that we will fund any commitments that our listed entities fail to fund. As at December 31, 2012
the Corporation had commitments to fund $2.1 billion of capital to funds, of which $0.3 billion is expected to be funded by
managed entities and the balance by the corporation, we had $5.2 billion of commitments from third party clients to fund
qualifying transactions. Investments and capital expansion projects are discretionary and require approval under our investment
policies including, where appropriate, our Board of Directors. The approval of these activities takes into consideration the
availability of capital to fund them.
As discussed further on pages 75 and 76, we enter into financial instruments such as interest rate, foreign currency and power
price contracts that require us to make or receive payments based on changes in value of the contracts, either to settle the contract
or as collateral. We carefully monitor potential liquidity requirements to ensure that they remain within a reasonable amount and
can easily be funded with core liquidity.
We schedule ongoing capital expenditure programs to maintain the operating capacity of our assets at existing levels, which we
refer to as sustaining capital expenditures, and which typically represent a relatively small proportion of operating cash flows within
each business. The timing of these expenditures is discretionary, however we believe it is important to maintain the productivity of
our assets in order to optimize cash flows and value accretion and fund these expenditures with operating cash flow.
Over the medium to longer term, we believe that our strategy of holding most of the capital we invest in our property, renewable
power and infrastructure businesses through listed entities will significantly increase our capital resources and liquidity and
reduce our capital requirements with respect to future investing activities. Our strategy calls for most of the capital invested in
assets within these sectors, either directly or through commitments to private funds, to be funded by the listed entities with their
own capital resources. This will likely involve the issuance of equity by these entities from time to time, and we may participate
in such equity issues, however, the extent of our participation is at our discretion. Furthermore, we may have the opportunity, but
2012 ANNUAL REPORT 67
not the obligation, to provide other forms of financing to these entities if we believe it is appropriate. We may from time to time
enter into commitments to provide financing to listed entities such as an equity subscription facility or loan facility.
In addition, we have the ability to sell a portion of our interests in the listed entities thereby generating additional liquidity. Our
interests in Brookfield Renewable, at 68% and our initial ownership of 92.5% in Brookfield Property Partners are both well in
excess of what we expect our longer term ownership positions to be.
Cash and Financial Assets
We maintain a portfolio of financial assets funded with surplus activity with the objective of generating favourable investment
returns.
AS AT AND FOR THE YEARS ENDED DECEMBER 31
(MILLIONS)
Financial assets
Government bonds
Corporate bonds
Other fixed income
High-yield bonds
Preferred shares
Common shares
Loans receivable/deposits
Total financial assets
Cash and cash equivalents
Deposits and other liabilities
Common equity by segment/FFO
Carrying
Values
Revenues, Gains
and Direct Costs
2012
2011
2012
2011
$
$
137
169
19
192
297
690
40
1,544
175
(586)
1,133
$
$
485
193
66
190
289
493
218
1,934
41
(514)
1,461
$
$
241
—
(45)
196
$
$
173
—
(47)
126
Government and corporate bonds include short duration securities for liquidity purposes and longer dated securities that match
insurance liabilities.
In addition to the carrying values of financial assets, we hold credit default swaps with a notional value of $815 million pursuant
to which we have purchased protection against the reference debt instrument and $50 million of notional value where we have
sold protection. The carrying value of these derivative instruments reflected in our financial statements at December 31, 2012
was a liability of $10 million.
Funds from operations includes disposition gains 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.
Due to the capital market volatility during the year, we recorded mark-to-market gains on investment positions totalling
approximately $30 million during the year. This compared with 2011 which included mark-to-market losses of approximately
$65 million.
We sold two thirds of our U.S. franchise property service operations in the fourth quarter of 2012 and recorded a $70 million
gain within net income. In the third quarter, we early financed a portion of term debt and included a $34 million “make-whole”
payment within investment income.
Financing Activities and Liquidity
We issued or raised $29.4 billion of capital during 2012 through consolidated and equity accounted investments to finance
growth activities, extend our maturity profile and supplement our liquidity as shown in the following table:
(MILLIONS)
Borrowings
Unsecured
Asset specific
Equity/asset sales
Common share issuance
Preferred share issuances
Private funds
68 BROOKFIELD ASSET MANAGEMENT
Proceeds
Rate
Term
$
$
7,900
14,120
1,870
585
1,250
3,645
29,370
3.79%
4.37%
n/a
—
4.50%
n/a
5 years
8 years
Perpetual
Perpetual
Perpetual
10 years
The refinancing activities have enabled us to extend or maintain our average maturity term at favourable rates. Approximately
$9.3 billion of the asset specific financings and the $1.3 billion of preferred shares issued have fixed rate coupons. The continued
steepness in the yield curve and prepayment terms on existing debt continue to reduce the attractiveness of prefinancing a
number of our future maturities; however, we are actively refinancing short-dated maturities and longer-dated maturities when
the opportunities present themselves.
We have also locked in the reference rates for approximately $3.6 billion of anticipated future financings in the United States,
Canada, and the UK over the next three years.
Cash Flow Summary
The following table summarizes the consolidated statement of cash flows within our consolidated financial statements:
FOR THE YEARS ENDED DECEMBER 31
(MILLIONS)
Operating activities
Financing activities
Investing activities
Increase in cash and cash equivalents
Operating Activities
2012
$ 1,497
3,923
(4,562)
858
$
2011
780
2,650
(3,081)
349
$
$
Cash flow from operating activities consists of net income, including the amount attributable to co-investors, less non-cash
items such as undistributed equity accounted income, fair value changes, depreciation and deferred income taxes, and adjusted
for changes in non-cash working capital. Cash flow from operating activities also includes the net amount invested or recovered
through the ongoing investment in and subsequent sale of residential land, houses and condominiums, which represented an
outlay of $861 million in 2012 (2011 – outlay of $543 million). While we consider this to be an investment activity, it is included
in operating activities because the associated assets are classified as inventory under IFRS.
Financing Activities
FOR THE YEARS ENDED DECEMBER 31
(MILLIONS)
Per consolidated financial statements
Add: equity issued not reflected in the financial statements
2012
$ 3,923
—
$ 3,923
2011
$ 2,650
907
$ 3,557
Financing activities generated $3.9 billion of cash flow, compared to $3.6 billion in the prior year. We issued $13.2 billion of
unsecured and secured borrowings, primarily to refinance $11.3 billion of existing borrowings, thereby extending term and
decreasing our cost of capital, and also to finance growth activities. We issued $737 million of preferred shares and redeemed
$506 million of capital securities.
We issued $3.8 billion of equity capital; $2.3 billion to our institutional clients in private funds and $1.5 billion through publicly
listed entities. The proceeds were utilized to expand our business, primarily in our infrastructure, renewable power and property
operations.
Financing activities in the prior year included the issuance of $1.5 billion of Class A Limited Voting Shares and preferred equity,
the proceeds of which were used to fund an incremental interest in General Growth Properties. In addition, net debt issues were
$1.7 billion during 2011 and our publicly listed Infrastructure Partnership issued $460 million of limited partnership units to
further expand our business.
Investing Activities
FOR THE YEARS ENDED DECEMBER 31 (MILLIONS)
Per consolidated financial statements
Add: equity issued not reflected in the financial statements
2012
$ (4,562)
—
$ (4,562)
2011
$ (3,081)
(907)
$ (3,988)
We invested $4.6 billion to expand our operations in the current year, consistent with the $4.0 billion invested in 2011. In
our property operations, we acquired $2.1 billion of commercial properties, including a $0.5 billion Australian office, hotel
and development portfolio, a $0.3 billion multi-family property portfolio, a $0.3 billion in an industrial property portfolio
and invested $0.3 billion in Rouse Properties, following its spin-off from General Growth Properties in the first quarter
of 2012. Our renewable power operations invested $1.1 billion, including the acquisition of two hydroelectric portfolios in
North America and continued to invest in development projects. Our Infrastructure operations invested $2.1 billion to acquire
several businesses, including a UK regulated distribution operation, a Brazilian toll road, an additional 27% interest in our
2012 ANNUAL REPORT 69
Chilean toll road business, a Colombian regulated distribution operation and a North American gas storage business. We disposed
of certain financial assets during the year, generating $0.9 billion of proceeds, which was reinvested into our operations.
Investing activities in the prior year included an incremental $1.7 billion investment in General Growth Properties, primarily
funded through the issuance of $1.5 billion Class A Limited Voting Shares and preferred equity. We further invested in our
renewable power operations to acquire wind and hydro development projects and we continued to invest in our Australian
railroad and coal terminal within our infrastructure operations.
CONTRACTUAL OBLIGATIONS
The following table presents the contractual obligations of the company by payment periods:
Payments Due By Period
AS AT DECEMBER 31
(MILLIONS)
Corporate borrowings
Principal repayments
Non-recourse borrowings
Property-specific mortgages
Other debt of subsidiaries
Capital securities
Lease obligations1
Less than
1 Year
75
4,419
1,039
353
24
2
Years
178
8,869
1,027
203
33
3
Years
—
2,275
1,388
312
34
4
Years
467
3,795
906
149
17
5
Years
1,070
After 5
Years
1,736
3,224
1,134
—
17
11,066
2,091
174
102
Total
3,526
33,648
7,585
1,191
227
Commitments
2,731
—
—
—
—
—
2,731
Interest expense2
Long-term debt
Capital securities
Interest rate swaps
2,243
52
112
1,839
45
323
1,476
33
257
1,232
17
91
946
10
1
2,212
2
183
9,948
159
967
1.
2.
Included in accounts payable and other
Represents the 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 $2.7 billion (2011 – $1.4 billion) represent various contractual obligations of the company and its subsidiaries
assumed in the normal course of business. These included commitments to provide bridge financing, and letters of credit and
guarantees provided in respect of power sales contracts and reinsurance obligations, of which $386 million (2011 – $300 million)
is included within “accounts payable and other” 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.
Our wholly-owned energy marketing group has also committed to purchase power and other wind generation produced by
68% owned Brookfield Renewable Energy Partners L.P. as previously described on page 52.
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.
EXPOSURES TO SELECTED FINANCIAL INSTRUMENTS
As discussed elsewhere in this MD&A 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 75.
70 BROOKFIELD ASSET MANAGEMENT
PART 5 – OPERATING CAPABILITIES, 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 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 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 capital managed for others on a fee bearing basis. 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 is to
maintain considerable surplus financial resources. This capital also supports our ability to commit to investment opportunities
on our own account when appropriate or in anticipation of future syndications.
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 equity. 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
Economic Conditions
We are exposed to the local, regional, national and international economic conditions and other events and occurrences that
affect the jurisdictions in which our entities are formed or where we own assets and operate businesses. In general, a decline in
economic conditions, either in the markets or industries in which we participate, or both, will result in downward pressure on
our operating margins and asset values as a result of lower demand and increased price competition for the services and products
that we provide.
Competition
Each segment of our business is subject to competition in varying degrees. An increase in competition can result in downward
pressure on revenues which can, in turn, reduce operating margins and thereby reduce operating cash flows, investment returns
and our overall financial condition. In addition, competition could result in the scarcity of inputs which can impact certain of our
businesses through higher costs.
Interest Rates
A number of our long-life assets are interest rate sensitive: increases in long-term interest rates will, absent all else, decrease
the value of these assets by reducing the present value of the cash flows expected to be produced by the asset. Additionally, any
of our debt or preferred shares that are subject to variable interest rates, either as an obligation with a variable interest rate or
as an obligation with a fixed interest rate that resets into a variable interest rate in the future, are subject to the risk of a change
in interest rates. Should interest rates increase, the amount of cash required to service these obligations would increase and our
earnings could be adversely impacted.
2012 ANNUAL REPORT 71
Ownership of Common Shares
The trading price of our shares in the open market is subject to volatility and cannot be predicted. Our shareholders may not be
able to resell their common shares at or above the price at which they purchased their common shares due to such trading price
fluctuations. The trading price could fluctuate significantly in response to factors both related and unrelated to our operating
performance and/or future prospects, including, but not limited to: (i) variations in our quarterly or annual operating results and
financial condition; (ii) changes in government laws, rules or regulations affecting our businesses; (iii) material announcements
by our competitors; (iv) market conditions and events specific to the industries in which we operate; (v) changes in general
economic conditions; (vi) differences between our actual financial and operating results and those expected by investors and
analysts; (vii) changes in analysts’ recommendations or earnings projections; (viii) changes in the extent of analysts’ interest in
covering the Corporation and its publicly-traded affiliates; (ix) the depth and liquidity of the market for our shares; (x) dilution
from the issuance of additional equity; (xi) investor perception of our businesses and industries; (xii) investment restrictions;
(xiii) our dividend policy; (xiv) the departure of key executives; (xv) sales of common shares by senior management or significant
shareholders; and (xvi) the materialization of other risks described in this section.
Laws, Rules and Regulations
There are many laws and governmental rules and regulations that apply to us, our assets and businesses. Changes in these laws,
rules and 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 can have a major
impact on us as a global company.
We acquire and develop primarily property, power generation and 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 also comply with local, state
or provincial and federal laws, rules and regulations relating to the protection or preservation of human health and safety and the
environment. These laws, rules and regulations sometimes result in delays, which cause us to incur additional costs, or severely
restrict development activity in certain regions or areas. Additionally, liability under such laws, rules and regulations may occur
without our fault. Private parties may also have the right to pursue legal actions against us to enforce compliance as well as seek
damages for non-compliance with these laws, rules and regulations or for personal injury or property damage. Our insurance
may not provide any coverage or sufficient coverage in the event that a claim is made against us. An increase in regulatory
requirements may require us to incur further compliance costs. 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.
Our asset management business is 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, general anti-fraud prohibitions and “pay to play” practices vis-à-vis U.S. state and local
government entities. Compliance results in the expenditure of costs and internal resources and a failure to comply with such
obligations could result in investigations, financial or other sanctions and reputational damage.
The U.S. Investment Company Act of 1940 (the “40 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 40 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 under the 40 Act. If we were required
to register as an investment company under the 40 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.
Health, Safety and the Environment
As an owner and manager of real property, we may become 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.
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 potential civil liability.
Compliance with health, safety and environmental standards 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 standards and to obtain and comply with licenses, permits and other approvals
and to assess and manage potential liability exposure. Nevertheless, we may be unsuccessful in obtaining an important license,
72 BROOKFIELD ASSET MANAGEMENT
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 standards, licenses, permits or other approvals could have a
significant impact on our operations and/or result in 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.
Insurance
We carry various insurance coverages on our assets that provide comprehensive protection for first-party and third-party losses.
These coverages contain policy specifications, limits and deductibles customarily carried for similar assets. We also self-insure a
portion of certain of these risks. There are certain types of risks (generally of a catastrophic nature such as war or environmental
contamination) which are either uninsurable or not economically insurable. Should any uninsured or underinsured 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.
Litigation
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. 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. Any litigation may consume substantial amounts of our management’s time and attention, and that time and the
devotion of these resources to litigation may, at times, be disproportionate to the amounts at stake in the litigation.
One such legal action, which has garnered some press attention, is a civil action which has been commenced by a public
prosecutor in Brazil against a Brazilian subsidiary of ours relating to allegations that the affiliate made payments to certain third
parties in Brazil and those payment were, in turn, used, with our knowledge, to pay certain municipal officials to obtain permits
and other benefits. These civil charges stem out of charges brought against three of our employees in Brazil who were allegedly
aware of these payments. All involved have denied the allegations. We are advised that the Securities and Exchange Commission
has opened an investigation into this matter based on a complaint which they received. While the outcome of this matter is
financially not material to Brookfield, it could have an impact on our reputation.
Taxes
A number of factors may increase our effective tax rates, which would have a negative impact on our net income. These include
changes in tax policies, tax laws or their interpretation in the jurisdictions in which we pay taxes, changes in the valuation of our
deferred tax assets and liabilities and any reassessment of taxes by a taxation authority.
Climate Change
Ongoing changes to the physical climate in which we operate may have an impact on our businesses. 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 operations.
Climate change regulation at provincial or state, federal and international levels could have an adverse effect on our business,
financial position, results of operations or cash flows.
Labour
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 restrictions on our ability to maximize the efficiency of our operations, all of which could have an adverse effect
on our financial results.
Terrorist Acts
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. The perceived threat of a terrorist attack could negatively impact our ability to lease office space in our
portfolio. Infrastructure and power assets may also be specific targets of terrorist organizations who seek to disrupt the backbone
of Western economies. A terrorist act affecting us, could have an adverse effect on our operating results and cash flows. Our U.S.
and Canadian commercial office property operations have insurance covering certain acts of terrorism and business interruption
costs; however, such insurance is not equal to the full replacement cost of all of these assets. Any damage or business interruption
costs as a result of uninsured acts of terrorism could result in a material cost to us. There is no assurance that adequate terrorism
insurance will be available at rates we believe are reasonable in the future. All of the risks indicated in this paragraph could
2012 ANNUAL REPORT 73
potentially be heightened by United States foreign policy at any one time. Our information technology systems may be subject
to cyber terrorism, which could cause a disruption in one or more of our businesses and have a negative input on our operating
results and cash flows.
Execution of Strategy
Value Investing
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 us and our investors, with the objective of achieving higher returns on our invested capital
and our asset management activities over the long term. This requires a diversified business base, liquidity and the sustainability
of cash flows.
We consider effective capital allocation to be one of the most important components to achieving long-term investment success.
As a result, we need to 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. We must invest capital 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 such a value investment strategy is uncertain as it requires suitable opportunities, careful timing
and business judgment, as well as the resources to complete asset purchases and restructure them as required, notwithstanding
difficulties experienced in a particular industry.
Our approach to investing entails adding assets to our existing businesses when the competition for assets is lowest, either due
to depressed economic conditions or when non-terminal concerns exist relating to a particular entity or industry. However,
there is no certainty that we will be able to acquire 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 avail ourselves of the related benefits. Competition from other
investors may significantly increase the purchase price of target assets 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 effectively integrate new acquisitions into our existing operations.
Asset Management
Our ability to successfully expand our asset management activities is dependent on our reputation with our current and potential
investment partners. Further, competition for investor capital, particularly within the asset classes on which we focus, is intense.
There is no assurance that we will be successful in differentiating ourselves as an asset manager and this competition may
reduce the margins of our asset management business and decrease the extent of investor involvement in our activities. Our asset
management business also relies on the continued ability of insurance companies, pension funds, endowments, sovereign wealth
funds, other institutional investors and wealthy individuals to deploy capital to asset managers that focus on investments in real
assets. Depending on factors outside of our control certain of our investors may not be able to continue to make new capital
commitments to our managed funds.
Management Team
Our executive and other senior officers have a significant role in our success and oversee the execution of our strategy. Our
ability to retain our management group or attract suitable replacements should any members of the management group leave
is dependent on, among other things, the competitive nature of the employment market and the career opportunities that we
can offer. 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. We do
not maintain any key person insurance.
The conduct of our businesses and the execution of our growth strategy rely heavily on teamwork. Our continued ability
to respond promptly to opportunities and challenges as they arise depends on co-operation across our organization and our
team-oriented management structure, which may not materialize in the way we expect.
Business Partnerships
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 absent third-party involvement,
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, or suffer reputational damage that could have an adverse impact on us. Additionally, our
partners, co-venturers or co-tenants might at any time have different economic or other business interests or goals. We do not
have sole control of certain major decisions relating to these assets and businesses, including, but not limited to: the decisions
relating to the sale of assets and businesses; refinancings; the timing and amount of distributions of cash from such entities to the
Corporation; and capital expenditures.
74 BROOKFIELD ASSET MANAGEMENT
Some of our management arrangements permit our partners to terminate a management agreement in limited circumstances
relating to enforcement of the managers’ obligations. Any such termination could adversely affect our revenue from management
fees. 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. Such rights may be triggered at a time when we may not
want to sell but forced to do so because we do not have the inclination or 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 investors. We attempt to match the profile of any leverage to the associated assets. Accordingly we 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. We are therefore subject to the risks associated with debt financing and refinancing. These
risks, including but not limited to 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.
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 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 have satisfied and continue to satisfy 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 require us to 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. The restrictions inherent in owning physical assets could reduce our ability to
respond to changes in market conditions and could adversely affect the performance of our investments, our financial condition
and results of operations.
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. Such an outcome can have an adverse impact on our liquidity,
which may reduce our ability to pursue further acquisitions or meet other financial commitments.
We enter into financing commitments in the normal course of business and, as a result, may be required to fund these commitments.
From time-to-time we guarantee the obligations of funds or other entities that we manage and/or invest in. If we are required to
fund these commitments and are unable to do so this could result in damages being pursued against us or a loss of opportunity
through default of contracts that are otherwise to our benefit.
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.
Our businesses are impacted by changes in currency rates, interest rates, commodity prices and other financial exposures. We
selectively utilize financial instruments to manage these exposures, including credit default swaps and other derivatives to hedge
financial positions. We may also 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 such instruments 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. The company’s risk management
and derivative financial instruments are more fully described in the notes to our consolidated financial statements. The Dodd-
Frank Act (“Dodd-Frank”), which became law in the U.S. in 2010 and now requires the SEC and Commodities Futures Trading
Commission to establish rules and regulations governing federal oversight of the over-the-counter derivatives market and its
participants, could have an adverse impact on our ability to hedge risks in our businesses. Specifically, Dodd-Frank, and any
2012 ANNUAL REPORT 75
other similar regulations in the markets in which we operate, could significantly increase the cost of derivative contracts, reduce
the availability of derivatives to protect against risks in our operations and reduce the liquidity of derivatives. A reduction in
the Corporation’s use of derivatives as a result of Dodd-Frank and other similar regulations may, among other things, result
in increased volatility and decreased predictability of our cash flows.
Property
We invest in high-quality commercial office properties and are therefore 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 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.
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. It is possible that we may face a disproportionate amount of space expiring in any one year.
Additionally, rental rates could decline, tenant bankruptcies could increase and tenant renewals may not be achieved, particularly
in the event of a protracted disruption in the economy such as a recession.
Our retail property operations are subject to risks that affect the retail environment, including unemployment, weak income
growth, lack of available consumer credit, industry slowdowns and plant closures, consumer confidence, increased consumer
debt, poor housing market conditions, adverse weather conditions, natural disasters, competition and other factors. All of these
factors could negatively affect consumer spending, and adversely affect the sales of our retail tenants. This could have an
unfavourable effect on our retail property operations and our ability to attract new retail tenants.
If sales at stores operating in our malls are poor, existing tenants might be unable or unwilling to pay their minimum rents or
expense recovery charges and new tenants might be willing to pay lower minimum rents than they otherwise would. Significant
expenditures associated with each equity investment, such as mortgage payments, real estate taxes and maintenance costs,
are generally not reduced when there is a reduction in income from the investment, so our income and cash flow would be
adversely affected by a decline in income from a retail property. In addition, our retail property leases generally do not contain
provisions designed to ensure the creditworthiness of the tenant, and are therefore negatively impacted by tenant bankruptcies
or the voluntary or involuntary closure of stores in our properties. We may be unable to re-lease space vacated by such events on
favourable terms or at all. As a result, the bankruptcy or closure of a national tenant may adversely affect our revenues.
Some of our retail lease agreements include a co-tenancy provision which allows the mall tenant to pay a reduced rent amount
and, in certain instances, terminate the lease, if we fail to maintain certain occupancy levels at the mall. In addition, certain
of our tenants have the ability to terminate their leases prior to the lease expiration date if their sales do not meet agreed upon
thresholds. Therefore, if occupancy, tenancy or sales fall below certain thresholds, rents we are entitled to receive from our retail
tenants would be reduced and our ability to attract new tenants may be limited.
Our retail tenants face competition from retailers at other regional malls, outlet malls and other discount shopping centers,
discount shopping clubs, catalogue companies, and through internet sales and telemarketing. Competition of these types could
reduce the percentage rent payable by certain retail tenants and adversely affect our revenues and cash flows. Additionally, our
retail tenants are dependent on perceptions by retailers and shoppers of the safety, convenience and attractiveness of our retail
properties. If retailers and shoppers perceive competing properties and other retailing options such as the internet to be more
convenient or of a higher quality, our retail property revenues may be adversely affected.
Renewable Power
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 the recent past we have 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. It is therefore possible that low water levels at our North American power generating operations
continue into the future.
76 BROOKFIELD ASSET MANAGEMENT
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 prices. If, however, for any reason any of our counterparties
in these contracts are unable or unwilling to fulfill their contractual obligations, we may not be able to replace an existing
contract with an agreement on equivalent terms and conditions. In this event, and potentially others, we may not be successful
in mitigating the impact of fluctuations in wholesale electricity prices.
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 also result in exposure to significant
liability for damages due to harm to the environment, to the public generally or to specific third parties.
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 levels. 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 make access for repair of damage difficult.
Infrastructure
Our infrastructure operations include utilities, transport and energy, timberlands and agrilands operations in North and South
America, Europe and Australasia. Our utilities operations include toll roads, electricity transmission systems, coal terminal
operations, and electricity and gas distribution companies. The principal risks facing the regulated and unregulated businesses
comprising our infrastructure operations relate to government regulation, general economic conditions and other material
disruptions, capital expenditure requirements, land use and counterparty performance.
Due to the essential nature of the services provided by our assets, and the fact that some of these services are provided on a
monopoly or near monopoly basis, many of our infrastructure operations are subject to forms of economic regulation, including
with respect to revenues. In addition, certain of these operations 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 the rate of return
on our businesses that we had planned or we may not be able to recover our initial investment cost.
Economic regulation can also involve ongoing commitments to economic regulators, safety regulators and other governmental
agencies. Our timber operations are subject to provincial, state and federal government regulations relating to forestry practices
and the export of logs, and several of our utilities and transport and energy operations are subject to government safety and
reliability regulations that are specific to their industries. 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 an existing law
or regulation can substantially affect our operating entities. In addition, a decision by a government or regulator to regulate
previously unregulated assets may significantly change the economics of these businesses.
General domestic and global economic conditions affect international demand for the commodities handled by our transport and
energy operations and demand for timber and agriland products. A downturn in the demand for these commodities may lead to
bankruptcies or liquidations of one or more large customers, which could reduce our revenues, increase our bad debt expense,
reduce our ability to make capital expenditures or have other adverse effects on us.
2012 ANNUAL REPORT 77
The financial performance of our timberland operations depends on strong demand in the wood products and pulp and paper
industries. A decrease in the level of residential construction activity generally reduces 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 uneconomical. 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. There is no certainty that we will be successful in implementing flexible timberland harvest
plans that can reduce harvest levels when prices are low and defer sales until prices recover.
Our agriland operations are comprised of pasture land that may be converted to higher-and-better uses, including soybean, corn
and sugarcane production. Such conversion of agrilands may not materialize as anticipated. Additionally, the attractiveness of
agrilands as an asset class for investors is contingent on the demand for soft commodities, growth in population and per capita
incomes, improving diets and the growing use for biofuels, all of which involve future uncertainty. Weather conditions, growing
seasons, interactions with surrounding population, damage by fire, insect infestation, wind, disease, prolonged drought and other
natural and man-made disasters may negatively impact our agriland operations.
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. Protecting our revenue through the inclusion of
take-or-pay or guaranteed minimum volume provisions into our contracts, such as at our rail operations, is not always possible
or fully effective.
Our utilities and transport and energy operations may require substantial capital expenditures in the future to maintain our asset
base. Any failure to make necessary capital expenditures to maintain our operations in the future could impair our ability to
serve existing customers or accommodate increased volumes. In addition, we may not be able to recover investments in capital
expenditure based upon the rates our operations are able to charge.
Our operations require large areas of land on for construction and operation. 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.
Some of our infrastructure 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 adversely affected by any material change in the assets, financial condition or results of operations of such
customers.
Weather conditions, industry practices, timber growth cycles, access limitations and aboriginal claims 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. 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.
Private Equity and Residential Development
Our private equity operations involve debt and equity investments in a broad variety of businesses in sectors where we have
expertise or experience. The principal risks for the private equity business are potential loss of invested capital as well as
insufficient investment or fee income to cover operating expenses, and cost of capital. In addition, these investments are illiquid
and may be difficult to monetize, limiting our flexibility to react to changing economic or investment conditions.
Unfavourable economic conditions could have a significant adverse impact on the ability of investee companies to repay debt
and on the value of our equity investments and the level of investment income that they generate. Even with our support of
investee companies through an economic downturn, adverse economic or business conditions facing our investee companies
may adversely impact the value of our investments. These investments are also subject to the risks inherent in the underlying
businesses, some of which are facing difficult business conditions and may continue to do so for the foreseeable future.
We have residential land development and homebuilding operations located in Canada, Brazil, the United States and Australia.
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, 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. 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
78 BROOKFIELD ASSET MANAGEMENT
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, the Washington, D.C. area, 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.
Volatility experienced in mortgage markets 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,
resulting in a reduced demand for new homes. Fundamentally, 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.
Investors in our private equity funds make capital commitments to our funds through the execution of subscription agreements.
When a fund makes an investment, these capital commitments are then satisfied by our investors via capital contributions.
Investors in our private equity funds may default on their capital commitment obligations to our private equity funds, which
could have an adverse impact on our earnings or result in other negative implications to our businesses.
Our private equity funds have a finite life that may require us to exit a private equity investment at an inopportune time. Volatility
in the exit markets of our private equity investments, increasing levels of capital required to finance companies to exit, and
rising enterprise value thresholds to go public or complete a strategic sale can all contribute to the risk that we will not be able
to exit a private equity investment successfully. We cannot always control the timing of our private equity investment exits or
our realizations upon exit.
Our private equity investments may not meet their investment hurdles and we may not realize performance based income related
to these investments upon exit.
2012 ANNUAL REPORT 79
PART 6 – ADDITIONAL INFORMATION
ACCOUNTING POLICIES AND INTERNAL CONTROLS
Accounting Policies and Critical Judgments and Estimates
The preparation of financial statements in conformity with IFRS requires management to select appropriate accounting policies
and to make judgments and estimates 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. Our 2012 financial statements contain a description of the company’s accounting policies and the critical judgments and
estimates utilized in the preparation of the consolidated financial statements.
In making critical judgments and 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. For further reference on accounting policies and critical judgments
and estimates, see our significant accounting policies contained in Note 2 to the December 31, 2012 consolidated financial
statements.
Adoption of Accounting Standard
Income Taxes
The International Accounting Standards Board (“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, which were effective for annual periods beginning on or
after January 1, 2012, introduced 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 impact of these
amendments on the consolidated financial statements was a reduction in retained earnings of $8 million as at January 1, 2011.
Future Changes in Accounting Policies
i. Consolidated Financial Statements, Joint Ventures and Disclosures
In May 2011, the IASB issued three standards: IFRS 10, Consolidated Financial Statements (“IFRS 10”), IFRS 11, Joint
Arrangements (“IFRS 11”), and IFRS 12, Disclosure of Interests in Other Entities (“IFRS 12”), and amended two standards:
IAS 27, Separate Financial Statements (“IAS 27”), and IAS 28, Investments in Associates and Joint Ventures (“IAS 28”).
Each of the new and amended standards has an effective date for annual periods beginning on or after January 1, 2013.
IFRS 10 replaces IAS 27 and SIC-12, Consolidation-Special Purpose Entities (“SIC-12”). The consolidation requirements
previously included in IAS 27 have been included in IFRS 10, whereas the amended IAS 27 sets standards to be applied
in accounting for investments in subsidiaries, joint ventures, and associates when an entity elects, or is required by local
regulations, to present separate (non-consolidated) financial statements. IFRS 10 uses control as the single basis for
consolidation, irrespective of the nature of the investee, eliminating the risks and rewards approach included in SIC-12. An
investor must possess the following three elements to conclude it controls an investee: power over the investee’s financial
and operating decisions, exposure or rights to variable returns from involvement with the investee, and the ability to use
power over the investee to affect the amount of the investor’s returns. IFRS 10 requires continuous reassessment of changes
in an investor’s power over the investee and changes in the investor’s exposure or rights to variable returns. We are currently
evaluating the impact of IFRS 10 and the amendments to IAS 27 on our consolidated financial statements.
IFRS 11 supersedes IAS 31, Interests in Joint Ventures and SIC-13, Jointly Controlled Entities – Non-Monetary Contributions
by Venturers. IFRS 11 is applicable to all parties that have an interest in a joint arrangement. IFRS 11 establishes two types
of joint arrangements: joint operations and joint ventures. In a joint operation, the parties to the joint arrangement have
rights to the assets and obligations for the liabilities of the arrangement, and recognize their share of the assets, liabilities,
revenues and expenses in accordance with applicable IFRS. In a joint venture, the parties to the arrangement have rights
to the net assets of the arrangement and account for their interest using the equity method of accounting under IAS 28.
IAS 28 prescribes the accounting for investments in associates and sets out the requirements for the application of the
equity method when accounting for investments in associates and joint ventures. We are currently evaluating the impact of
IFRS 11 and the amendments to IAS 28 on our consolidated financial statements.
IFRS 12 integrates the disclosure requirements of interests in other entities and requires a parent company to disclose
information about significant judgments and assumptions it has made in determining whether it has control, joint control,
or significant influence over another entity, and the type of joint arrangement when the arrangement has been structured
through a separate vehicle. An entity should also provide these disclosures when changes in facts and circumstances affect
80 BROOKFIELD ASSET MANAGEMENT
the entity’s conclusion during the reporting period. Entities are permitted to incorporate the disclosure requirements in
IFRS 12 into their financial statements without early adopting of IFRS 12. We are currently evaluating the impact of
IFRS 12 on our consolidated financial statements.
ii. Fair Value Measurements
In May 2011, the IASB issued IFRS 13, Fair Value Measurements (“IFRS 13”). IFRS 13 establishes a single source of
fair value measurement guidance and sets out fair value measurement disclosure requirements. The standard requires that
information be provided in the financial statements that enables the user to assess the methods and inputs used to develop fair
value measurements, and for reoccurring fair value measurements that use significant unobservable inputs, and the effect of
the measurements on profit or loss or other comprehensive income. IFRS 13 is effective for annual periods beginning on or
after January 1, 2013. We are currently evaluating the impact of IFRS 13 on our consolidated financial statements.
iii. Presentation of Items of Other Comprehensive Income
In June 2011, the IASB made amendments to IAS 1, Presentation of Financial Statements: (“IAS 1”). The amendments
require that items of other comprehensive income are grouped into two categories: items that will be reclassified
subsequently to profit or loss; and items that will be reclassified subsequently directly to equity. Income tax on items of
Other Comprehensive Income are required to be allocated on the same basis. The amendments to IAS 1 are effective for
annual periods beginning on or after July 1, 2012. We are currently evaluating the impact of the amendments to IAS 1 on
our consolidated financial statements.
iv. Financial Instruments
In November 2009, the IASB issued IFRS 9, Financial Instruments (“IFRS 9”) which 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, 2015. We
have not yet determined the impact of IFRS 9 on our 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 as of December 31, 2012
and based on that assessment concluded that, as of December 31, 2012, our internal control over financial reporting was effective.
Management excluded from its design and assessment of internal control over financial reporting Paradise Island Holdings
Limited (“Atlantis”), Inexus Group Limited (“Inexus”), Sociedad Concesionaria Vespucio Norte Express S.A. (“VNE”), Verde
Realty (“Verde”) and Thakral Holdings Group (“Thakral”), which were acquired during 2012, and whose total assets, net
assets, total revenues and net income on a combined basis constitute approximately 7%, 5%, 4% and (1%), respectively, of the
consolidated financial statement amounts as of and for the year ended December 31, 2012. 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, 2012 that have materially affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
Disclosure Controls and Procedures
Management, including the Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure
controls and procedures (as defined in the applicable U.S. and Canadian securities laws) as of December 31, 2012. 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, 2012 in providing reasonable assurance that material information relating to the company and our
consolidated subsidiaries would be made known to them by others within those entities. Management excluded from its design
and assessment of disclosure controls and procedures Atlantis, Inexus, VNE, Verde and Thakral.
Declarations Under the Dutch Act of Financial Supervision
The members of the Corporation’s Corporate Executive Board (as such term is defined in the Dutch Act of Financial Supervision
(the “Dutch Act”) as required by section 5:25c, paragraph 2, under c of the Dutch Act, confirm that to the best of their knowledge:
•
•
The 2012 financial statements included in this Annual Report give a true and fair view of the assets, liabilities, financial
position, and profit or loss of the Corporation and the undertakings include in the consolidation taken as whole;
The management report included in this Annual Report gives a true and fair view of the position of the Corporation
and the undertakings included in the consolidation taken as a whole as of December 31, 2012, and of the development
and performance of the business for the financial year then ended; and
•
The management report includes a description of the principal risks and uncertainties that the Corporation faces.
2012 ANNUAL REPORT 81
RELATED PARTY TRANSACTIONS
In the normal course of operations, we enter into transactions on market terms with related parties, included consolidated
and equity accounted entities which have been measured at exchange value and are recognized in the consolidated financial
statements, including, but not limited to: manager or partnership agreements, base management fees, performance fees
and incentive distributions; loans, interest and non-interest bearing deposits; power purchase and sale agreements; capital
commitments to private funds; the acquisition and disposition of assets and businesses; derivative contracts; and the construction
and development of assets.
In December 2012, Brookfield Residential Properties (“BRP”), our 69% owned North American land developer and
homebuilder repaid its C$480 million loan to Brookfield Office Properties (“BPO”), using the proceeds from the completion
of a senior unsecured debt offering. BRP paid $35 million of interest to BPO during the year ended December 31, 2012
(2011 – $26 million). BPO sold its previously held Canadian residential land development operations to BRP in March 2011 for
proceeds of $500 million and issued C$480 million of bridge financings as part of the transaction. The transaction was measured
at exchange value.
In October 2012, we agreed to sell the economic interest in our directly held 10% investment in its South American transmission
operations to Brookfield Infrastructure Partners L.P. for proceeds of $235 million, subject to satisfaction of customary conditions.
The transaction was measured at fair value, as determined by an external appraiser, which approximated the carrying value of our
investment. No gain or loss was recorded on the transaction in our consolidated statement of operations.
In November 2011, we completed the combination of our indirectly held wholly-owned renewable power assets and 34%
owned Brookfield Renewable Power Fund, to launch Brookfield Renewable Energy Partners L.P. (“BREP”). As part of the
combination, we amended certain power purchase and sale agreements between ourselves and BREP to adjust the price of
electricity purchased. Additionally, a wholly-owned subsidiary of ours entered into an Energy Revenue Agreement with BREP,
whereby we indirectly guarantee the price for energy delivered by certain power generating facilities in the United States at a
price of $75 per MWh adjusted annually by an inflation factor.
82 BROOKFIELD ASSET MANAGEMENT
INTERNAL CONTROL OVER FINANCIAL REPORTING
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management of Brookfield Asset Management Inc. (“Brookfield”) is responsible 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).
Management assessed the effectiveness of Brookfield’s internal control over financial reporting as of December 31, 2012, 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 concludes that, as of December 31, 2012, Brookfield’s
internal control over financial reporting is effective. Management excluded from its design and assessment of internal control
over financial reporting Paradise Island Holdings Limited, Inexus Group Limited, Sociedad Concesionaria Vespucio Norte
Express S.A., Verde Realty and Thakral Holdings Group, which were acquired during 2012, and whose total assets, net assets,
total revenues and net income on a combined basis constitute approximately 7%, 5%, 4% and (1%), respectively, of the
consolidated financial statement amounts as of and for the year ended December 31, 2012.
Brookfield’s internal control over financial reporting as of December 31, 2012, has been audited by Deloitte LLP, the
Independent Registered Chartered Accountants, who also audited Brookfield’s consolidated financial statements for the year
ended December 31, 2012. As stated in the Report of Independent Registered Chartered Accountants, Deloitte LLP expressed
an unqualified opinion on the effectiveness of Brookfield’s internal control over financial reporting as of December 31, 2012.
Toronto, Canada
March 28, 2013
J. Bruce Flatt
Chief Executive Officer
Brian D. Lawson
Chief Financial Officer
2012 ANNUAL REPORT 83
REPORT OF INDEPENDENT REGISTERED CHARTERED 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, 2012, 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
Paradise Island Holdings Limited (“Atlantis”), Inexus Group Limited (“Inexus”), Sociedad Concesionaria Vespucio Norte
Express S.A. (“VNE”), Verde Realty (“Verde”) and Thakral Holdings Group (“Thakral”), which were acquired during 2012, and
whose total assets, net assets, total revenues and net income on a combined basis constitute approximately 7%, 5%, 4% and (1%),
respectively, of the consolidated financial statement amounts as of and for the year ended December 31, 2012. Accordingly, our
audit did not include the internal control over financial reporting at Atlantis, Inexus, VNE, Verde and Thakral. 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 was maintained in all material respects. Our audit 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 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, 2012, 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, 2012 of the Company and our report dated March 28, 2013 expressed an unqualified opinion on those financial
statements.
Toronto, Canada
March 28, 2013
Independent Registered Chartered Accountants
Licensed Public Accountants
84 BROOKFIELD ASSET MANAGEMENT
MANAGEMENT’S RESPONSIBILITY FOR THE FINANCIAL STATEMENTS
The accompanying consolidated financial statements and other financial information in this Annual Report have been prepared
by the company’s management which is responsible for their integrity, consistency, objectivity and reliability. To fulfill this
responsibility, the company maintains policies, procedures and systems of internal control to ensure that its reporting practices
and accounting and administrative procedures are appropriate to provide a high degree of assurance that relevant and reliable
financial information is produced and assets are safeguarded. These controls 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.
These consolidated financial statements have been prepared in conformity with International Financial Reporting Standards
as issued by the International Accounting Standards Board and, where appro priate, reflect estimates based on management’s
judgment. The financial information presented throughout this Annual Report is generally con sistent with the information
contained in the accompanying consolidated financial statements.
Deloitte LLP, the Independent Registered Chartered Accountants appointed by the shareholders, have audited the consolidated
financial statements set out on pages 87 through 144 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
opinion on the consolidated financial statements. Their report is set out on the following page.
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
March 28, 2013
J. Bruce Flatt
Chief Executive Officer
Brian D. Lawson
Chief Financial Officer
2012 ANNUAL REPORT 85
REPORT OF INDEPENDENT REGISTERED CHARTERED ACCOUNTANTS
To the Board of Directors and Shareholders of Brookfield Asset Management Inc.
We have audited the accompanying consolidated financial statements of Brookfield Asset Management Inc. and subsidiaries
(the “Company”), which comprise the consolidated balance sheets as at December 31, 2012 and December 31, 2011, and the
consolidated statements of operations, consolidated statements of comprehensive income, consolidated statements of changes in
equity and consolidated statements of cash flows for the years then ended, 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 judgment, 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 and fair presentation of the consolidated financial 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.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit
opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Brookfield
Asset Management Inc. and subsidiaries as at December 31, 2012 and December 31, 2011, and their financial performance
and their cash flows for the years then ended 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, 2012, 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 28, 2013 expressed an unqualified opinion on the Company’s internal control over financial reporting.
Toronto, Canada
March 28, 2013
Independent Registered Chartered Accountants
Licensed Public Accountants
86 BROOKFIELD ASSET MANAGEMENT
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
(MILLIONS)
Assets
Cash and cash equivalents
Other financial assets
Accounts receivable and other
Inventory
Investments
Investment properties
Property, plant and equipment
Sustainable resources
Intangible assets
Goodwill
Deferred income tax assets
Total Assets
Liabilities and Equity
Accounts payable and other
Corporate borrowings
Non-recourse borrowings
Property-specific mortgages
Subsidiary borrowings
Deferred income tax liabilities
Capital securities
Interests of others in consolidated funds
Equity
Preferred equity
Non-controlling interests
Common equity
Total equity
Total Liabilities and Equity
On behalf of the Board:
Note
Dec. 31, 2012 Dec. 31, 2011
28
5
6
7
8
9
10
11
12
13
14
15
16
17
17
14
18
19
20
20
20
$
$
$
$
2,844
3,111
6,945
6,579
11,689
33,161
31,114
3,283
5,764
2,490
1,664
108,644
11,599
3,526
33,648
7,585
6,419
1,191
425
2,901
23,190
18,160
44,251
108,644
$
$
$
$
2,027
3,773
6,723
6,060
9,401
28,366
22,832
3,155
3,968
2,607
2,110
91,022
9,266
3,701
28,415
4,441
5,817
1,650
333
2,140
18,516
16,743
37,399
91,022
Frank J. McKenna, Director
George S. Taylor, Director
2012 ANNUAL REPORT 87
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31
(MILLIONS, EXCEPT PER SHARE AMOUNTS)
Revenues
Direct costs
Equity accounted income
Expenses
Interest
Corporate costs
Valuation items
Fair value changes
Depreciation and amortization
Income taxes
Net income
Net income attributable to:
Shareholders
Non-controlling interests
Net income per share:
Diluted
Basic
Note
3, 29
21
8
$
2012
18,697
(13,909)
$
2011
15,921
(11,906)
1,243
2,205
(2,497)
(158)
(2,352)
(168)
22
14
20
20
1,150
(1,263)
(516)
2,747
1,380
1,367
2,747
1.97
2.02
$
$
$
$
$
$
$
$
$
$
1,386
(904)
(508)
3,674
1,957
1,717
3,674
2.89
3.00
88 BROOKFIELD ASSET MANAGEMENT
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31
(MILLIONS)
Net income
Other comprehensive income (loss)
Valuation items
Revaluations of property, plant and equipment
Financial contracts and power sale agreements
Available-for-sale securities
Equity accounted investments
Foreign currency translation
Income taxes
Other comprehensive income
Comprehensive income
Attributable to:
Shareholders
Net income
Other comprehensive income
Comprehensive income
Non-controlling interests
Net income
Other comprehensive income
Comprehensive income
Note
2012
2,747
$
2011
3,674
$
8
14
1,491
(17)
7
145
1,626
(111)
(434)
1,081
3,828
1,380
517
1,897
1,367
564
1,931
$
$
$
$
$
2,650
(855)
(68)
193
1,920
(837)
(147)
936
4,610
1,957
795
2,752
1,717
141
1,858
$
$
$
$
$
2012 ANNUAL REPORT 89
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Accumulated Other Comprehensive
Income
YEAR ENDED DECEMBER 31, 2012
(MILLIONS)
Common
Share
Capital
Contributed
Surplus
Retained
Earnings
Ownership
Changes1
Revaluation
Surplus
Currency
Translation
Other
Reserves
Common
Equity
Preferred
Equity
Non-
controlling
Interests Total Equity
Balance as at December 31, 2011
$ 2,816
$
125
$ 5,982
$
475
$ 6,399
$ 1,456
$
(510) $ 16,743
$ 2,140
$ 18,516
$ 37,399
Changes in year
Net income
Other comprehensive income
Comprehensive income
Shareholder distributions
Common equity
Preferred equity
Non-controlling interests
Other items
Equity issuances, net of
redemptions
Share-based compensation
Ownership changes
Total change in year
—
—
—
—
—
—
39
—
—
39
—
—
—
—
—
—
—
24
—
24
1,380
—
1,380
(340)
(129)
—
(111)
—
25
825
—
—
—
—
—
—
—
—
12
12
—
491
491
—
—
—
—
—
—
—
(51)
(51)
—
—
—
—
—
—
491
(51)
—
77
77
—
—
—
—
—
—
77
1,380
517
1,897
(340)
(129)
—
—
—
—
—
—
—
1,367
564
1,931
—
—
(708)
2,747
1,081
3,828
(340)
(129)
(708)
(72)
761
2,896
3,585
24
37
—
—
41
514
65
551
1,417
761
4,674
6,852
Balance as at December 31, 2012
$ 2,855
$
149
$ 6,807
$
487
$ 6,890
$ 1,405
$
(433) $ 18,160
$ 2,901
$ 23,190
$ 44,251
1.
Includes gains or losses on changes in ownership interests of consolidated subsidiaries
YEAR ENDED DECEMBER 31, 2011
(MILLIONS)
Common
Share
Capital
Contributed
Surplus
Retained
Earnings
Ownership
Changes1
Revaluation
Surplus
Currency
Translation
Other
Reserves
Common
Equity
Preferred
Equity
Non-
controlling
Interests Total Equity
Accumulated Other Comprehensive
Income
$ 4,627
$
187
$ 4,680
$ 1,899
$
(29)
$ 12,795
$ 1,658
$ 14,739
$ 29,192
Balance as at December 31, 2010
$ 1,334
$
Changes in accounting policies2
Changes in year
Net income
Other comprehensive income
Comprehensive income
Shareholder distributions
Common equity
Preferred equity
Non-controlling interests
Other items
Equity issuances, net of
redemptions
Share-based compensation
Ownership changes
Total change in year
—
—
—
—
—
—
—
1,482
—
—
1,482
97
—
—
—
—
—
—
—
—
28
—
28
(8)
1,957
—
1,957
(319)
(106)
—
(169)
—
—
1,363
—
—
—
—
—
—
—
—
—
228
288
—
—
1,719
1,719
—
—
(443)
(443)
—
(8)
—
1,957
(481)
(481)
795
2,752
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(319)
(106)
—
28
288
1,719
(443)
(481)
3,956
—
—
—
—
—
—
—
—
(8)
1,717
3,674
141
936
1,858
4,610
—
—
(639)
(319)
(106)
(639)
1,313
482
1,166
2,961
—
—
482
13
1,379
3,777
41
1,667
8,215
Balance as at December 31, 2011
$ 2,816
$
125
$ 5,982
$
475
$ 6,399
$ 1,456
$
(510) $ 16,743
$ 2,140
$ 18,516
$ 37,399
1.
2.
Includes gains or losses on changes in ownership interests of consolidated subsidiaries
See financial statement Note 2(c)
90 BROOKFIELD ASSET MANAGEMENT
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31
(MILLIONS)
Operating activities
Net income
Share of undistributed equity accounted earnings
Fair value changes
Depreciation and amortization
Deferred income taxes
Investments in residential development
Net change in non-cash working capital balances
Financing activities
Corporate borrowings arranged
Corporate borrowings repaid
Commercial paper and bank borrowings, net
Property-specific mortgages arranged
Property-specific mortgages repaid
Other debt of subsidiaries arranged
Other debt of subsidiaries repaid
Capital securities redeemed
Capital provided by fund partners
Capital provided from non-controlling interests
Capital repaid to non-controlling interests
Distributions to non-controlling interests
Preferred equity issuances
Common shares issued
Common shares repurchased
Shareholder distributions
Investing activities
Acquisitions of investment properties
Dispositions of investment properties
Investments in property, plant and equipment
Dispositions of property, plant and equipment
Sustainable resources acquired
Sustainable resources disposed
Investments acquired
Investments disposed
Investments in other financial assets
Dispositions of other financial assets
Restricted cash and deposits
Acquisitions of subsidiaries, net of dispositions
Cash and cash equivalents
Change in cash and cash equivalents
Foreign exchange revaluation
Balance, beginning of year
Balance, end of year
Note
2012
2011
$
2,747
$
(868)
(1,150)
1,263
381
2,373
(861)
(15)
1,497
852
(782)
(321)
6,698
(6,539)
5,655
(3,641)
(506)
103
3,681
(785)
(708)
737
54
(106)
(469)
3,923
(2,123)
1,037
(3,544)
106
(21)
2
(1,585)
373
(1,327)
2,215
(13)
318
3,674
(2,001)
(1,386)
904
411
1,602
(543)
(279)
780
—
—
851
5,393
(5,298)
2,373
(1,645)
—
142
1,913
(889)
(639)
468
592
(186)
(425)
2,650
(1,423)
1,462
(1,952)
45
(95)
2
(1,715)
121
(996)
1,287
68
115
(4,562)
(3,081)
858
(41)
2,027
2,844
$
349
(35)
1,713
2,027
29
$
2012 ANNUAL REPORT 91
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1.
CORPORATE INFORMATION
Brookfield Asset Management Inc. (“Brookfield” or the “company”) is a global alternative asset management company. The
company owns and operates assets with a focus on property, renewable power, infrastructure and private equity and residential
development. 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.
a)
SIGNIFICANT ACCOUNTING POLICIES
Statement of Compliance
These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards
(“IFRS”) as issued by the International Accounting Standards Board (“IASB”).
These financial statements were authorized for issuance by the Board of Directors of the company on March 28, 2013.
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(s).
i.
Subsidiaries
The consolidated financial statements include the accounts of the company and its subsidiaries, which are the entities over which
the company exercises control. Subsidiaries are consolidated from the date 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 within equity on the Consolidated Balance Sheets. All intercompany balances, transactions,
unrealized gains and losses are eliminated in full. Gains or losses resulting from 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 within ownership changes as
a component of equity other than gains accumulated within revaluation surplus, a component of accumulated other comprehensive
income, which are transferred directly to retained earnings.
The following is a list of the company’s principal subsidiaries, which in the opinion of management significantly affects its
financial position, indicating the jurisdiction of incorporation or formation and the percentage of voting securities owned, or over
which control or direction is otherwise exercised directly or indirectly, by the company as at December 31, 2012:
Brookfield Office Properties Inc.
Brookfield Renewable Energy Partners L.P.
Brookfield Infrastructure Partners L.P.
ii.
Associates
Jurisdiction of
Formation
Canada
Bermuda
Bermuda
Voting
Control (%)
50.7%
100.0%
100.0%
Ownership (%)
50.7%
68.0%
28.5%
Associates are entities over which the company exercises significant influence. Significant influence is the ability to participate in
the financial and operating policy decisions of the investee but without control or joint control over those policies. The company
accounts for investments over which it has significant influence using the equity method of accounting within Investments on
the Consolidated Balance Sheets.
Interests in investments accounted for using the equity method are initially recognized at cost. At the time of initial recognition, 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. Profit and losses resulting from transactions
with an associate are recognized in the consolidated financial statements based on the interests of unrelated investors in the
associate.
iii.
Joint Arrangements
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.
92 BROOKFIELD ASSET MANAGEMENT
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.
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 Investments on the Consolidated
Balance Sheets.
c)
Adoption of Accounting Standard
Income Taxes
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, effective for annual periods beginning on or after January 1, 2012, introduced 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 company has determined that the rebuttable presumption introduced by the amendments
to IAS 12 has been overcome for most of its investment properties and has continued to measure deferred taxes on these assets
on the basis that the carrying amount of investment properties will be recovered through use. The impact of these amendments
on the consolidated financial statements was a reduction in retained earnings of $8 million as at January 1, 2011.
d)
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 accumulated as a component of equity. On the disposal of a foreign operation, or the loss of control or significant
influence, the component of accumulated 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 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.
e)
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.
f)
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 their exchange value and are recognized in the consolidated financial statements. Related party transactions
are further described in Note 28. The company’s principal subsidiaries are described in Note 2(b)(i) and its associates and jointly
controlled entities are described in Note 8.
g)
i.
Operating Assets
Investment Properties
The company uses the fair value method to account for real estate classified as an investment property. A property is determined
to be an investment property when it is principally held to earn either rental income or capital appreciation, or both. Investment
properties also include properties that are under development or redevelopment 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
2012 ANNUAL REPORT 93
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 internal valuations. The company uses external valuations to
assist in determining fair value, but external valuations are not necessarily indicative of fair value.
ii.
Revaluation Method for Property, Plant and Equipment
The company uses the revaluation method of accounting for certain classes of property, plant and equipment as well as certain
assets which are under development for future use as property, plant and equipment. 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 performed on an annual basis. Where the carrying amount of an asset increases 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 decreases, 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. Depreciation of an asset commences when it is available for use. On loss of control of an asset which utilizes the
revaluation method, all accumulated revaluation surplus is transferred into retained earnings.
iii.
Renewable Power Generation
Renewable power generating assets, including assets under development, 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 generating assets
using a discounted cash flow model, which include 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.
Generally, the first 20 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
Hydroelectric generating units
Wind generating units
Other assets
Useful
Lives
Up to 115
Up to 60
Up to 115
Up to 115
Up to 22
Up to 60
Cost is allocated to the significant components of power generating assets and each component is depreciated separately.
iv.
Sustainable Resources
Sustainable resources consist of standing timber and other agricultural assets and are measured at fair value after deducting the
estimated selling costs and are recorded in Sustainable resources 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 using the
present value of anticipated future cash flows for standing timber before tax and an annual terminal date of 90 years. 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
of its standing timber using external valuations on an annual basis.
The fair value of agricultural assets is determined using discounted future cash flows, generally over a term of 10 years.
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 and other agricultural assets are accounted for using the revaluation method and included in property,
plant and equipment.
v.
Utilities, Transport and Energy
Utilities, transport and energy assets as well as assets under development 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 using
a discounted cash flow model, which includes estimates of forecasted revenue, operating costs, maintenance and other capital
expenditures. Valuations are performed internally on an annual basis.
94 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.
Public service concessions that provide the right to charge users for a service in which the service and fee is regulated by the
grantor are accounted for as intangible assets.
vi.
Other Property, Plant and Equipment
The company accounts for its other property, plant and equipment using the revaluation method or the cost model, depending on
the nature of the asset and the operating segment. Other 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. Under the cost method, 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.
vii. Residential Development
Residential development lots, homes and residential condominium projects 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.
viii. 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 recognized on their trade date and initially recorded at fair
value with changes in fair value recorded in net income or other comprehensive income in accordance with their classification.
The company assesses the carrying value of available-for-sale securities for impairment when there is objective evidence
that the asset is impaired. When an impairment is recorded, the cumulative loss in other comprehensive income is reclassified
to net income.
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 recorded
for in net income in the period in which they arise.
h)
Asset Impairment
At each balance sheet date the company assesses whether its assets, other than those measured at fair value with changes in value
recorded in net income, have any indication of impairment. 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 the Consolidated Statements of Operations and within accumulated depreciation or cost for depreciable
and non-depreciable assets, respectively, in the Consolidated Balance Sheets. 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 its recoverable amount and the carrying amount that would have been recorded had no
impairment loss been recognized previously.
i)
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.
2012 ANNUAL REPORT 95
j)
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.
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.
Intangible assets are evaluated for impairment annually or more often if events or circumstances indicate there may be an
impairment. Any impairment of the company’s intangible assets is recorded in net income in the period in which the impairment
is identified. Impairment losses on intangible assets may be subsequently reversed in net income.
k)
Goodwill
Goodwill represents the excess of the price paid 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 an 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 and 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 recorded in income
in the period in which the impairment is identified. Impairment losses on goodwill are not subsequently reversed.
l)
Interests of others in consolidated funds
Interest of others in limited life funds and redeemable fund units are classified as liabilities and recorded at fair value within
Interests of Others in Consolidated Funds on the Consolidated Balance Sheets. Changes in the fair value are recorded in net
income in the period of the change.
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 fund partners 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.
Redeemable fund units represent interests of others in consolidated subsidiaries that have a redemption feature that requires the
company to deliver cash or other financial assets to the holders of the units upon receiving a redemption notice.
m) Revenue and Expense Recognition
i.
Asset Management and Other Services
Asset management and other services revenues consist of base management fees, advisory fees, incentive distributions,
performance-base incentive fees and construction and property service fees and arise from the rendering of services. Revenues
from base management fees, advisory fees, property service fees and incentive distributions are recorded on an accrual basis based
on the amounts receivable at the balance sheet date and are recorded within revenue in the Consolidated Statements of Operations.
Revenues from performance-based incentive fees are recorded on the accrual basis based on 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 recorded within revenue in the Consolidated Statements of Operations.
Revenues from construction contracts are 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.
ii.
Properties Operations
Property revenues primarily consist of rental revenues from leasing activities and, to a lesser degree, hospitality revenues and
interest and dividends from unconsolidated real estate investments.
Property rental income is recognized when the property is ready for its intended use. Office and retail 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
96 BROOKFIELD ASSET MANAGEMENT
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 amount of 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 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.
Revenue from hospitality operations are recognized when the services are provided and collection is reasonably assured.
iii.
Renewable Power Operations
Renewable power revenues are derived from the sale of electricity and is recorded at the time power is provided based upon
the output delivered and capacity provided at rates specified under either contract terms or prevailing market rates. Costs of
generating electricity are recorded as incurred.
iv.
Sustainable Resources Operations
Revenue from timberland operations 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. Revenue from agricultural
development operations is recognized at the time that the risks and rewards of ownership have transferred.
v.
Utility Operations
Revenue from utility operations 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 Operations
Revenue from transport and energy operations consists primarily of energy distribution and storage income and freight and
transportation services revenue. Energy distribution and storage income is recognized when services are provided and are
rendered based upon usage or volume throughput during the period. Freight and transportation services revenue is recognized
at the time of the provision of services.
vii.
Private Equity and Residential Development Operations
Revenue from our private equity operations primarily consists of revenues from the sale of goods and rendering of services.
Sales are recognized when the product is shipped, title passes and collectability is reasonably assured. Services revenues are
recognized when the services are provided.
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.
viii. Other Financial Assets
Dividend and interest income from other financial assets are recorded within revenues when declared or on an accrual basis using
the effective interest method.
Revenue from loans and notes receivable, less a provision for uncollectible amounts, is recorded on the accrual basis using the
effective interest method.
n)
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 assets or liabilities relating to unrealized mark-to-market gains and losses on derivative
financial instruments is recorded in Accounts receivable and other or Accounts payable and other, respectively.
2012 ANNUAL REPORT 97
i.
Items Classified as Hedges
Realized and unrealized gains and losses on foreign exchange contracts, designated as hedges of currency risks relating to a
net investment in a subsidiary or an associate 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
their 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 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.
ii.
Items Not Classified as Hedges
Derivative financial instruments that are not designated as hedges are carried at their estimated fair value, and gains and losses
arising from changes in fair value are recognized in net income in the period in which the change occurs. 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 Revenues, Direct Costs or Corporate costs, as
applicable. Realized and unrealized gains and losses on derivatives which are considered economic hedges, and where hedge
accounting is not able to be elected, are recorded in Fair value changes in the Consolidated Statements of Operations.
o)
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 using 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.
p)
Business Combinations
Business combinations are accounted for using the acquisition method. The cost of a business 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 are recognized at
their fair values at the acquisition date, except for non-current assets that are classified as held-for-sale 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.
When 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, other than amounts transferred directly to retained earnings. 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. Acquisition
costs are recorded as an expense in net income as incurred.
98 BROOKFIELD ASSET MANAGEMENT
q)
i.
Other Items
Capitalized Costs
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.
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 share options, restricted shares and escrowed shares, is determined as
the fair value of the award on the grant date using a fair value model. The cost of equity-settled share-based transactions 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 Appreciation 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.
r)
Critical Judgments and Estimates
The preparation of financial statements requires management to make estimates and judgments 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 judgments 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 prior periods and
there are no known trends, commitments, events or uncertainties that the company believes will materially affect the methodology
or assumptions utilized in making these estimates in these financial statements.
i.
Critical Estimates
The significant estimates used in determining the recorded amount for assets and liabilities in the financial statements include
the following:
a.
Investment Properties
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. 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 9.
b.
Revaluation Method for Property, Plant and Equipment
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. Determination of the fair value of property, plant and equipment under
development includes estimates in respect of the timing and cost to complete the development.
Further information on estimates used in the revaluation method for property, plant and equipment is provided in Note 10.
c.
Sustainable Resources
The fair value of standing timber and agricultural assets is based on the following critical estimates and assumptions: the timing
of forecasted revenues and 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 sustainable resources is provided in Note 11.
2012 ANNUAL REPORT 99
d.
Financial Instruments
Estimates and assumptions used in determining the fair value of financial instruments are: equity and commodity prices; future
interest rates; the credit worthiness of the company relative 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.
e.
Inventory
The company estimates the net realizable value of its inventory using estimates and assumptions about future selling prices and
future development costs.
f.
Other
Other estimates and assumptions utilized in the preparation of the company’s financial statements are: the assessment or
determination of net recoverable amounts; depreciation and amortization rates and useful lives; estimation of recoverable
amounts of cash generating units for impairment assessments of goodwill and intangible assets; ability to utilize tax losses and
other tax measurements; and fair value of assets held as collateral.
ii.
Critical Judgments
Management is required to make critical judgments when applying its accounting policies. The following judgments have the
most significant effect on the amounts in the consolidated financial statements:
a.
Level of Control
When determining the appropriate basis of accounting for the company’s investments, the company uses the following judgments
and assumptions: the degree of control or influence that the company exerts directly or through an arrangement; the amount of
potential voting rights which provide the company or unrelated parties voting powers; the ability to appoint directors, the ability
of other investors to remove the company as a manager or general partner in a controlled partnership; and the amount of benefit
that the company receives relative to other investors.
b.
Investment Properties
When applying the company’s accounting policy for investment properties, judgment is applied in determining whether certain
costs are additions to the carrying amount of the property and, for properties under development, identifying the point at which
practical completion of the property occurs and identifying the directly attributable borrowing costs to be included in the carrying
value of the development property. Judgment is also applied in determining the extent and frequency of independent appraisals.
c.
Property, Plant and Equipment
The company’s accounting policy for its property, plant and equipment requires critical judgments over the assessment of its
carrying value, whether certain costs are additions to the carrying amount of the property, plant and equipment as opposed to
repairs and maintenance and for assets under development, identification of when the asset is capable of being used as intended
and identifying the directly attributable borrowing costs to be included in the assets carrying value.
For assets that are measured using the revaluation method, judgment is required when estimating future prices, volumes and
discount and capitalization rates. Judgment is applied when determining future electricity prices considering market data for
years that a liquid market is available and estimates of electricity prices from renewable sources that would allow new entrants
into the market in subsequent years.
d.
Common Control Transactions
The purchase and sale of businesses or subsidiaries between entities under common control fall outside the scope of IFRS and
accordingly, management uses judgment when determining a policy to account for such transactions taking into consideration
other guidance in the IFRS framework and pronouncements of other standard-setting bodies. The company’s policy is to record
assets and liabilities recognized as a result of transfers of businesses or subsidiaries between entities under common control at
carrying value. Differences between the carrying amount of the consideration given or received and the carrying amount of the
assets and liabilities transferred are recorded directly in equity.
e.
Indicators of Impairment
Judgment is applied when determining whether indicators of impairment exist when assessing the carrying values of the company’s
assets, including: the determination of the company’s ability to hold financial assets; the estimation of a cash generating units
future revenues and direct costs; the determination of discount and capitalization rates; and when an assets carrying value is
above the value derived using publicly traded prices which are quoted in a liquid market.
f.
Other
Other critical judgments include the determination of effectiveness of financial hedges for accounting purposes; the likelihood
and timing of anticipated transactions for hedge accounting; the manner in which the carrying amount of each investment
property will be recovered; and the determination of functional currency.
100 BROOKFIELD ASSET MANAGEMENT
s)
i.
Future Changes in Accounting Standards
Consolidated Financial Statements, Joint Ventures and Disclosures
In May 2011, the IASB issued three standards: IFRS 10, Consolidated Financial Statements (“IFRS 10”), IFRS 11, Joint
Arrangements (“IFRS 11”) and IFRS 12, Disclosure of Interests in Other Entities (“IFRS 12”), and amended two standards:
IAS 27, Separate Financial Statements (“IAS 27”), and IAS 28, Investments in Associates and Joint Ventures (“IAS 28”). Each
of the new and amended standards has an effective date for annual periods beginning on or after January 1, 2013.
IFRS 10 replaces IAS 27 and SIC–12, Consolidation-Special Purpose Entities (“SIC–12”). The consolidation requirements
previously included in IAS 27 have been included in IFRS 10, whereas the amended IAS 27 sets standards to be applied in
accounting for investments in subsidiaries, joint ventures, and associates when an entity elects, or is required by local regulations,
to present separate (non-consolidated) financial statements. IFRS 10 uses control as the single basis for consolidation, irrespective
of the nature of the investee, eliminating the risks and rewards approach included in SIC–12. An investor must possess the
following three elements to conclude if it controls an investee: power over the investee’s financial and operating decisions,
exposure or rights to variable returns from involvement with the investee, and the ability to use power over the investee and
its exposure or rights to variable returns. IFRS 10 requires continuous reassessment of changes in an investor’s power over the
investee and changes in the investor’s exposure or rights to variable returns. The company is currently evaluating the impact of
IFRS 10 and the amendments to IAS 27 on its consolidated financial statements.
IFRS 11 supersedes IAS 31, Interests in Joint Ventures and SIC–13, Jointly Controlled Entities – Non-Monetary Contributions
by Venturers. IFRS 11 is applicable to all parties that have an interest in a joint arrangement. IFRS 11 establishes two types of
joint arrangements: joint operations and joint ventures. In a joint operation, the parties to the joint arrangement have rights to
the assets and obligations for the liabilities of the arrangement, and recognize their share of the assets, liabilities, revenues and
expenses in accordance with applicable IFRS. In a joint venture, the parties to the arrangement have rights to the net assets
of the arrangement and account for their interest using the equity method of accounting under IAS 28. IAS 28 prescribes the
accounting for investments in associates and sets out the requirements for the application of the equity method when accounting
for investments in associates and joint ventures.The company is currently evaluating the impact of IFRS 11 and the amendments
to IAS 28 on its consolidated financial statements.
IFRS 12 integrates the disclosure requirements on interests in other entities and requires a parent company to disclose information
about significant judgments and assumptions it has made in determining whether it has control, joint control, or significant
influence over another entity and the type of joint arrangement when the arrangement has been structured through a separate
vehicle. An entity should also provide these disclosures when changes in facts and circumstances affect the entity’s conclusion
during the reporting period. Entities are permitted to incorporate the disclosure requirements in IFRS 12 into their financial
statements without early adopting of IFRS 12. The company is currently evaluating the impact of IFRS 12 on its consolidated
financial statements.
ii.
Fair Value Measurements
In May 2011, the IASB issued IFRS 13, Fair Value Measurements (“IFRS 13”). IFRS 13 establishes a single source of fair value
measurement guidance and sets out fair value measurement disclosure requirements. The standard requires that information be
provided in the financial statements that enables the user to assess the methods and inputs used to develop fair value measurements,
and for reoccurring fair value measurements that use significant unobservable inputs, and the effect of the measurements on
profit or loss or other comprehensive income. IFRS 13 is effective for annual periods beginning on or after January 1, 2013. The
company is currently evaluating the impact of IFRS 13 on its consolidated financial statements.
iii.
Presentation of Items of Other Comprehensive Income
In June 2011, the IASB made amendments to IAS 1, Presentation of Financial Statements (“IAS 1”). The amendments require
that items of other comprehensive income are grouped into two categories: items that will be reclassified subsequently to profit
or loss; and items that will be reclassified subsequently directly to equity. Income tax on items of other comprehensive income
are required to be allocated on the same basis. The amendments to lAS 1 are effective for annual periods beginning on or after
July 1, 2012. The company is currently evaluating the impact of the amendments to IAS 1 on its consolidated financial statements.
iv.
Financial Instruments
In November 2009, the IASB issued IFRS 9, Financial Instruments (“IFRS 9”) which 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, 2015. The company has not yet determined the impact of
IFRS 9 on its consolidated financial statements.
2012 ANNUAL REPORT 101
3.
a)
SEGMENTED INFORMATION
Operating Segments
For management purposes, the business is organized into five operating segments in which the company makes operating and
capital allocation decisions and assesses performance. In late 2012, the company combined the oversight of its timber and
agricultural development business lines and reallocated the results of the agricultural development operations business line from
Private Equity and Residential Development to Infrastructure. The comparative results have been revised to conform to the new
basis of segment presentation.
i.
ii.
iii.
iv.
v.
Asset Management and Services comprises our asset management, construction and property services businesses. These
operations generate contractual service fees earned from consolidated entities included in our other segments and third
parties for performing management services, including management of our institutional private funds and listed entities,
management of construction projects and residential relocation, franchise and brokerage operations. These operations are
also characterized by utilizing relatively low levels of tangible assets relative to our other business segments.
Property operations are predominantly office properties, retail properties, real estate finance, opportunistic investing
and office developments located primarily in major North American, Australian, Brazilian and European cities. Income
from property operations is primarily comprised of property rental income and, to a lesser degree, interest and dividend
income. Virtually all of these operations will be held through Brookfield Property Partners L.P., in which we will own a
92.5% interest following the distribution of a 7.5% interest to our shareholders in April, 2013.
Renewable power operations consist primarily of hydroelectric power generating facilities on river systems in North
America and Brazil and wind power generating facilities in North America. The company’s power operations are
owned and operated through our 68% interest in Brookfield Renewable Energy Partners L.P. (“BREP”) and a wholly
owned subsidiary of the company which engages in the purchase and sale of energy, primarily on behalf of BREP.
Infrastructure operations are predominantly utilities, transport and energy, timberland and agricultural development
operations located in Australia, North America, Europe and South America, and are primarily owned and operated
through a 28% interest in Brookfield Infrastructure Partners L.P. and direct investments in certain of the company’s
sustainable resources operations.
Private equity and residential development operations include the investments and activities overseen by our private
equity group. These include direct investments as well as investments in our private equity funds. Our private equity funds
have a mandate to invest in a broad range of industries, although currently the portfolios contain a number of investments
whose performance is significantly impacted by the North American home building industry. Direct investments include
interests in Norbord Inc., a panelboard manufacturer, and two publicly listed residential development businesses: which are
predominantly a North American homebuilder and land developer, Brookfield Residential Properties Inc. and a Brazilian
condominium developer, Brookfield Incorporações S.A. The operations in this segment are generally characterized by
an investment approach that is more opportunistic in nature. Furthermore, these businesses are not integrated into core
operating platforms, unlike the assets within our property, renewable power or infrastructure operations.
All other company level activities that are not allocated to these five operating segments are included within Corporate/
Unallocated operations, such as the company’s cash and financial assets, non-recourse corporate borrowings and preferred
shares and net working capital.
b)
i.
Basis of Measurement
Funds from Operations
The company considers Funds from Operations (“FFO”) to be a key measure of its financial performance and defines FFO as net
income prior to fair value changes, depreciation and amortization, and deferred income taxes, and includes certain disposition
gains that are not otherwise included in net income as determined under IFRS. FFO includes the company’s proportionate share
of FFO from equity accounted investments and excludes transaction costs incurred on business combinations, which are required
to be expensed as incurred under IFRS. FFO includes disposition gains because the purchase and sale of assets is a normal part
of the company’s business. Brookfield uses FFO to assess its operating results and the value of its business. The company does
not use FFO as a measure of cash generated from its operations.
The company’s definition of FFO may differ from the definition used by other organizations, as well as the definition of FFO
used by the Real Property Association of Canada (“REALPAC”) and the National Association of Real Estate Investment Trusts,
Inc. (“NAREIT”), in part because the NAREIT definition is based on U.S. generally accepted accounting principles, as opposed
to IFRS. When reconciling the company’s definition of FFO to the determination of FFO by REALPAC and/or NAREIT, key
differences consist of the following: the inclusion of disposition gains or losses that occur as normal part of the company’s
business and cash taxes payable on those gains, if any; foreign exchange gains or losses on monetary items not forming part
of the company’s net investment in foreign operations; and gains or losses on the sale of an investment in a foreign operation.
ii.
Other Segment Information – Valuation Items
In assessing performance, the company also makes use of financial information pertaining to the revaluation of assets and
liabilities such as fair value changes and depreciation and amortization which are included in consolidated net income and
valuation items which are included in other comprehensive income, as well as the company’s share of these items that are
recorded by equity accounted investments. These amounts are collectively referred to as valuation items.
102 BROOKFIELD ASSET MANAGEMENT
iii.
Segment Balance Sheet Information
Segment balance sheet information considered by the company includes: segment assets, which are total assets other than
investments in associates, less accounts payable and other liabilities and deferred tax liabilities; investments in associates; the
aggregate amount of segment borrowings including capital securities; segment non-controlling interests, segment preferred
shares and common equity by segment.
iv.
Segment Allocation and Measurement
Segment measures include amounts earned from consolidated entities that are eliminated on consolidation. The two principal
adjustments are to include asset management revenues charged to consolidated entities as revenues within the company’s asset
management and other services segment with the corresponding expense recorded as corporate costs within the relevant segment;
and interest charged on loans between consolidated entities, which are presented as revenues and interest expense within the
relevant segments. These amounts are based on the terms of the asset management contracts and loan agreements amongst
the consolidated entities. The company allocates the costs of shared functions, which would otherwise be included within the
corporate operation segment such as information technology and internal audit, pursuant to formal policies.
c)
Segment Operating Results
Operating Segments
Asset
Management
and Services
Renewable
Property
Power Infrastructure
Private
Equity and
Residential
Development
Corporate/
Unallocated Adjustments Note Consolidated
$
4,520
$
3,982
$
1,179
$
2,109
$
6,900
$
230
$
(4,171)
(1,812)
(475)
(1,138)
(6,105)
(114)
4
—
—
—
—
—
386
(49)
(1,076)
(172)
(9)
13
214
(412)
(36)
(12)
223
63
(399)
(144)
(16)
15
31
(276)
(28)
(79)
(713)
(158)
(474)
(197)
Net income
$
297
$
353
$
$
537
2,687
$
$
313
$
224
(268)
$
276
$
$
261
44
$
$
$
18,697
(13,909)
—
—
(2,497)
(158)
—
—
(223)
(94)
(666)
(359)
35
25
100
(369)
(160)
382
135
vii
1,567
viii
(19)
(25)
(332)
(289)
Operating Segments
Asset
Management
and Services
Renewable
Property
Power Infrastructure
Private
Equity and
Residential
Development
Corporate/
Unallocated Adjustments Note Consolidated
$
3,535
$
2,760
$
1,128
$
1,725
$
6,740
$
311
$
(3,280)
(1,077)
(379)
(908)
(6,129)
(46)
14
—
—
—
—
—
428
433
25
25
(1,014)
(394)
193
—
(340)
23
177
(263)
(9)
(83)
(367)
(118)
(22)
(172)
290
(144)
(10)
(2)
(13)
(689)
(158)
(376)
(233)
(4)
(45)
(25)
(6)
97
vii
1,462
viii
(278)
(87)
(674)
(552)
26
$ 15,921
(11,906)
—
—
(2,352)
(168)
—
—
$
$
269
232
$
$
687
3,652
$
$
232
$
172
(439)
$
451
$
$
248
$
(397)
(30)
$
(192)
2012 ANNUAL REPORT 103
FOR THE YEAR ENDED
DECEMBER 31, 2012
(MILLIONS)
Revenues
Direct costs
Equity accounted
FFO
Disposition gains
Interest expenses
Corporate/
unallocated costs
Current income
taxes
Non-controlling
interests in FFO
Funds from
operations
FOR THE YEAR ENDED
DECEMBER 31, 2011
(MILLIONS)
Revenues
Direct costs
Equity accounted
FFO
Disposition gains
Interest expenses
Corporate/
unallocated costs
Current income
taxes
Non-controlling
interests in FFO
Funds from
operations
Net income
i
ii
iii
iv
v
vi
i
ii
iii
iv
v
vi
i.
Revenues
The adjustment to revenues consists of management fees earned from consolidated entities totalling $288 million
(2011 – $203 million) and interest income on loans between consolidated entities totalling $35 million (2011 – $26 million),
which were eliminated on consolidation to arrive at the company’s consolidated revenues.
The adjustment to revenues also includes disposition losses totalling $100 million (2011 – $49 million of disposition gains) that
are recorded as disposition gains in the segment results.
ii.
Direct costs
The adjustment to direct costs consists of the reallocation of unallocated segment costs totalling $94 million (2011 – $87 million)
that are included in direct costs in the Consolidated Statements of Operations.
iii.
Equity accounted FFO
The company defines equity accounted FFO to be the company’s share of FFO from its investments in associates (equity
accounted investments), determined by applying the same methodology utilized in adjusting net income of consolidated entities.
Equity accounted FFO is combined with the equity accounted fair value changes in the company’s Consolidated Statements of
Operations. The following table disaggregates equity accounted income into equity accounted FFO and non-FFO items:
FOR THE YEAR ENDED DECEMBER 31, 2012
(MILLIONS)
Funds from operations
Fair value changes and other
Equity accounted income
FOR THE YEAR ENDED DECEMBER 31, 2011
(MILLIONS)
Funds from operations
Funds from operations – gains
Fair value changes and other
Equity accounted income
iv.
Disposition gains
Asset
Management
and Services
$
$
4
—
4
Asset
Management
and Services
$
$
14
—
—
14
Renewable
Property
Power Infrastructure
Private
Equity and
Residential
Development
Corporate Consolidated
$
386
810
$
13
$
223
$
(19)
(210)
$
1,196
$
(6)
$
13
$
15
(1)
14
$
$
25
(3)
22
$
666
577
$
1,243
Renewable
Property
Power Infrastructure
Private
Equity and
Residential
Development
Corporate Consolidated
$
428
$
2
1,620
$
25
—
(13)
$
193
—
(78)
$
2,050
$
12
$
115
$
23
—
—
23
$
$
(9)
$
—
—
674
2
1,529
(9)
$
2,205
Disposition gains include gains and losses recorded in net income arising from transactions during the current year adjusted to
include fair value changes and revaluation surplus recorded in prior periods. Disposition gains also include amounts that are
recorded directly in equity as changes in ownership as opposed to net income because they result from a change in ownership
of a consolidated entity.
The adjustment to disposition gains consists of amounts that are included in the following components of the company’s financial
statements:
FOR THE YEARS ENDED DECEMBER 31
(MILLIONS)
Net income
Revenues
Equity
Fair value changes recorded in prior period
Revaluation surplus
Changes in ownership
Other
2012
2011
$
100
$
(49)
(47)
277
29
—
259
359
$
420
13
13
155
601
552
$
Other gains in 2011 of $155 million ($61 million net of non-controlling interests) represents a distribution of capital from a
consolidated private equity investment that is reflected in the company’s Consolidated Balances Sheets as the excess of liabilities
over the assets of the private equity investment.
104 BROOKFIELD ASSET MANAGEMENT
v.
Interest expense
The adjustment to interest expense consists of interest on loans between consolidated entities totalling $35 million
(2011 – $26 million) that is eliminated on consolidation, along with the associated revenue.
vi.
Corporate/unallocated costs
The adjustment to corporate/unallocated costs consists of management fee expenses in respect of services provided between
consolidated entities totalling $288 million (2011 – $203 million) that were eliminated on consolidation and $94 million
(2011 – $87 million) of costs that are unallocated in the context of a particular segment or business line but which are included
in the company’s direct costs in the company’s Consolidated Statements of Operations.
vii. Current income taxes
Current income taxes are included in segment FFO, but are aggregated with deferred income taxes in income taxes on the
company’s Consolidated Statements of Operations.
viii. Non-controlling interests in FFO
The company defines non-controlling interests in FFO to be non-controlling interests less the non-controlling interests’
share of adjustments required to convert net income attributable to shareholders to FFO. The following table disaggregates
non-controlling interests into non-controlling interests in FFO and the principal reconciling items.
FOR THE YEARS ENDED DECEMBER 31
(MILLIONS)
Non-controlling interests in:
Funds from operations
Disposition gains
Fair value changes
Equity accounted income – fair value changes and other
Depreciation and amortization
Income tax
Net income attributable to non-controlling interests
ix.
Reconciliation of total entity FFO to net income
2012
2011
$
(1,567)
$ (1,462)
76
(725)
56
680
113
311
(865)
(261)
245
315
$
(1,367)
$ (1,717)
The following table reconciles the sum of FFO for each operating segment and corporate/unallocated FFO (“total entity FFO”)
to net income:
FOR THE YEARS ENDED DECEMBER 31
(MILLIONS)
Total entity FFO
Adjustments
Less: FFO measures
Gains not recorded in net income
Equity accounted FFO
Current income taxes
Non-controlling interests in FFO
Add: financial statement components not included in FFO
Equity accounted income
Fair value changes
Depreciation and amortization
Income taxes
Total adjustments
Net income
2012
2011
$
1,356
$
1,211
(259)
(666)
135
1,567
1,243
1,150
(1,263)
(516)
1,391
(601)
(674)
97
1,462
2,205
1,386
(904)
(508)
2,463
$
2,747
$
3,674
2012 ANNUAL REPORT 105
d)
Other Segment Information – Valuation Items
The following table aggregates significant items relating to the periodic revaluation of assets and liabilities, including
the company’s share of such items included in equity accounted income, and the share of these items that is attributable to
non-controlling interests and amounts recorded in equity. Equity accounted items in the following table include the company’s
share of fair value changes and depreciation and amortization that are included in equity accounted income as presented in
Note 3(c)(iii). These items are presented net of non-controlling interests and income taxes in the Consolidated Statements of
Changes in Equity, but are presented prior to non-controlling interests and income taxes in the following table.
Operating Segments
Asset
Management
and Services
Renewable
Property
Power Infrastructure
Private
Equity and
Residential
Development
Corporate Consolidated
FOR THE YEAR ENDED DECEMBER 31, 2012
(MILLIONS)
Recorded in net income
Fair value changes
$
(25)
$
1,258
$
(79)
$
139
$
(116)
$
(27)
$
1,150
Equity accounted fair value
changes and other
Depreciation and amortization
Recorded in other
comprehensive income
Total revaluation items
Non-controlling interests in above1
—
(31)
(56)
—
(56)
—
810
(225)
1,843
35
1,878
(724)
(19)
(499)
(597)
896
299
(35)
(210)
(248)
(319)
720
401
(240)
(1)
(251)
(368)
(34)
(402)
222
(3)
(9)
(39)
9
(30)
1
577
(1,263)
464
1,626
2,090
(776)
Valuation items
$
(56)
$
1,154
$
264
$
161
$
(180)
$
(29)
$
1,314
1.
Includes non-controlling interests on valuation items recorded in net income and other comprehensive income and excludes non-controlling interests in FFO as outlined
in 3(c)(viii)
Operating Segments
Asset
Management
and Services
Renewable
Property
Power Infrastructure
Private
Equity and
Residential
Development
Corporate Consolidated
FOR THE YEAR ENDED DECEMBER 31, 2011
(MILLIONS)
Recorded in net income
Fair value changes
$
— $
1,547
$
(305)
$
282
$
(80)
$
(58)
$
1,386
Equity accounted fair value
changes and other
Depreciation and amortization
Recorded in other
comprehensive income
Total valuation items
Non-controlling interests in above1
—
(34)
(34)
—
(34)
—
1,620
(33)
3,134
(238)
2,896
(973)
(13)
(455)
(773)
1,828
1,055
(435)
(78)
(148)
56
486
542
(259)
—
(226)
(306)
(55)
(361)
112
—
(8)
(66)
(101)
(167)
—
1,529
(904)
2,011
1,920
3,931
(1,555)
Valuation items
$
(34)
$
1,923
$
620
$
283
$
(249)
$
(167)
$
2,376
1.
Includes non-controlling interests on valuation items recorded in net income and other comprehensive income and excludes non-controlling interests in FFO as outlined
in 3(c)(viii)
106 BROOKFIELD ASSET MANAGEMENT
i
ii
i
ii
Investments
Borrowings
Segment non-controlling
interests
Preferred shares
Common equity by
segment
Investments
Borrowings
Segment non-controlling
interests
Preferred shares
Common equity by
segment
e)
Segment Financial Position Information
Operating Segments
AS AT DEC. 31, 2012
(MILLIONS)
Asset
Management
and Services
Renewable
Property
Power Infrastructure
Private
Equity and
Residential
Development
Total
Reportable
Corporate
Segments Note
Segment assets
$
1,855
$ 37,622
$ 14,325
$ 14,463
$
9,476
$
1,196
$ 78,937
67
8,143
344
(351)
(21,471)
(6,119)
2,606
(7,988)
236
293
11,689
(5,030)
(4,991)
(45,950)
(1)
—
(11,336)
(3,559)
(6,510)
(2,107)
(102)
(23,615)
iii
—
—
—
—
(2,901)
(2,901)
$
1,570
$ 12,958
$
4,991
$
2,571
$
2,575
$
(6,505)
$ 18,160
Operating Segments
AS AT DEC. 31, 2011
(MILLIONS)
Asset
Management
and Services
Renewable
Property
Power Infrastructure
Private
Equity and
Residential
Development
Total
Reportable
Corporate
Segments Note
Segment assets
$
1,930
$ 31,268
$ 12,775
$ 10,079
$
8,894
$
1,592
$ 66,538
2
6,905
358
(439)
(17,433)
(5,520)
1,696
(4,918)
261
179
9,401
(4,445)
(5,452)
(38,207)
(1)
—
(9,797)
(2,504)
(4,350)
(2,094)
(103)
(18,849)
iii
—
—
—
—
(2,140)
(2,140)
$
1,492
$ 10,943
$
5,109
$
2,507
$
2,616
$
(5,924)
$ 16,743
The following tables reconcile the company’s total reportable segments to the Consolidated Balance Sheets as at December 31, 2012
and 2011, for those financial statement line items which differ:
i.
Segment assets
The company defines segment assets to be total assets for each segment less investments, deferred income tax liabilities and
accounts payable and other attributable to that segment.
AS AT DECEMBER 31
(MILLIONS)
Total assets
Investments
Accounts payable and other
Deferred income tax liabilities
Segment assets
ii.
Borrowings
2012
2011
$
108,644
$
91,022
(11,689)
(11,599)
(6,419)
(9,401)
(9,266)
(5,817)
$
78,937
$
66,538
The company defines borrowings to include the following liabilities attributable to each segment: corporate borrowings, property-
specific mortgages, subsidiary borrowings and capital securities.
AS AT DECEMBER 31
(MILLIONS)
Corporate borrowings
Non-recourse borrowings
Property specifics borrowings
Subsidiary borrowings
Capital securities
Borrowings
2012
$
3,526
$
33,648
7,585
1,191
2011
3,701
28,415
4,441
1,650
$
45,950
$
38,207
2012 ANNUAL REPORT 107
iii.
Segment Non-controlling interests
The company aggregates interests of others in consolidated funds together with non-controlling interests in determining segment
financial position information.
AS AT DECEMBER 31
(MILLIONS)
Consolidated balances
Interests of others in consolidated funds
Non-controlling interests in net assets
f)
Geographic Allocation
Revenues and consolidated assets by geographic segments are as follows:
2012
2011
$
$
425
23,190
23,615
$
$
333
18,516
18,849
AS AT AND FOR THE YEARS ENDED DECEMBER 31
(MILLIONS)
United States
Canada
Australia
Brazil
Europe
Other
2012
2011
Revenue
6,206
3,290
4,528
1,614
1,432
1,627
18,697
$
$
Assets
44,291
21,415
16,781
12,941
6,750
6,466
108,644
$
$
Revenue
4,715
2,809
3,470
2,519
1,364
1,044
15,921
$
$
$
$
Assets
38,191
19,848
15,066
12,202
4,352
1,363
91,022
Intangible assets and goodwill by geographic segments are included in Note 12 and 13, respectively.
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 2012
The following table summarizes the balance sheet impact as a result of business combinations that occurred in 2012 by operating
segment:
(MILLIONS)
Cash and cash equivalents
Accounts receivable and other
Inventory
Investments
Investment properties
Property, plant and equipment
Intangible assets
Goodwill
Total Assets
Less:
Accounts payable and other
Non-recourse borrowings
Deferred income tax liabilities
Non-controlling interests1
Non-controlling interests net to Brookfield2
Equity
Consideration3
Property
142
418
393
11
2,793
2,446
376
15
6,594
(534)
(3,576)
—
(281)
(1,199)
1,004
2,203
$
$
$
Renewable
Power
50
13
—
—
—
1,374
—
—
1,437
(96)
(449)
—
(695)
(63)
134
197
$
$
$
Infrastructure
120
77
—
—
—
2,728
1,540
45
4,510
(529)
(1,693)
(488)
(854)
(676)
270
946
$
$
$
$
$
$
Total
312
508
393
11
2,793
6,548
1,916
60
12,541
(1,159)
(5,718)
(488)
(1,830)
(1,938)
1,408
3,346
1.
2.
3.
Includes non-controlling interests recognized on business combinations measured as the proportionate share of fair value of the assets and liabilities on the date of acquisition
Non-controlling interests determined on application of consolidation principles
Aggregate of equity and non-controlling interests net to Brookfield
108 BROOKFIELD ASSET MANAGEMENT
As a result of the acquisitions made during the year, Brookfield recorded $1,144 million of revenue and $38 million in net losses
from the acquired operations. Total revenue and net losses, including fair value changes, that would have been recorded if the
acquisitions had occurred at the beginning of the year would have been $2,095 million and $130 million, respectively. Certain of
the current year business combinations were completed in close proximity to the year ended December 31, 2012 and accordingly,
the fair values of the acquired assets, liabilities and goodwill for these operations have been determined on a provisional basis,
pending finalization of the post-acquisition review of the fair value of the acquired net assets.
i.
Property
In December 2011, a subsidiary of Brookfield commenced acquiring debentures secured by a 39% ownership interest in Thakral
Holdings Group (“Thakral”) shares. Brookfield converted its debentures into shares of Thakral and acquired all of the remaining
shares outstanding for total consideration of $507 million in October 2012 and commenced consolidation of Thakral. Thakral’s
assets include prime office assets, a multi-family property portfolio and various industrial properties within Australia.
In April 2012, a subsidiary of Brookfield acquired a 100% interest in Paradise Island Holdings Limited (“Atlantis”), a hotel
and casino resort located in the Bahamas, through a financial restructuring whereby Brookfield converted its $175 million of
previously held debt instruments for equity. The transaction was measured at fair value on the date of acquisition. Brookfield
completed the acquisition and commenced consolidating Atlantis in the second quarter.
In July 2012, a subsidiary of Brookfield entered into a merger agreement resulting in the acquisition of Verde Realty (“Verde”),
a privately-owned industrial real estate investment trust with assets located in the United States and Mexico. A subsidiary of
Brookfield acquired 81% of the outstanding equity for total consideration of $275 million, and commenced consolidation of
Verde in the fourth quarter.
ii.
Infrastructure
In November 2012, a subsidiary of Brookfield acquired a 100% equity interest in Inexus Group Limited (“Inexus”), a UK
based regulated distribution operation, for total consideration of $468 million and commenced consolidation of Inexus in the
fourth quarter.
In December 2011, Brookfield acquired a 55% interest in Sociedad Concesionario Vespucio Norte Express S.A. (“VNE”), a Chilean
toll road, but as a result of an agreement limiting the company’s control, did not consolidate the investment. In October 2012,
Brookfield acquired the remaining 45% equity interest of VNE it did not already own for $170 million, increasing its total
consideration to $333 million, and commenced consolidation. The transaction was measured at fair value on the date of acquisition.
During the year, the company also acquired a Canadian sustainable energy service provider, a North American gas storage
business, a Colombian regulated distribution operation, a U.S. residential development business, a property development in
London, England and various wind and hydroelectric generating assets, of which the largest investment was $204 million.
The following table shows the balance sheet impact as a result of the significant business combinations that occurred during the 2012.
(MILLIONS)
Cash and cash equivalents
Accounts receivable and other
Inventory
Investments
Investment properties
Property, plant and equipment
Intangible assets
Goodwill
Total assets
Less:
Accounts payable and other
Non-recourse borrowings
Deferred income tax liability
Non-controlling interests1
Non-controlling interests net to Brookfield2
Equity
Consideration3
Property
Infrastructure
Thakral
5
33
65
—
240
688
—
—
1,031
(52)
(472)
—
—
(309)
198
507
Atlantis
85
282
—
—
—
1,758
359
—
2,484
(170)
(2,139)
—
—
(117)
58
175
$
$
$
$
$
$
$
$
$
Verde
37
36
—
10
911
—
17
—
1,011
(48)
(571)
—
(117)
(168)
107
275
$
$
$
Inexus
5
14
—
—
—
1,410
97
27
1,553
(393)
(545)
(147)
—
(335)
133
468
$
$
$
VNE
69
53
—
—
—
—
1,443
—
1,565
(32)
(772)
(108)
(320)
(238)
95
333
1.
2.
3.
Includes non-controlling interests recognized on business combinations measured as the proportionate share of fair value of the assets and liabilities on the date of acquisition
Non-controlling interests determined on application of consolidation principles
Aggregate of equity and non-controlling interests net to Brookfield
2012 ANNUAL REPORT 109
The following table provides details of the business combinations achieved in stages during 2012:
FOR THE YEAR ENDED DECEMBER 31
(MILLIONS)
Carrying value of investment immediately before acquisition
Fair value of investment immediately before acquiring control
Amounts recognized in other comprehensive income1
Remeasurement gain recorded in net income
Remeasurement gain recorded in retained earnings
1.
Included in the carrying value of the investment immediately before acquisition
b)
Completed During 2011
$
$
$
$
2012
Other
(63)
59
11
7
5
Total
(234)
222
27
15
5
$
$
$
VNE
(171)
163
16
8
$
— $
The following table summarizes the balance sheet impact as a result of business combinations that occurred in 2011 by operating
segment:
(MILLIONS)
Cash and cash equivalents
Accounts receivable and other
Investments
Property, plant and equipment
Investment properties
Intangible assets
Goodwill
Total assets
Less:
Accounts payable and other
Non-recourse borrowings
Deferred income tax liabilities
Non-controlling interests1
Non-controlling interests net to Brookfield2
Equity
Consideration3
Property
40
148
685
640
5,846
180
—
7,539
(270)
(4,437)
—
(404)
(1,176)
1,252
2,429
$
$
$
Renewable
Power
32
6
—
446
—
—
20
504
$
Private Equity
and Residential
Development
66
306
—
299
—
24
124
819
(5)
(190)
—
(101)
—
208
208
$
$
(134)
(351)
(28)
(96)
(71)
139
210
$
$
$
$
$
$
Total
138
460
685
1,385
5,846
204
144
8,862
(409)
(4,978)
(28)
(601)
(1,247)
1,599
2,847
1.
2.
3.
Includes non-controlling interests recognized on business combinations measured as the proportionate share of fair value of the assets and liabilities on the date of acquisition
Non-controlling interests determined on application of consolidation principles
Aggregate of equity and non-controlling interests net to Brookfield
As a result of the acquisitions made during the year, Brookfield recorded $430 million of revenue and $122 million in net
income from the operations. Total revenue and net income, including fair value changes, that would have been recorded if the
acquisitions had occurred at the beginning of the year would have been $1,005 million and $881 million, respectively.
i.
Property
In October 2006, Brookfield formed a joint venture to purchase a portfolio of office properties (“U.S. Office Fund”). Under
the terms of the joint venture agreement, Brookfield’s venture partner had an option to acquire its interest in certain of the
U.S. Office Fund’s properties which it managed, and to sell its interest in the properties that the company managed to Brookfield.
In August 2011, Brookfield’s venture partner exercised its option and sold the company its interest in the properties that it
managed, resulting in the company’s interest increasing to 83% and the U.S. Office Fund being consolidated. Prior to the
acquisition, Brookfield jointly controlled the properties of the U.S. Office Fund and accounted for its investment using the equity
method. The company recorded a $212 million gain on the revaluation of its previously held interest in the U.S. Office Fund at
the time of acquisition. No cash consideration was paid in connection with the company’s venture partner’s exercise of its option
and the company’s consolidation of the U.S. Office Fund, with the exception of the settlement of consideration payable under
the joint venture agreement.
Other acquisitions consisted of the acquisition of a controlling interest in certain office properties, a wind power generation
business, a real estate and relocation services business and a coal bed methane producer. Brookfield paid total consideration of
$673 million for its interest in the other assets of which the largest investment was $190 million.
110 BROOKFIELD ASSET MANAGEMENT
The following table shows the balance sheet impact as a result of the acquisition of the U.S. Office Fund that occurred during
the 2011.
(MILLIONS)
Cash and cash equivalents
Accounts receivable and other
Investments
Investment properties
Total Assets
Less:
Accounts payable and other
Non-recourse borrowings
Non-controlling interests1
Non-controlling interests net to Brookfield2
Equity
Consideration3
U.S. Office Fund
32
$
84
685
4,953
5,754
(225)
(3,293)
(366)
(944)
926
1,870
$
$
1.
2.
3.
Includes non-controlling interests recognized on business combinations measured as the proportionate share of fair value of the assets and liabilities on the date of acquisition
Non-controlling interests determined on application of consolidation principles
Aggregate of equity and non-controlling interests net to Brookfield
The following table provides details of the business combinations achieved in stages:
FOR THE YEAR ENDED DECEMBER 31, 2011
(MILLIONS)
Carrying value of investment immediately before acquisition
Fair value of investment immediately before acquiring control
Remeasurement gain recorded in net income
5.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Total
1,658
1,870
212
$
$
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 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, 2012, $52 million of net deferred gains (2011 – $6 million) previously recognized in accumulated
other comprehensive income were reclassified to net income as a result of the disposition of available-for-sale securities.
Available-for-sale securities are recorded on the balance sheet at fair value, and are assessed for impairment at each reporting
date. As at December 31, 2012, the net unrealized gain relating to the fair value of available-for-sale financial instruments
amounted to $49 million (2011 – net unrealized loss of $18 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 in the period in which they arise. Dividends on fair value through profit or loss
and available-for-sale financial assets are recognized when the company’s right to receive payment is established. Interest on
available-for-sale financial assets is calculated using the effective interest method.
2012 ANNUAL REPORT 111
Carrying Value and Fair Value of Financial Instruments
The following table provides the allocation of financial instruments and their associated financial instrument classification as at
December 31, 2012:
AS AT DEC. 31, 2012
(MILLIONS)
FINANCIAL INSTRUMENT CLASSIFICATION
FVTPL1
Available-
for-Sale
Held-
to-Maturity
Loans and
Receivables/
Other Financial
Liabilities
MEASUREMENT BASIS
(Fair Value)
(Fair Value)
(Amortized Cost)
(Amortized Cost)
Total
Financial assets
Cash and cash equivalents
$
— $
— $
— $
2,844
$
2,844
Other financial assets
Government bonds
Corporate bonds
Fixed income securities
Common shares
Loans and notes receivable
Accounts receivable and other2
Financial liabilities
Corporate borrowings
Property-specific mortgages
Subsidiary borrowings
Accounts payable and other2
Capital securities
Interests of others in consolidated funds
$
$
92
58
51
1,794
35
2,030
768
86
180
94
240
—
600
—
—
—
—
—
261
261
—
—
—
—
—
220
220
4,450
178
238
145
2,034
516
3,111
5,218
2,798
$
600
$
261
$
7,514
$
11,173
— $
— $
— $
3,526
$
—
—
1,287
—
425
—
—
—
—
—
—
—
—
—
—
33,648
7,585
10,312
1,191
—
$
1,712
$
— $
— $
56,262
$
3,526
33,648
7,585
11,599
1,191
425
57,974
1.
2.
Financial instruments classified as fair value through profit or loss
Includes derivative instruments which are elected for hedge accounting totalling $499 million included in accounts receivable and other and $850 million of derivative
instruments included in accounts payable and other, of which changes in fair value are recorded in other comprehensive income
112 BROOKFIELD ASSET MANAGEMENT
The following table provides the allocation of financial instruments and their associated financial instrument classifications as
at December 31, 2011:
AS AT DEC. 31, 2011
(MILLIONS)
FINANCIAL INSTRUMENT CLASSIFICATION
FVTPL1
Available-
for-Sale
Held-
to-Maturity
Loans and
Receivables/
Other Financial
Liabilities
MEASUREMENT BASIS
(Fair Value)
(Fair Value)
(Amortized Cost)
(Amortized Cost)
Total
Financial assets
Cash and cash equivalents
$
— $
— $
— $
2,027
$
2,027
Other financial assets
Government bonds
Corporate bonds
Fixed income securities
Common shares
Loans and notes receivable
Accounts receivable and other2
Financial liabilities
Corporate borrowings
Property-specific mortgages
Subsidiary borrowings
Accounts payable and other2
Capital securities
Interests of others in consolidated funds
$
$
263
—
70
1,235
—
1,568
783
261
202
152
131
—
746
—
—
—
—
—
762
762
—
—
—
—
—
697
697
4,085
524
202
222
1,366
1,459
3,773
4,868
2,351
$
746
$
762
$
6,809
$
10,668
— $
— $
— $
3,701
$
—
—
1,123
—
333
—
—
—
—
—
—
—
—
—
—
28,415
4,441
8,143
1,650
—
3,701
28,415
4,441
9,266
1,650
333
$
1,456
$
— $
— $
46,350
$
47,806
1.
2.
Financial instruments classified as fair value through profit or loss
Includes derivative instruments which are elected for hedge accounting totalling $107 million included in accounts receivable and other and $1,053 million of derivative
instruments included in accounts payable and other, of which changes in fair value are recorded in other comprehensive income
The following table provides the carrying values and fair values of financial instruments as at December 31, 2012 and
December 31, 2011:
(MILLIONS)
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 other
Financial liabilities
Corporate borrowings
Property-specific mortgages
Subsidiary borrowings
Accounts payable and other
Capital securities
Interests of others in consolidated funds
Dec. 31, 2012
Dec. 31, 2011
Carrying Value
Fair Value
Carrying Value
Fair Value
$
2,844
$
2,844
$
2,027
$
2,027
178
238
145
2,034
516
3,111
5,218
11,173
3,526
33,648
7,585
11,599
1,191
425
57,974
$
$
$
178
238
145
2,034
516
3,111
5,218
11,173
3,793
34,981
7,781
11,599
1,232
425
59,811
524
202
222
1,366
1,459
3,773
4,868
10,668
3,701
28,415
4,441
9,266
1,650
333
47,806
$
$
$
524
202
222
1,366
1,375
3,689
4,868
10,584
3,906
29,173
4,567
9,266
1,734
333
48,979
$
$
$
$
$
$
2012 ANNUAL REPORT 113
The current and non-current balances of other financial assets are as follows:
(MILLIONS)
Current
Non-current
Total
Hedging Activities
Dec. 31, 2012
380
$
2,731
3,111
$
Dec. 31, 2011
1,143
$
2,630
3,773
$
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. 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, 2012, pre-tax net unrealized gains or losses of $nil million (2011 – losses of $6 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, 2012, there were no derivative contracts designated as
fair value hedges (2011 – net unrealized derivative asset balance of $7 million).
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 or future 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, 2012, pre-tax net unrealized losses of $36 million
(2011 – $855 million) were recorded in other comprehensive income for the effective portion of the cash flow hedges. As at
December 31, 2012, there was a net unrealized derivative liability balance of $272 million relating to derivative contracts
designated as cash flow hedges (2011 – $899 million). Unrealized losses on cash flow hedges are expected to be realized in net
income by 2024.
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. For the year ended December 31, 2012, unrealized pre-tax net
losses of $207 million (2011 – gains of $159 million) were recorded in other comprehensive income for the effective portion of
hedges of net investments in foreign operations. As at December 31, 2012, there was a net unrealized derivative liability balance
of $79 million relating to derivative contracts designated as net investment hedges (2011 – $47 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 in 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.
Assets and liabilities measured at fair value on a recurring basis include $2,334 million (2011 – $1,820 million) of financial
assets and $680 million (2011 – $618 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:
114 BROOKFIELD ASSET MANAGEMENT
(MILLIONS)
Financial assets
Other financial assets
Government bonds
Corporate bonds
Fixed income securities
Common shares
Loans and notes receivables
Accounts receivable and other
Financial liabilities
Accounts payable and other
Interests of others in consolidated funds
Dec. 31, 2012
Level 2
Level 1
Level 3
Level 1
Dec. 31, 2011
Level 2
Level 3
$
$
$
$
52
59
88
423
—
—
622
262
—
262
$
$
$
$
126
179
—
—
25
112
442
697
73
770
$ — $
—
57
1,611
10
656
$ 2,334
$
225
8
108
329
—
1
671
$
$
$
$
328
352
680
$ — $
—
$ — $
299
194
—
—
—
113
606
778
60
838
$ —
—
114
1,037
—
669
$ 1,820
$
$
345
273
618
The following table presents the change in the balance of financial assets and liabilities classified as Level 3 as at December 31, 2012
and December 31, 2011.
(MILLIONS)
Balance at beginning of year
Fair value changes in net income
Fair value changes in other comprehensive income1
Additions, net of disposals
Balance at end of year
1.
Includes foreign currency translation
6.
ACCOUNTS RECEIVABLE AND OTHER
(MILLIONS)
Accounts receivable
Prepaid expenses and other assets
Restricted cash
Total
Financial Assets
2012
$ 1,820
20
111
383
$ 2,334
2011
$ 2,087
237
(340)
(164)
$ 1,820
$
$
Financial Liabilities
2011
580
22
(63)
79
618
2012
618
(17)
(21)
100
680
$
$
Note
(a)
(b)
Dec. 31, 2012
4,372
$
1,727
846
6,945
$
Dec. 31, 2011
4,149
$
1,855
719
6,723
$
The current and non-current balances of accounts receivable and other are as follows:
(MILLIONS)
Current
Non-current
Total
a)
Accounts Receivable
Dec. 31, 2012
4,989
$
1,956
6,945
$
Dec. 31, 2011
4,515
$
2,208
6,723
$
Accounts receivable includes $647 million (2011 – $669 million) of unrealized mark-to-market gains on energy sales contracts and
$994 million (2011 – $944 million) of completed contracts and work-in-progress 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 its
consolidated subsidiaries of $5 million (2011 – $6 million).
b)
Restricted Cash
Restricted cash primarily relates to the company’s property, renewable power and residential development financing arrangements
including defeasement of debt obligations, debt service accounts and deposits held by the company’s insurance operations.
2012 ANNUAL REPORT 115
7.
INVENTORY
(MILLIONS)
Residential properties under development
Land held for development
Completed residential properties
Pulp, paper and other
Total carrying value
The current and non-current balances of inventory are as follows:
(MILLIONS)
Current
Non-current
Total
Dec. 31, 2012
2,700
$
2,676
477
726
6,579
$
Dec. 31, 2011
2,351
$
2,395
567
747
6,060
$
Dec. 31, 2012
2,706
$
3,873
6,579
$
Dec. 31, 2011
2,373
$
3,687
6,060
$
During the year ended December 31, 2012, the company recognized as an expense $5,449 million (2011 – $4,579 million) of
inventory relating to cost of goods sold and $4 million (2011 – $7 million) relating to impairments of inventory. The carrying
amount of inventory pledged as security at December 31, 2012 was $1,060 million (December 31, 2011 – $1,154 million).
8.
INVESTMENTS
The following table presents the voting interests and carrying values of the company’s investments in associates and
equity-accounted joint ventures:
AS AT
(MILLIONS)
Property
General Growth Properties
245 Park Avenue
Grace Building
Rouse Properties
Other property investments1,2
Renewable power
Bear Swamp Power
Other power investments
Infrastructure
Natural gas pipeline
South American transmission operations
Brazilian toll road
Australian energy distribution
Other infrastructure investments3
Other
Total
Voting Interest
Carrying Value
Investment
Type
Dec. 31
2012
Dec. 31
2011
Dec. 31
2012
Dec. 31
2011
Associate
Joint Venture
Joint Venture
Associate
Various
Joint Venture
Various
Associate
Associate
Associate
Associate
Various
Various
23%
51%
41%
43%
20 – 75%
23% $
51%
41%
—
20 – 75%
50%
50%
50%
50%
26%
28%
49%
42%
30 – 50%
25 – 50%
26%
28%
—
42%
30 – 50%
25 – 50%
$
4,831
657
625
381
1,636
155
189
594
669
335
384
615
618
11,689
$
$
4,099
619
618
—
1,578
130
228
395
584
—
296
423
431
9,401
1.
2.
3.
Other property investments include Darling Park Trust and E&Y Centre Sydney
Investments in which the company’s ownership interest is greater than 50% represent investments in equity accounted joint ventures where control is either shared or does
not exist resulting in the investment being equity accounted
Other infrastructure investments include a European port operation, a Texas electricity transmission project and other social infrastructure assets
116 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, net of disposals
Acquisitions through business combinations
Share of net income
Share of other comprehensive income
Distributions received
Foreign exchange
Balance at end of year
2012
9,401
1,221
11
1,243
145
(375)
43
11,689
$
$
$
$
2011
6,629
(100)
685
2,205
193
(204)
(7)
9,401
The following table presents the gross assets and liabilities of the company’s investments in associates and equity accounted
joint ventures:
(MILLIONS)
Property
General Growth Properties
245 Park Avenue
Grace Building
Rouse Properties
Other property investments1
Renewable power
Bear Swamp Power Co. LLC
Other Power
Infrastructure
Natural gas pipeline company
South American transmission operation
Brazilian toll road
Australian energy distribution
Other infrastructure investments2
Other
Dec. 31, 2012
Assets
Liabilities
Dec. 31, 2011
Assets
Liabilities
$
$
38,319
1,067
813
2,239
4,964
669
655
7,623
5,637
5,215
2,314
3,471
3,119
76,105
$
$
18,888
410
188
1,337
1,791
360
278
6,429
3,240
2,857
1,402
2,736
1,528
41,444
$
$
35,835
1,027
814
—
4,222
673
531
7,650
4,828
—
1,909
2,659
2,381
62,529
$
$
20,368
408
196
—
2,541
353
260
6,432
2,853
—
1,208
1,751
1,569
37,939
1.
2.
Other property investments include Darling Park Trust and E&Y Centre Sydney
Other infrastructure investments include a European port operation, a Texas electricity transmission project and other social infrastructure assets
Certain of the company’s 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.
2012 ANNUAL REPORT 117
The following table presents revenue and net income of the company’s investments in associates and equity accounted joint
ventures:
YEARS ENDED DECEMBER 31
(MILLIONS)
Property
General Growth Properties
U.S. Office Fund1
245 Park Avenue
Grace Building
Rouse Properties
Other property investments2
Renewable power
Bear Swamp Power Co. LLC
Other power
Infrastructure
Natural gas pipeline company
South American transmission operation
Brazilian toll road
Australian energy distribution
Other infrastructure investments3
Other
Total
2012
Net
Income
Equity
Accounted
Income
Revenue
2011
Net
Income
Equity
Accounted
Income
Revenue
$
$
3,102
—
73
50
258
540
59
47
554
440
65
322
1,079
501
7,090
$
$
4,330
—
131
31
75
326
1
(13)
(42)
55
11
45
(59)
128
5,019
$
$
979
—
67
13
33
85
1
(7)
(11)
16
5
19
(14)
57
1,243
$
$
3,353
475
67
19
—
545
58
43
840
402
—
295
945
538
7,580
$
$
6,287
518
118
215
—
227
16
10
83
318
—
27
(11)
55
7,863
$
$
1,401
437
60
88
—
68
8
5
22
90
—
11
(8)
23
2,205
1.
2.
3.
The company acquired a controlling interest in the U.S. Office Fund on August 9, 2011, resulting in the consolidation of the U.S. Office Fund and its equity accounted
investments, as described in Note 4
Other property investments include Darling Park Trust and E&Y Centre Sydney
Other infrastructure investments include a European port operation, a Texas electricity transmission project and other social infrastructure assets
Certain of the company’s investments are publicly listed entities with active pricing in a liquid market. The fair value based on
the publicly listed price of these investments in comparison to the company’s carrying value is as follows:
(MILLIONS)
General Growth Properties
Rouse Properties
Other
Dec. 31, 2012
Dec. 31, 2011
Public Price
4,207
$
304
146
4,657
$
Carrying
Value
4,831
381
95
5,307
$
$
Public Price
2,924
$
—
89
3,013
$
Carrying
Value
4,099
—
76
4,175
$
$
Judgment is applied when assessing the carrying value of the company’s investment in General Growth Properties (“GGP”) and
whether there was an indication of impairment of its investment. Consideration was given to the following: GGP’s operating
environment; market competition; market share; estimates of future cash flows; financial strength; covenants; public pricing and
public price volatility. Additional consideration is applied by the company including: the company’s ability and intent to hold
its investment, synergies experienced with the company’s other businesses, the company’s ownership interest relative to other
shareholders as well as its internal valuations.
118 BROOKFIELD ASSET MANAGEMENT
9.
INVESTMENT PROPERTIES
(MILLIONS)
Fair value at beginning of year
Additions
Acquisitions through business combinations
Disposals
Fair value changes
Foreign currency translation
Fair value at end of year
2012
28,366
1,715
2,793
(1,136)
1,276
147
33,161
$
$
2011
22,163
1,442
5,846
(2,150)
1,477
(412)
28,366
$
$
The fair value of investment properties is generally determined by discounting the expected cash flows of the properties based
upon internal valuations. The majority of the company’s investment properties are externally valued on a three-year rotation plan.
The key valuation metrics of the company’s commercial office properties are presented in the following table on a weighted
average basis:
Discount rate
Terminal capitalization rate
Investment horizon (years)
United States
Canada
Dec. 31, 2012 Dec. 31, 2011 Dec. 31, 2012 Dec. 31, 2011 Dec. 31, 2012 Dec. 31, 2011
9.1%
7.5%
10
7.3%
6.3%
11
6.4%
5.7%
11
8.8%
7.1%
10
6.7%
6.2%
11
7.5%
6.3%
12
Australia
The key valuation assumptions of the company’s Brazilian retail properties include a discount rate of 8.5% (2011 – 9.6%), a
terminal capitalization rate of 7.2% (2011 – 7.3%) and an investment horizon of 10 years (2011 – 10 years).
10. PROPERTY, PLANT AND EQUIPMENT
(MILLIONS)
Cost
Accumulated fair value changes
Accumulated depreciation
Total
Dec. 31, 2012
22,823
$
11,398
(3,107)
31,114
$
Dec. 31, 2011
14,857
$
9,944
(1,969)
22,832
$
Accumulated fair value changes include 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 the business segments as shown in the following table:
(MILLIONS)
Renewable power
Infrastructure
Utilities
Transport and energy
Sustainable resources
Property
Private equity and other
a)
Renewable Power
(MILLIONS)
Cost
Accumulated fair value changes
Accumulated depreciation
Total
Note
(a)
Dec. 31, 2012
16,532
$
Dec. 31, 2011
14,727
$
(b)
(c)
(d)
(e)
(f)
$
3,310
4,014
1,378
2,968
2,912
31,114
$
993
2,514
1,162
640
2,796
22,832
Dec. 31, 2012
7,617
$
10,712
(1,797)
16,532
$
Dec. 31, 2011
6,149
$
9,887
(1,309)
14,727
$
Renewable power 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.
2012 ANNUAL REPORT 119
Renewable power assets are accounted for under the revaluation model and the most recent date of revaluation was
December 31, 2012.
The key valuation metrics of the company’s hydro and wind generating facilities at the end of 2012 and 2011 are summarized
below. The valuations are impacted primarily by the discount rate and long-term power prices.
Discount rate
Terminal capitalization rate
Exit date
United States
Canada
Dec. 31, 2012 Dec. 31, 2011 Dec. 31, 2012 Dec. 31, 2011 Dec. 31, 2012 Dec. 31, 2011
9.9%
n/a
2029
9.4%
n/a
2029
5.4%
6.5%
2032
6.5%
7.0%
2032
6.7%
7.2%
2031
5.7%
6.8%
2031
Brazil
The following table presents the changes to the cost of the company’s renewable power generation assets:
(MILLIONS)
Balance at beginning of year
Additions, net of disposals
Acquisitions through business combinations
Foreign currency translation
Balance at end of year
2012
6,149
136
1,374
(42)
7,617
$
$
2011
5,533
371
446
(201)
6,149
$
$
As at December 31, 2012, the cost of generating facilities under development includes $8 million of capitalized costs
(December 31, 2011 – $9 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
Fair value changes
Foreign currency translation
Balance at end of year
2012
9,887
830
(5)
10,712
$
$
$
$
The following table presents the changes to the accumulated depreciation of the company’s power generation assets:
2011
7,804
2,319
(236)
9,887
2011
(894)
(453)
38
(1,309)
2012
(1,309)
(489)
1
(1,797)
$
$
$
$
Dec. 31, 2012
3,201
$
214
(105)
3,310
$
Dec. 31, 2011
984
$
49
(40)
993
$
(MILLIONS)
Balance at beginning of year
Depreciation expense
Foreign currency translation
Balance at end of year
b)
Utilities
(MILLIONS)
Cost
Accumulated fair value changes
Accumulated depreciation
Total
The company’s utilities assets are primarily comprised of power transmission and distribution networks, 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, 2012.
The company determined fair value to be the current replacement cost.
The following table presents the changes to the cost of the company’s utilities assets:
(MILLIONS)
Balance at beginning of year
Additions, net of disposals
Acquisitions through business combinations
Foreign currency translation
Balance at end of year
120 BROOKFIELD ASSET MANAGEMENT
2012
984
92
2,040
85
3,201
$
$
$
$
2011
746
254
—
(16)
984
The following table presents the changes to the accumulated fair value changes of the company’s utilities assets:
(MILLIONS)
Balance at beginning of year
Fair value changes
Balance at end of year
2012
49
165
214
$
$
The following table presents the changes to the accumulated depreciation of the company’s utilities assets:
Transport and energy assets are accounted for under the revaluation model, and the most recent date of revaluation was
December 31, 2012. The company determined fair value to be the current replacement cost. The following table presents the
changes to the cost of the company’s transport and energy assets:
(MILLIONS)
Balance at beginning of year
Additions, net of disposals
Acquisitions through business combinations
Foreign currency translation
Balance at end of year
2012
2,346
469
685
62
3,562
$
$
2011
1,776
572
—
(2)
2,346
$
$
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
Fair value changes
Foreign currency translation
Balance at end of year
2012
244
399
5
648
$
$
$
$
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
c)
Transport and Energy
(MILLIONS)
Cost
Accumulated fair value changes
Accumulated depreciation
Total
(MILLIONS)
Balance at beginning of year
Depreciation expense
Foreign currency translation
Balance at end of year
d)
Sustainable Resources
(MILLIONS)
Cost
Accumulated fair value changes
Accumulated depreciation
Total
2011
—
49
49
2011
(23)
(24)
7
(40)
$
$
$
$
2012
(40)
(63)
(2)
(105)
$
$
Dec. 31, 2012
3,562
$
648
(196)
4,014
$
Dec. 31, 2011
2,346
$
244
(76)
2,514
$
2011
(32)
276
—
244
2011
(17)
(62)
3
(76)
2012
(76)
(118)
(2)
(196)
$
$
$
$
Dec. 31, 2012
1,426
$
(18)
(30)
1,378
$
Dec. 31, 2011
1,305
$
(132)
(11)
1,162
$
2012 ANNUAL REPORT 121
The following table presents the changes to the cost of the company’s sustainable resources property, plant and equipment assets:
(MILLIONS)
Balance at beginning of year
Additions, net of disposals
Foreign currency translation
Balance at end of year
2012
1,305
138
(17)
1,426
$
$
2011
1,294
81
(70)
1,305
$
$
Sustainable resources assets are accounted for under the revaluation model and the most recent date of revaluation was
December 31, 2012.
The following table presents the changes to the accumulated fair value changes of the company’s sustainable resources assets:
(MILLIONS)
Balance at beginning of year
Fair value changes
Foreign currency translation
Balance at end of year
Dec. 31, 2012
(132)
$
142
(28)
(18)
$
Dec. 31, 2011
(224)
$
99
(7)
(132)
$
The following table presents the changes to the accumulated depreciation of the property, plant and equipment within the
company’s sustainable resources business:
(MILLIONS)
Balance at beginning of year
Depreciation expense
Foreign currency translation
Balance at end of year
e)
Property
(MILLIONS)
Cost
Accumulated fair value changes
Accumulated depreciation
Total
2012
(11)
(20)
1
(30)
$
$
2011
(10)
(2)
1
(11)
$
$
Dec. 31, 2012
3,130
$
4
(166)
2,968
$
Dec. 31, 2011
640
$
—
—
640
$
The company’s property assets include hospitality assets accounted for under the revaluation model and the most recent date of
revaluation was December 31, 2012. The company generally determines fair value for these assets by discounting the expected
future cash flows using internal valuations. The following table presents the changes to the carrying value of the company’s
property, plant and equipment assets included within its property operations:
(MILLIONS)
Balance at beginning of year
Additions, net of disposals
Acquisitions through business combinations
Balance at end of year
2012
640
44
2,446
3,130
$
$
$
$
2011
—
—
640
640
The following table presents the changes to the accumulated fair value changes of the company’s property, plant and equipment
within its property operations:
(MILLIONS)
Balance at beginning of year
Fair value changes
Balance at end of year
2012
— $
4
4
$
2011
—
—
—
$
$
122 BROOKFIELD ASSET MANAGEMENT
The following table presents the changes to the accumulated depreciation of the company’s property, plant and equipment within
its property operations:
(MILLIONS)
Balance at beginning of year
Depreciation expense
Balance at end of year
f)
Private Equity and Other
(MILLIONS)
Cost
Accumulated fair value changes
Accumulated depreciation
Total
2012
— $
(166)
(166)
$
2011
—
—
—
$
$
Dec. 31, 2012
3,887
$
(162)
(813)
2,912
$
Dec. 31, 2011
3,433
$
(104)
(533)
2,796
$
Private equity includes capital assets owned by the company’s investees held directly or consolidated through funds.
The company’s private equity assets are accounted for under the cost model, which requires the assets to be carried at cost less
accumulated depreciation and any accumulated fair value changes. 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 other operations:
(MILLIONS)
Balance at beginning of year
Additions, net of disposals
Acquisitions through business combinations
Foreign currency translation
Balance at end of year
2012
3,433
405
—
49
3,887
$
$
2011
3,049
144
299
(59)
3,433
$
$
The following table presents the changes to the accumulated fair value changes of the company’s property, plant and equipment
within its private equity operations:
(MILLIONS)
Balance at beginning of year
Fair value changes
Balance at end of year
2012
(104)
(58)
(162)
$
$
2011
(131)
27
(104)
$
$
The following table presents the changes to the accumulated depreciation of the company’s other property, plant and equipment
within its private equity operations:
(MILLIONS)
Balance at beginning of year
Depreciation expense
Foreign currency translation
Balance at end of year
11.
SUSTAINABLE RESOURCES
(MILLIONS)
Timber
Other agricultural assets
Total
2012
(533)
(283)
3
(813)
$
$
2011
(351)
(197)
15
(533)
$
$
Dec. 31, 2012
3,240
$
43
3,283
$
Dec. 31, 2011
3,119
$
36
3,155
$
The company held 1,438 million acres of consumable freehold timber at December 31, 2012 (December 31, 2011 – 1,441 million),
of which approximately 850 million acres (December 31, 2011 – 849 million) were classified as mature and available for harvest.
2012 ANNUAL REPORT 123
The following table presents the change in the balance of standing timber and other agricultural assets:
(MILLIONS)
Balance at beginning of year
Additions, net of disposals
Fair value adjustments
Decrease due to harvest
Foreign currency changes
Balance at end of year
2012
3,155
12
352
(220)
(16)
3,283
$
$
2011
2,834
54
527
(235)
(25)
3,155
$
$
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 6.2% (2011 – 6.6%) and an average terminal valuation date of 90 years
(2011 – 75 years). Timber prices were based on a combination of forward prices available in the market and the price forecasts.
12.
INTANGIBLE ASSETS
(MILLIONS)
Cost
Accumulated amortization and impairment losses
Total
Intangible assets are allocated to the following cash generating units:
(MILLIONS)
Property – Opportunity and finance
Renewable power
Utilities – Australian Coal Terminal
Transport and energy – Chilean toll road
Transport and energy – UK port operations
Private equity
Construction
Other
Net intangible assets
The following table presents the changes to the cost of the company’s intangible assets:
(MILLIONS)
Cost at beginning of year
Additions, net of disposals
Acquisitions through business combinations
Foreign currency translation
Cost at end of year
Dec. 31, 2012
6,109
$
(345)
5,764
$
Dec. 31, 2011
4,210
$
(242)
3,968
$
Dec. 31, 2012
460
$
106
2,592
1,421
348
280
371
186
5,764
$
Dec. 31, 2011
180
$
115
2,555
—
330
282
386
120
3,968
$
2012
4,210
(3)
1,916
(14)
6,109
$
$
2011
3,969
60
204
(23)
4,210
$
$
The following table presents the changes in the accumulated amortization and accumulated impairment losses of the company’s
intangible assets:
(MILLIONS)
Accumulated amortization at beginning of year
Amortization
Foreign currency translation
Accumulated amortization at end of year
2012
(242)
(124)
21
(345)
$
$
2011
(164)
(82)
4
(242)
$
$
124 BROOKFIELD ASSET MANAGEMENT
The following table presents intangible assets by geography:
(MILLIONS)
United States
Canada
Australia
Brazil
Europe
Chile
13. GOODWILL
(MILLIONS)
Cost
Accumulated impairment losses
Total
Goodwill is allocated to the following cash generating units:
(MILLIONS)
Construction
Sustainable resources – Western North America
Residential development – Brazil
Retail property – Brazil
Property services
Asset management
Other
Total
The following table presents the change in the balance of goodwill:
(MILLIONS)
Cost at beginning of year
Acquisitions through business combinations
Foreign currency translation and other
Cost at end of year
The following table reconciles accumulated impairment losses:
(MILLIONS)
Accumulated impairment at beginning of year
Impairment losses
Accumulated impairment at end of year
The following table presents goodwill by geography:
(MILLIONS)
United States
Canada
Australia
Brazil
Europe
Other
2012
614
286
2,963
32
448
1,421
5,764
$
$
2011
349
311
2,941
35
332
—
3,968
$
$
Dec. 31, 2012
2,540
$
(50)
2,490
$
Dec. 31, 2011
2,652
$
(45)
2,607
$
Dec. 31, 2012
840
$
591
373
138
102
205
241
2,490
$
Dec. 31, 2011
860
$
591
420
150
142
194
250
2,607
$
2012
2,652
60
(172)
2,540
2012
(45)
(5)
(50)
2012
819
57
1,052
518
28
16
2,490
$
$
$
$
$
$
2011
2,561
144
(53)
2,652
2011
(15)
(30)
(45)
2011
848
144
1,037
578
—
—
2,607
$
$
$
$
$
$
2012 ANNUAL REPORT 125
14.
INCOME TAXES
The major components of income tax expense for the years ended December 31, 2012 and December 31, 2011 are set out below:
(MILLIONS)
Total current income tax
Deferred income tax expense/(recovery)
Origination and reversal of temporary differences
Recovery arising from previously unrecognized tax assets
Change of tax rates and imposition of new legislation
Total deferred income tax
Income taxes
2012
135
$
476
(93)
(2)
381
516
$
2011
97
409
(19)
21
411
508
$
$
The company’s Canadian domestic statutory income tax rate has decreased from 28% in 2011 to 26% in 2012 because of the
decrease in Canadian tax rates. 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
Recognition of deferred tax assets
Non-recognition of the benefit of current year’s tax losses
Other
Effective income tax rate
2012
26%
(1)
(9)
—
(1)
3
(2)
16%
2011
28%
(6)
(11)
2
(4)
4
—
13%
Deferred income tax assets and liabilities as at December 31, 2012 and December 31, 2011 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 assets
Deferred income tax liabilities
Total net deferred tax liabilities
Dec. 31, 2012
834
$
166
408
705
(6,868)
(4,755)
$
Dec. 31, 2011
771
$
174
316
493
(5,461)
(3,707)
$
Dec. 31, 2012
1,664
$
(6,419)
(4,755)
$
Dec. 31, 2011
2,110
$
(5,817)
(3,707)
$
The aggregate amount of temporary differences associated with investments in subsidiaries for which deferred tax liabilities
have not been recognized as at December 31, 2012 is approximately $7 billion (December 31, 2011 – approximately $6 billion).
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.
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.
126 BROOKFIELD ASSET MANAGEMENT
The following table details the expiry date, if applicable, of the unrecognized deferred tax assets:
(MILLIONS)
2013
2014
2015
After 2021
Do not expire
Total
Dec. 31, 2012
2
$
1
2
311
589
905
$
Dec. 31, 2011
4
$
2
17
302
591
916
$
The components of the income taxes in other comprehensive income for the years ended December 31, 2012 and December 31, 2011
are set out below:
Revaluation of property, plant and equipment
Financial contracts and power sale agreements
Available-for-sale securities
Equity accounted investments
Foreign currency translation
Total deferred tax in other comprehensive income
15. ACCOUNTS PAYABLE AND OTHER
(MILLIONS)
Accounts payable
Other liabilities
Total
The current and non-current balances of accounts payable and other liabilities are as follows:
2012
433
5
10
(10)
(4)
434
$
$
2011
283
(169)
(6)
40
(1)
147
$
$
Dec. 31, 2012
7,183
$
4,416
11,599
$
Dec. 31, 2011
5,342
$
3,924
9,266
$
(MILLIONS)
Current
Non-current
Total
Dec. 31, 2012
6,192
5,407
11,599
$
$
Dec. 31, 2011
5,495
3,771
9,266
$
$
Included in accounts payable and other liabilities are $2,388 million (2011 – $2,020 million) of accounts payable and other
liabilities related to the company’s residential development operations. Accounts payable and other liabilities also includes
$418 million (2011 – $539 million) of insurance deposits, claims and other liabilities incurred by the company’s insurance
subsidiaries.
2012 ANNUAL REPORT 127
16.
CORPORATE BORROWINGS
Maturity
Annual Rate
Currency Dec. 31, 2012 Dec. 31, 2011
(MILLIONS)
Term debt
Public – U.S.
Private – U.S.
Private – U.S.
Private – Canadian
Private – Canadian
Public – Canadian
Public – U.S.
Public – Canadian
Public – Canadian
Public – Canadian
Public – Canadian
Public – U.S.
Public – Canadian
Jun. 15, 2012
Oct. 23, 2012
Oct. 23, 2013
Apr. 30, 2014
Jun. 2, 2014
Sept. 8, 2016
Apr. 25, 2017
Apr. 25, 2017
Apr. 9, 2019
Mar. 1, 2021
Mar. 31, 2023
Mar. 1, 2033
Jun. 14, 2035
7.13%
6.40%
6.65%
6.26%
8.95%
5.20%
5.80%
5.29%
3.95%
5.30%
4.54%
7.38%
5.95%
US$
US$
US$
C$
C$
C$
US$
C$
C$
C$
C$
US$
C$
$
$
— $
—
75
27
151
302
239
252
428
353
428
250
302
2,807
744
(25)
3,526
$
350
75
75
29
489
294
240
245
—
343
—
250
293
2,683
1,042
(24)
3,701
Commercial paper and bank borrowings
Deferred financing costs1
Total
1.34%
US$/C$/£
1.
Deferred financing costs are amortized to interest expense over the term of the borrowing following the effective interest method
Corporate borrowings have a weighted average interest rate of 4.7% (2011 – 5.2%), and include $2,679 million
(2011 – $2,142 million) repayable in Canadian dollars of C$2,658 million (2011 – C$2,187 million) and $165 million
(2011 – $158 million) repayable in British pounds of £102 million (2011 – £102 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:
Asset
Management and
Other Services
Property
Renewable
Power
Infrastructure
Private Equity
and Residential
Development
Corporate/
Unallocated
$
$
668
$
$
903
642
401
941
30
293
$
$
3,210
3,174
$
$
Dec. 31, 2012
4,419
29,229
33,648
$
$
Total
$ 4,419
8,869
2,275
3,795
3,224
11,066
$ 33,648
10
—
—
—
—
—
10
107
$ 28,415
Dec. 31, 2011
3,292
25,123
28,415
$
$
(MILLIONS)
2013
2014
2015
2016
2017
Thereafter
Total – Dec. 31, 2012
Total – Dec. 31, 2011
$
$
27
30
294
—
—
—
351
439
$
2,279
$
5,763
1,060
2,229
2,674
4,704
$
$
18,709
15,696
$
$
532
536
110
132
497
2,540
4,347
4,197
1,898
410
493
23
3,529
7,021
4,802
$
$
The current and non-current balances of property-specific mortgages are as follows:
(MILLIONS)
Current
Non-current
Total
128 BROOKFIELD ASSET MANAGEMENT
Property-specific mortgages by currency include the following:
(MILLIONS)
U.S. dollars
Australian dollars
Canadian dollars
Brazilian reais
British pounds
Chilean unidad de fomento
Colombian pesos
New Zealand dollars
European Union euros
Total
b)
Subsidiary Borrowings
Dec. 31, 2012
17,783
$
4,939
4,552
3,232
2,093
754
179
109
7
33,648
$
$
US$
17,783
A$
4,751
C$
4,517
R$
6,604
£
1,288
CLF$
16
COP$ 316,127
131
4
Local Currency Dec. 31, 2011
14,211
5,406
4,148
3,445
1,198
—
—
—
7
28,415
N$
€$
$
Local Currency
14,211
US$
5,297
A$
C$
4,236
6,419
R$
770
£
—
CLF$
—
COP$
N$
—
5
€$
Principal repayments on subsidiary borrowings due over the next five calendar years and thereafter are as follows:
(MILLIONS)
2013
2014
2015
2016
2017
Thereafter
Total – Dec. 31, 2012
Total – Dec. 31, 2011
$
$
$
Property
874
574
25
—
200
223
1,896 $
743 $
Renewable
Power
$
— $
Private Equity
and Residential
Development
155
$
181
233
60
528
663
1,820 $
1,271 $
Infrastructure
10
4
—
544
406
3
967 $
116 $
268
—
302
—
1,202
1,772 $
1,323 $
Corporate/
Unallocated
$
— $
—
1,130
—
—
—
1,130 $
988 $
Total
1,039
1,027
1,388
906
1,134
2,091
7,585
4,441
The current and non-current balances of subsidiary borrowings are as follows:
(MILLIONS)
Current
Non-current
Total
Subsidiary borrowings by currency include:
(MILLIONS)
U.S. dollars
Canadian dollars
Australian dollars
Brazilian reais
New Zealand dollars
Total
Dec. 31, 2012
4,113
$
2,569
882
21
—
7,585
$
Dec. 31, 2012
1,039
$
6,546
7,585
$
Dec. 31, 2011
499
$
3,942
4,441
$
$
Local Currency Dec. 31, 2011
2,475
1,492
359
2
113
4,441
4,113
2,549
849
43
—
US$
C$
A$
R$
N$
$
Local Currency
2,475
US$
1,524
C$
352
A$
4
R$
145
N$
18. CAPITAL SECURITIES
Capital securities are preferred shares that are classified as liabilities and consist of the following:
(MILLIONS)
Corporate preferred shares
Subsidiary preferred shares
Total
Note
(a) $
(b)
Dec. 31, 2012
325
866
1,191
$
Dec. 31, 2011
656
994
1,650
$
$
2012 ANNUAL REPORT 129
a)
Corporate Preferred Shares
Corporate preferred shares consist of the company’s Class A Preferred Shares as follows:
(MILLIONS, EXCEPT SHARE INFORMATION)
Class A preferred shares
Series 10
Series 11
Series 12
Series 21
Deferred financing costs
Total
Shares
Outstanding
Cumulative
Dividend
Rate
—
—
7,000,000
6,000,000
5.75%
5.50%
5.40%
5.00%
Currency
Dec. 31, 2012
Dec. 31, 2011
C$ $
C$
C$
C$
$
— $
—
176
151
(2)
325 $
245
99
171
147
(6)
656
Subject to approval of the Toronto Stock Exchange, the Class A, Series 12 and 21 preferred shares, unless redeemed by the
company for cash, are convertible into Class A Limited Voting Shares at a price equal to the greater of 95% of the market price
at the time of conversion and C$2.00, at the option of either the company or the holder, at any time after the following dates:
Class A preferred shares
Series 12
Series 21
b)
Subsidiary Preferred Shares
Earliest Permitted
Redemption Date
Company’s
Conversion Option
Holder’s
Conversion Option
Mar. 31, 2014
Jun. 30, 2013
Mar. 31, 2014
Jun. 30, 2013
Mar. 31, 2018
Jun. 30, 2013
Subsidiary preferred shares are composed of Brookfield Office Properties Class AAA preferred shares as follows:
(MILLIONS, EXCEPT SHARE INFORMATION)
Class AAA preferred shares
Series F
Series G
Series H
Series I
Series J
Series K
Deferred financing costs
Total
Shares
Outstanding
Cumulative
Dividend Rate
Currency Dec. 31, 2012 Dec. 31, 2011
8,000,000
4,400,000
8,000,000
—
8,000,000
6,000,000
6.00%
5.25%
5.75%
5.20%
5.00%
5.20%
C$
US$
C$
C$
C$
C$
$
$
202
110
202
—
202
151
(1)
866
$
$
196
110
196
150
196
148
(2)
994
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 J
Series K
Earliest Permitted
Redemption Date
Company’s
Conversion Option
Holder’s
Conversion Option
Sept. 30, 2009
Jun. 30, 2011
Dec. 31, 2011
Jun. 30, 2010
Dec. 31, 2012
Sept. 30, 2009
Jun. 30, 2011
Dec. 31, 2011
Jun. 30, 2010
Dec. 31, 2012
Mar. 31, 2013
Sept. 30, 2015
Dec. 31, 2015
Dec. 31, 2014
Dec. 31, 2016
130 BROOKFIELD ASSET MANAGEMENT
19.
INTERESTS OF OTHERS IN CONSOLIDATED FUNDS
Interests of others in consolidated funds is classified outside of equity and is comprised of the following:
(MILLIONS)
Limited life funds
Redeemable fund units
20. EQUITY
Equity is comprised of the following:
(MILLIONS)
Preferred equity
Non-controlling interests
Common equity
a)
Preferred Equity
Dec. 31, 2012
352
$
73
425
$
Dec. 31, 2011
273
$
60
333
$
Dec. 31, 2012
2,901
$
23,190
18,160
44,251
$
Dec. 31, 2011
2,140
$
18,516
16,743
37,399
$
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
Series 28
Series 30
Series 32
Series 34
Series 36
Total
Issued and Outstanding
Rate
2012
2011
Dec. 31, 2012
Dec. 31, 2011
70% P
70% P/8.5%
Variable up to P
3.80%
70% P
B.A. + 40 b.p.1
4.75%
4.75%
7.00%
5.40%
4.50%
4.60%
4.80%
4.50%
4.20%
4.85%
10,465,100
2,800,000
1,652,394
2,347,606
9,297,700
2,000,000
8,000,000
8,000,000
12,000,000
11,000,000
10,000,000
9,400,000
10,000,000
12,000,000
10,000,000
8,000,000
10,465,100
2,800,000
1,652,394
2,347,606
9,297,700
2,000,000
8,000,000
8,000,000
12,000,000
11,000,000
10,000,000
9,400,000
10,000,000
—
—
—
$
$
169
45
29
35
195
42
174
181
274
269
245
235
247
304
256
201
2,901
$
169
45
29
35
195
42
174
181
274
269
245
235
247
—
—
—
2,140
$
Rate determined in a quarterly auction
1.
P – Prime Rate, B.A. – Bankers’ Acceptance Rate, b.p. – Basis Points
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 Limited Voting 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.
b)
Non-controlling interests
Non-controlling interests represent the common and preferred equity in consolidated entities that are owned by other shareholders.
(MILLIONS)
Common equity
Preferred equity
Total
Dec. 31, 2012
20,836
$
2,354
23,190
$
Dec. 31, 2011
16,689
$
1,827
18,516
$
2012 ANNUAL REPORT 131
c)
Common Equity
The company’s common equity is comprised of the following:
(MILLIONS)
Common shares
Contributed surplus
Retained earnings
Ownership changes
Accumulated other comprehensive income
Common equity
Dec. 31, 2012
2,855
$
149
6,807
487
7,862
18,160
$
Dec. 31, 2011
2,816
$
125
5,982
475
7,345
16,743
$
The company is authorized to issue an unlimited number of Class A Limited Voting Shares and 85,120 Class B Limited
Voting Shares, together referred to as common shares. The company’s common shares have no stated par value. The holders of
Class A Limited Voting Shares and Class B Limited Voting Shares rank on parity with each other with respect to the payment
of dividends and the return of capital on the liquidation, dissolution or winding up of the company or any other distribution of
the assets of the company among its shareholders for the purpose of winding up its affairs. Holders of the Class A Limited Voting
Common Shares are entitled to elect one-half of the Board of Directors of the company and holders of the Class B Limited
Voting Common Shares are entitled to elect the other one-half of the Board of Directors. With respect to the Class A and
Class B Limited Voting 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 Limited Voting 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 Limited Voting shares are diluted.
The holders of Class A Limited Voting Shares received dividends of $0.55 per share (2011 – $0.52 per share) and holders of
Class B shares received dividends of $0.55 per share (2011 – $0.52 per share).
The number of shares issued and outstanding and unexercised options at December 31, 2012 and December 31, 2011 are as
follows:
Class A Limited Voting Shares
Class B Limited Voting Shares
Shares outstanding1
Unexercised options2
Total diluted Limited Voting shares
Dec. 31, 2012
619,514,229
85,120
619,599,349
38,402,078
658,001,427
Dec. 31, 2011
619,203,649
85,120
619,288,769
37,873,841
657,162,610
1.
2.
Net of 5,450,000 (2011 – 3,200,000) Class A Limited Voting Shares held by the company to satisfy long-term compensation agreements
Includes management share option plan and escrowed stock plan
The authorized common share capital consists of an unlimited number of Limited Voting shares. Limited Voting shares issued
and outstanding changed as follows:
Outstanding at beginning of year
Shares issued (repurchased)
Dividend reinvestment plan
Management share option plan1
Repurchases
Issuances
Outstanding at end of year2
Dec. 31, 2012
619,288,769
Dec. 31, 2011
577,663,693
230,916
2,507,639
(2,569,272)
141,297
619,599,349
128,600
2,545,776
(6,144,300)
45,095,000
619,288,769
1.
2.
Includes management share option plan and restricted stock plan
Net of 5,450,000 (2011 – 3,200,000) Class A Limited Voting Shares held by the company to satisfy long-term compensation agreements
132 BROOKFIELD ASSET MANAGEMENT
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 attributable to shareholders
Preferred share dividends
Net income available to shareholders – basic
Capital securities dividends1
Net income available for shareholders – diluted
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
$
$
$
$
2012
1,380
(129)
1,251
25
1,276
618.9
12.1
18.0
649.0
2011
1,957
(106)
1,851
38
1,889
616.2
10.8
26.0
653.0
1.
2.
Subject to the approval of the Toronto Stock Exchange, the Series 12 and 21 shares, unless redeemed by the company for cash, are convertible into Class A Limited Voting
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 Series 10 and
11 shares were redeemed by the company during 2012
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 (income) arising from cash-settled share-based payment transactions
Total expense/(income) arising from share-based payment transactions
Effect of hedging program
Total expense included in consolidated results
2012
59
144
203
(136)
67
$
$
2011
46
(54)
(8)
75
67
$
$
The share-based payment plans are described below. There have been no cancellations or modifications to any of the plans
during 2012 or 2011.
Management Share Option Plan
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.
The changes in the number of options during 2012 and 2011 were as follows:
Outstanding at January 1, 2012
Granted
Exercised
Cancelled
Converted3
Outstanding at December 31, 2012
1.
2.
3.
Options to acquire TSX listed Class A Limited Voting Shares
Options to acquire NYSE listed Class A Limited Voting Shares
Options converted into restricted shares at maturity
Number of
Options (000’s)1
26,995
—
(2,380)
(96)
(944)
23,575
C$
Weighted
Average
Exercise Price
21.31
—
14.97
30.28
9.37
22.40
C$
Number of
Options (000’s)2
10,879 US$
Weighted
Average
Exercise Price
25.45
31.35
24.80
29.24
—
26.90
3,615
(128)
(238)
—
14,128 US$
2012 ANNUAL REPORT 133
Outstanding at January 1, 2011
Granted
Exercised
Cancelled
Outstanding at December 31, 2011
1.
2.
Options to acquire TSX listed Class A Limited Voting Shares
Options to acquire NYSE listed Class A Limited Voting Shares
Number of
Options (000’s)1
29,636
—
(2,520)
(121)
26,995
Weighted
Average
Exercise Price
20.48
C$
—
11.39
23.18
21.31
C$
Number of
Options (000’s)2
8,765
2,727
(37)
(576)
10,879
Weighted
Average
Exercise Price
23.39
US$
32.38
23.18
27.02
25.45
US$
The cost of the options granted during the year was determined using the Black-Scholes model of valuation, with inputs to the
model as follows:
Weighted average share price
Weighted average fair value per option
Average term to exercise
Share price volatility1
Liquidity discount
Weighted average annual dividend yield
Risk-free rate
Unit
US$
US$
Years
%
%
%
%
2012
31.35
6.54
7.5
32.6
25.0
1.8
1.4
1.
Share price volatility was determined based on historical share prices over a similar period to the average term to exercise
At December 31, 2012, the following options to purchase Class A Limited Voting Shares were outstanding:
Exercise Price
C$8.72 – C$8.83
C$13.37 – C$19.03
C$20.21 – C$30.22
C$31.62 – C$46.59
US$23.18 – US$35.06
Weighted Average
Remaining Life
0.1 years
5.2 years
2.7 years
4.7 years
7.9 years
Options Outstanding (000’s)
Vested
1,071
7,043
6,252
4,771
3,713
22,850
Unvested
—
3,768
129
541
10,415
14,853
At December 31, 2011, the following options to purchase Class A Limited Voting shares were outstanding:
Exercise Price
C$8.51 – 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$32.61
Restricted Share Unit Plan
Weighted Average
Remaining Life
0.7 years
6.2 years
3.7 years
5.7 years
8.4 years
Options Outstanding (000’s)
Vested
3,120
5,679
6,919
3,751
1,636
21,105
Unvested
—
5,706
158
1,662
9,243
16,769
2011
32.38
7.92
7.5
33.8
25.0
1.6
2.8
Total
1,071
10,811
6,381
5,312
14,128
37,703
Total
3,120
11,385
7,077
5,413
10,879
37,874
The Restricted Share Unit Plan provides for the issuance of the Deferred Share Units (“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
134 BROOKFIELD ASSET MANAGEMENT
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, 2012 was $436 million
(December 31, 2011 – $295 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, 2012, including those of operating
subsidiaries, totalled $8 million (2011 – $21 million), net of the impact of hedging arrangements.
The change in the number of DSUs and RSUs during 2012 and 2011 was as follows:
DSUs
RSUs
Outstanding at January 1, 2012
Granted and reinvested
Exercised and cancelled
Outstanding at December 31, 2012
Outstanding at January 1, 2011
Granted and reinvested
Exercised
Outstanding at December 31, 2011
Number of Units
(000’s)
7,255
430
(238)
7,447
Number of Units
(000’s)
8,030
—
—
8,030 C$
C$
Weighted
Average
Exercise Price
13.56
—
—
13.56
DSUs
RSUs
Number of Units
(000’s)
6,531
834
(110)
7,255
Number of Units
(000’s)
8,030
—
—
8,030
C$
Weighted
Average
Exercise Price
13.56
—
—
13.56
C$
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
Escrowed Stock Plan
Unit
C$
C$
Years
%
%
%
C$
Dec. 31, 2012
36.44
13.56
9.2
24.11
1.4
2.2
21.47
Dec. 31, 2011
28.04
13.56
10.2
23.93
1.9
2.3
13.64
The Escrowed Stock Plan (the “ES Plan”) provides executives with increased indirect ownership of Class A Limited Voting Shares.
Under the ES Plan, executives are granted common shares (the “ES Shares”) in one or more private companies that own the
company’s Class A Limited Voting Shares. The Class A Limited Voting Shares are purchased on the open market with the purchase
cost funded with the proceeds from preferred shares issued to the company. The ES shares vest on, and must be held until,
the fifth anniversary of the grant date. At a date no less than five years, and no more than ten years, from the grant date, all
outstanding ES Shares will be exchanged for Class A Limited Voting Shares issued by the company, based on the market value
of Class A Limited Voting Shares at the time of the exchange.
During 2012, 2.25 million Class A Limited Voting Shares were purchased in respect of ES Shares granted to executives under the
ES Plan (2011 – 2.4 million Class A Limited Voting Shares). For the year ended December 31, 2012, the total expense incurred
with respect to the ES Plan totalled $6.3 million (December 31, 2011 – $3.5 million).
2012 ANNUAL REPORT 135
The cost of the escrowed shares granted during the year was determined using the Black-Scholes model of valuation with inputs
to the model as follows:
Weighted average share price
Weighted average fair value per share
Average term to exercise
Share price volatility1
Liquidity discount
Weighted average annual dividend yield
Risk-free rate
Unit
US$
US$
Years
%
%
%
%
2012
31.35
6.05
7.5
32.6
30.0
1.8
1.4
2011
32.38
7.35
7.5
33.8
30.0
1.6
2.8
1.
Share price volatility was determined based on historical share prices over a similar period to the term exercise
Restricted Stock Plan
The Restricted Stock Plan awards executives with Class A Limited Voting Shares purchased on the open market (“Restricted
Shares”). Under the Restricted Stock Plan, Restricted Shares awarded vest over a period of up to five years, except for Restricted
Shares awarded in lieu of a cash bonus which may vest immediately. Vested and unvested Restricted Shares must be held
until the fifth anniversary of the award date. Holders of vested Restricted Shares are entitled to vote Restricted Shares and to
receive associated dividends. Employee compensation expense for the Restricted Stock Plan is charged against income over the
vesting period.
During 2012, Brookfield granted 456,497 Class A Limited Voting Shares pursuant to the terms and conditions of the Restricted
Stock Plan, resulting in the recognition of $8.5 million (2011 – $nil) within compensation expense. In addition, Brookfield
exchanged 943,625 fully vested, in-the-money options of certain executives for 676,600 Class A Limited Voting Shares under
the Restricted Stock Plan.
21.
DIRECT COSTS
Direct costs include all attributable expenses except interest, depreciation and amortization, taxes and fair value changes and
are primarily related to cost of goods sold and compensation. The following table lists direct costs for 2012 and 2011 by nature:
(MILLIONS)
Cost of sales
Compensation
Selling, general and administrative expenses
Taxes and other
22. FAIR VALUE CHANGES
2012
10,996 $
822
528
1,563
13,909 $
2011
9,663
575
456
1,212
11,906
$
$
Fair value changes recorded in net income represent gains or losses arising from changes in the fair value of assets and liabilities,
including derivative financial instruments, accounted for using the fair value method and are comprised of the following:
FOR THE YEARS ENDED DECEMBER 31 (MILLIONS)
Investment property
Sustainable resources
Power contracts
Redeemable units
Interest rate contracts
Private equity
Other
2012
1,276
132
9
(11)
(81)
(119)
(56)
1,150
$
$
2011
1,477
292
54
(376)
(64)
(74)
77
1,386
$
$
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.
136 BROOKFIELD ASSET MANAGEMENT
The aggregate notional amount of the company’s derivative positions at December 31, 2012 and December 31, 2011 is as
follows:
(MILLIONS)
Foreign exchange
Interest rates
Credit default swaps
Equity derivatives
Commodity instruments
Energy (GWh)
Natural gas (MMBtu – 000’s)
a)
Foreign Exchange
Dec. 31, 2012
6,159
$
18,671
865
1,112
26,807
$
Dec. 31, 2011
4,358
$
13,882
970
650
19,860
$
Note
(a)
(b)
(c)
(d)
(e)
73,902
41,922
77,553
22,868
The company held the following foreign exchange contracts with notional amounts at December 31, 2012 and December 31, 2011.
(MILLIONS)
Foreign exchange contracts
Canadian dollars
British pounds
European Union euros
Australian dollars
New Zealand dollars
Japanese yen
Brazilian reais
Cross currency interest rate swaps
Australian dollars
Canadian dollars
Japanese yen
Brazilian reais
Foreign exchange options
Brazilian reais
Australian dollars
Japanese yen
Canadian dollars
Foreign currency futures
U.S. dollars
European Union euros
Notional Amount (U.S. Dollars)
Average Exchange Rate
Dec. 31, 2012
Dec. 31, 2011
Dec. 31, 2012
Dec. 31, 2011
$
$
1,089
752
199
894
321
5
2
895
655
98
66
219
416
548
—
$
802
588
337
276
218
53
183
612
223
98
73
322
128
—
441
—
—
6,159
$
2
2
4,358
$
0.99
1.60
1.28
1.03
0.77
86.79
2.08
1.00
0.89
75.47
1.81
1.50
1.05
79.25
—
—
—
1.02
1.56
1.31
1.01
0.77
81.05
1.84
1.00
0.79
75.47
1.81
1.51
1.05
—
1.13
1.01
1.31
Included in net income are unrealized net losses on foreign currency derivative balances amounting to $2 million (2011 – net loss
of $32 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 $45 million (2011 – net gain of $133 million).
b)
Interest Rates
At December 31, 2012, the company held interest rate swap contracts having an aggregate notional amount of $1,351 million
(2011 – $1,098 million), bond forwards having an aggregate notional of $nil (2011 – $295 million), and interest rate swaptions
with an aggregate notional amount of $263 million (2011 – $211 million). The company’s subsidiaries held interest rate
swap contracts with an aggregate notional amount of $11,636 million (2011 – $9,780 million). The company’s subsidiaries
held interest rate cap contracts with an aggregate notional amount of $4,951 million (2011 – $2,374 million), bond forwards
with an aggregate notional value of $471 million (2011 – $nil), and interest rate futures with an aggregate notional value of
$nil (2011 – $124 million).
2012 ANNUAL REPORT 137
c)
Credit Default Swaps
As at December 31, 2012, the company held credit default swap contracts with an aggregate notional amount of $865 million
(2011 – $970 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 $815 million
(2011 – $830 million) of the notional amount and could be required to make payments in respect of $50 million (2011 – $140 million)
of the notional amount.
d)
Equity Derivatives
At December 31, 2012, the company and its subsidiaries held equity derivatives with a notional amount of $1,112 million
(2011 – $650 million) which includes $600 million (2011 – $463 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.
Other Information Regarding Derivative Financial Instruments
The following table classifies derivatives elected for hedge accounting during the years ended December 31, 2012 and 2011 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:
YEARS ENDED DECEMBER 31
(MILLIONS)
Cash flow hedges1
Net investment hedges
Fair value hedges
2012
Effective
Portion
(36)
(45)
—
(81)
$
$
Notional
14,872
1,787
—
16,659
$
$
Ineffective
Portion
(80)
—
—
(80)
$
$
2011
Effective
Portion
(850)
133
(6)
(723)
$
$
Notional
10,598
1,194
472
12,264
$
$
Ineffective
Portion
37
—
—
37
$
$
1.
Notional amount does not include 41,732 GWh and 42,837 GWh of commodity derivatives at December 31, 2012 and December 31, 2011, respectively
The following table presents the change in fair values of the company’s derivative positions during the years ended
December 31, 2012 and 2011, for derivatives that are fair valued through profit or loss, and derivatives that qualify for hedge
accounting:
Unrealized
Gains
During 2012
Unrealized
Losses
During 2012
Net Change
During 2012
$
39 $
(85) $
(46) $
Net Change
During 2011
137
69
1
—
—
70
—
223
98
$
430 $
(256)
—
(1)
(5)
(262)
(16)
—
(116)
(479) $
(187)
1
(1)
(5)
(192)
(16)
223
(18)
(49) $
(636)
(23)
—
2
(657)
4
(88)
(361)
(965)
(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
138 BROOKFIELD ASSET MANAGEMENT
The following table presents the notional amounts underlying the company’s derivative instruments by term to maturity as at
December 31, 2012 and the comparative notional amounts at December 31, 2011, for derivatives that are classified as fair value
through profit or loss, and derivatives that qualify for hedge accounting:
(MILLIONS)
Fair value through profit or loss
Foreign exchange derivatives
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 – 000’s)
Elected for hedge accounting
Foreign exchange derivatives
Interest rate derivatives
Interest rate swaps
Bond forwards
Interest rate caps
Equity derivatives
Commodity instruments
Energy (GWh)
Dec. 31, 2012
< 1 year
1 to 5 years
> 5 years
Total Notional
Amount
Dec. 31, 2011
Total Notional
Amount
$
2,584
$
210
$
— $
2,794
$
2,254
182
132
3,218
—
3,532
—
227
6,343
20,313
30,802
$
656
131
581
—
1,368
865
357
2,800
9,491
3,474
$
481
—
12
—
493
—
512
1,005
2,367
7,646
$
1,319
263
3,811
—
5,393
865
1,096
10,148
32,171
41,922
$
1,076
211
2,325
124
3,736
970
636
7,596
34,716
22,868
$
$
1,815
$
655
$
895
$
3,365
$
2,104
3,265
471
801
4,537
—
6,352
$
7,370
—
339
7,709
16
8,380
$
1,032
—
—
1,032
—
1,927
$
11,667
471
1,140
13,278
16
16,659
$
9,802
295
49
10,146
14
12,264
$
3,233
10,185
28,313
41,731
42,837
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 risk 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.
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.
2012 ANNUAL REPORT 139
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 financial assets and liabilities would
have resulted in a corresponding decrease in net income before tax of $50 million (2011 – $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 $12 million
(2011 – $3 million) and an increase in other comprehensive income of $57 million (2011 – $52 million), before tax for the year
ended December 31, 2012.
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 $10 million (2011 – $3 million) increase in the value of these positions on a combined basis. 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 $55 million (2011 – $42 million) as at December 31, 2012, 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 that hedge of compensation arrangements, would have decreased net income by $90 million (2011 – $63 million)
and decreased other comprehensive income by $7 million (2011 – $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 $30 million (2011 – $22 million). This increase would be offset by a $30 million (2011 – $23 million) change in value of
the associated equity derivatives of which $29 million (2011 – $22 million) would offset the above mentioned increase in
compensation expense and the remaining $1 million (2011 – $1 million) would be recorded in other comprehensive income.
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, 2012 by approximately $70 million
(2011 – decrease of $44 million) and decreased other comprehensive income by $21 million (2011 – $20 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 total notional amount of $865 million (2011 – $970 million) at
December 31, 2012. 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 $3 million
(2011 – $3 million) for the year ended December 31, 2012, 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
140 BROOKFIELD ASSET MANAGEMENT
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, 2012, the recorded values of these items
in the company’s consolidated financial statements totalled $21.4 billion (2011 – $19.5 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 the company or are otherwise considered corporate in nature,
totalled $4.7 billion based on carrying values at December 31, 2012 (2011 – $4.7 billion). The company monitors its capital base
and leverage primarily in the context of its deconsolidated debt-to-total capitalization ratios. The ratio as at December 31, 2012
was 17% (2011 – 18%).
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, 2012 and 2011. 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’ expense for 2012 was $23 million (2011 – $19 million). The discount rate used was 5% (2011 – 5%) with an
increase in the rate of compensation of 3% (2011 – 3%) and an investment rate of 6% (2011 – 6%).
(MILLIONS)
Plan assets
Less accrued benefit obligation:
Defined benefit pension plan
Other post-employment benefits
Net liability
Less: net actuarial losses
Accrued benefit liability
Dec. 31, 2012
1,141
$
Dec. 31, 2011
1,093
$
(1,291)
(51)
(201)
39
(162)
$
(1,123)
(24)
(54)
29
(25)
$
2012 ANNUAL REPORT 141
27.
JOINT OPERATIONS
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 FOR THE YEARS ENDED (MILLIONS)
Current assets
Long-term assets
Total assets
Current liabilities
Long-term liabilities
Total liabilities
Net assets
Revenues
Expenses
Fair value changes
Net income
Dec. 31, 2012
56
$
3,057
3,113
315
824
1,139
1,974
$
Dec. 31, 2011
60
$
2,433
2,493
130
697
827
1,666
$
$
$
323
(202)
216
337
$
$
227
(153)
68
142
28. RELATED PARTY TRANSACTIONS
a)
Related Parties
Related parties include subsidiaries, associates, joint arrangements, key management personnel, the Board of Directors (Directors),
immediate family members of key management personnel and Directors, and entities which are, directly or indirectly, controlled
by, jointly controlled by or significantly influenced by key management personnel, Directors or their close family members.
b)
Key management personnel and Directors
Key management personnel are those individuals that have the authority and responsibility for planning, directing and controlling
the company’s activities, directly or indirectly and consist of the company’s Senior Managing Partners. The company’s Directors
do not plan, direct, or control the activities the company directly, they provide oversight over the business.
The remuneration of Directors and other key management personnel of the company during the years ended December 31, 2012
and 2011 was as follows:
(MILLIONS)
Salaries, incentives and short-term benefits
Share-based payments
2012
21
29
50
$
$
2011
15
25
40
$
$
The remuneration of Directors and key executives is determined by the Compensation Committee having regard to the
performance of individuals and market funds.
c)
Related Party Transactions
In the normal course of operations, the company executes transactions on market terms with related parties, which have been
measured at exchange value and are recognized in the consolidated financial statements, including, but not limited to: base
management fees, performance fees and incentive distributions; loans, interest and non-interest bearing deposits; power purchase
and sale agreements; capital commitments to private funds; the acquisition and disposition of assets and businesses; derivative
contracts; and the construction and development of assets.
In December 2012, Brookfield Residential Properties Inc. (“BRP”), the company’s 69% owned North American land developer
and homebuilder, repaid its C$480 million loan to Brookfield Office Properties Inc. (“BPO”), using the proceeds from
the completion of an equity offering of approximately $233 million and a senior unsecured debt offering of $600 million.
The company subscribed for $111 million of BRP’s equity offering. BRP paid $35 million of interest to BPO during the year
ended December 31, 2012 (2011 – $26 million). BPO sold its previously held Canadian residential land development operations
to BRP in March 2011 for proceeds of $500 million and provided C$480 million of bridge financings as part of the transaction.
The transaction was measured at exchange value.
In October 2012, the company agreed to sell its directly held 10% investment in its South American transmission operations
to Brookfield Infrastructure Partners L.P for proceeds of $235 million, subject to satisfaction of customary conditions. The
purchase was completed in January 2013 with an effective date of October 1, 2012. The transaction was measured at fair value,
as determined by an external appraiser, which approximated the company’s carrying value of the investment and, as a result, no
gain or loss was recorded on the transaction.
142 BROOKFIELD ASSET MANAGEMENT
In November 2011, the company completed the combination of its indirectly held wholly-owned renewable power assets and its
34% owned Brookfield Renewable Power Fund, to form Brookfield Renewable Energy Partners L.P. (“BREP”). As part of the
combination, the company amended certain power purchase and sale agreements between a wholly-owned subsidiary and BREP
to adjust the price of electricity purchased. Additionally, a wholly-owned subsidiary of the company entered into an Energy
Revenue Agreement with BREP, whereby the company indirectly guarantees the price for energy delivered by certain power
generating facilities in the United States at a price of $75 per MWh adjusted annually by an inflation factor.
The following table lists the related party balances included within the Consolidated Financial Statements as at and for the years
ended December 31, 2012 and 2011:
(MILLIONS)
Financial assets
Investment and other income, net of interest expense
Management fees received
29. OTHER INFORMATION
a)
Commitments, Guarantees and Contingencies
$
2012
406
111
20
$
2011
177
12
20
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 2012, the company and its subsidiaries had $2,731 million (2011 – $1,363 million) of such commitments
outstanding of which $297 million (2011 – $300 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 ventures, 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 up to $4 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, 2012, the company held insurance assets
of $206 million (2011 – $393 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 2012, net underwriting losses on reinsurance
operations were $59 million (2011 – $7 million) representing $5 million (2010 – $22 million) of premium and other revenues
offset by $64 million (2011 – $29 million) of reserves and other expenses.
2012 ANNUAL REPORT 143
c)
Supplemental Cash Flow Information
Cash flow from operating activities includes cash taxes paid of $273 million (2011 - $282 million) and cash interest paid of
$2,235 million (2011 – $1,798 million).Sustaining capital expenditures in the company’s renewable power generating operations
were $55 million (2011 – $66 million), in its property operations were $97 million (2011 – $106 million) and in its infrastructure
operations were $79 million (2011 – $92 million).
Included in cash and cash equivalents is $2,096 million (December 31, 2011 – $1,396 million) of cash and $748 million of short-
term deposits at December 31, 2012 (December 31, 2011 – $631 million).
d)
Revenue
The company’s revenues include $12,442 million (2011 – $10,909 million) from the sale of goods, $5,764 million
(2011 – $4,674 million) from the rendering of services and $491 million (2011 – $338 million) from other activities.
e)
Subsequent Event
On March 15, 2013, the company declared a special dividend of units of a newly created company, Brookfield Property
Partners L.P. (“BPY”), to the holders of the company’s Class A and Class B Limited Voting Shares. The special dividend will be
payable on April 15, 2013 to the Class A and Class B Limited shareholders of record as of March 26, 2013 and will consist of
0.0574 units of BPY for each Class A or Class B Limited Voting Share of the company. BPY has an initial value of approximately
$12 billion based on the IFRS carrying values of the assets and liabilities contributed by the company, and represent virtually all
of the assets and liabilities within the company’s property segment.
144 BROOKFIELD ASSET MANAGEMENT
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS AND
INFORMATION
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 harbor” provisions of the United States Private Securities Litigation
Reform Act of 1995 and in any applicable Canadian securities regulations. Forward-looking statements include statements
that are predictive in nature, depend upon or refer to future events or conditions, include statements regarding the operations,
business, financial condition, expected financial results, performance, prospects, opportunities, priorities, targets, goals, ongoing
objectives, strategies and outlook of the Corporation and its subsidiaries, as well as the outlook for North American and
international economies for the current fiscal year and subsequent periods, and include words such as “expects,” “anticipates,”
“plans,” “believes,” “estimates,” “seeks,” “intends,” “targets,” “projects,” “forecasts” or negative versions thereof and other
similar expressions, or future or conditional verbs such as “may,” “will,” “should,” “would” and “could”.
Although we believe that our 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, many of which are beyond our control, which may cause the actual results, performance or achievements of
the Corporation 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, but are not limited to: the impact or unanticipated impact of general economic, political and market factors in the
countries in which we do business; the behaviour of financial markets, including fluctuations in interest and foreign exchange
rates; global equity and capital markets and the availability of equity and debt financing and refinancing within these markets;
strategic actions including dispositions; the ability to complete and effectively integrate acquisitions into existing operations and
the ability to attain expected benefits; changes in accounting policies and methods used to report financial condition (including
uncertainties associated with critical accounting assumptions and estimates); the effect of applying future accounting changes;
business competition; operational and reputational risks; technological change; changes in government regulation and legislation
within the countries in which we operate; changes in tax laws, catastrophic events, 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 our documents filed with the securities regulators in Canada and the United States.
We caution that the foregoing list of important factors that may affect future results is not exhaustive. When relying on our
forward-looking statements, investors and others should carefully consider the foregoing factors and other uncertainties
and potential events. Except as required by law, the Corporation 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.
2012 ANNUAL REPORT 145
CORPORATE SOCIAL RESPONSIBILITY
At Brookfield, our goal is to generate superior returns over the long term. That approach to the long term shapes our commitment
to corporate social responsibility in the same way that it dictates our focus on high-quality, long life assets. At Brookfield, we
believe that sustainable development and the pursuit of shareholder value are complementary. We understand that our future
success is tied to the quality of the environment and the well-being of the communities in which our clients, employees and
shareholders live and work. Management and the Board of Directors consider our corporate social responsibilities to be a high
priority and strive for excellence in environmental, safety and economic performance throughout our operations. Our social
responsibility activities are broadly focused on four themes:
•
•
•
•
Sustainable Growth
Employee Health and Safety
Community Engagement
Corporate Governance
Sustainable Growth
We are committed to being responsible investors, across our portfolio. We have over $175 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, reduction of greenhouse gas emissions, recycling, wildlife preservation, timber reforestation and erosion control.
We pursue innovative programs and systems that foster environmental responsibility across all of our operations. Our leadership
in sustainable business practices was recognized during the past year by a number of independent industry organizations.
As a leading global commercial property investor, we are committed to continuous improvement of our environmental
performance. Our sustainability strategy is founded on three principles:
•
•
•
Develop, operate and renovate properties to achieve maximum efficiency
Adopt innovative environmental strategies to achieve best-in-industry performance
Seek best-in-class environmental certification to foster a culture of sustainability
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. Last year, our property operations received awards for sustainability initiatives, including the ‘Leader
in the Light’ award from industry leader NAREIT for superior sustainability performance.
Within our $85 billion, 245 million square foot global office and retail portfolio, we secured 16 new Leadership in Energy
and Environmental (LEED) certifications in 2012 for our office properties in North America, and are now LEED certified in
37 properties or 58% of our portfolio, measured as a percentage of the sq/ft that we own and operate in North America. We have
made a commitment to build all new ground-up developments to a minimum standard of LEED Gold. In addition, our properties
have met or exceeded recognized environmental standards in South America, Australia and Europe.
Our $19 billion power portfolio represents one of the world’s largest collections of renewable power facilities, with 176 hydro
stations and seven wind farms on two continents. In an average year, our plants generate enough clean power to supply
approximately 2 million homes. 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, our renewable power operations meet or exceed sustainability standards set by
leading industry groups, such as the Canadian Electricity Association and the U.S. Low Impact Hydropower Institute. In 2012,
Corporate Knights magazine cited our renewable power group as one of Canada’s leading “Cleantech” companies.
Our $27 billion infrastructure operations include 2.6 million acres of timberland, one of the largest private holdings of forest
land in North and South America, along with 480,000 acres of farmland in Brazil. These trees and crops offset greenhouse gas
emissions by capturing and storing carbon dioxide, and are a truly renewable resource. In managing our timber and agricultural
portfolio, we focus on sustainable harvest levels, and meet both our own internal standards and regulations set down in more
than 30 government statutes.
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, preservation of soil and water and protection of biological diversity.
Employee Health and Safety
The health and safety of our employees is critically important to us. In certain of our businesses physical risks to employees
are unavoidable. We strive to achieve excellence in health and safety performance and to be recognized as an industry leader
in accident prevention. Our overall objective is to incur zero high risk safety incidents and zero lost time injuries. In 2012, we
146 BROOKFIELD ASSET MANAGEMENT
established a cross-organizational health and safety steering committee to develop best practices in health and safety policies and
procedures and implement related initiatives across the organization.
Mental health in the workplace is an issue that Brookfield takes very seriously. An employee assistance program (EAP) is offered
to our employees in an effort to help them deal with personal problems that might adversely impact their work performance, health
and well-being. Our EAP includes free counseling from a qualified third party to help employees and their household members
manage issues in their personal lives. This includes support for matters such as addiction, depression, emotional distress, major
life changes, health, financial and legal problems, and difficulties with personal and work relationships. Confidentiality in this
program is maintained in accordance with privacy laws and ethical standards.
Community Engagement
We believe that Brookfield and its employees should be active participants in the communities in which we conduct business,
as a way of giving back and fostering growth. We encourage and support a culture of charity and volunteerism among our
employees. Our senior executives hold leadership positions on the boards and capital campaigns of major charities and public
institutions, and our employees participate in and lead many community activities and fund raising events. We have corporate
programs that match most of our employees’ philanthropic giving with donations from Brookfield.
Our Brookfield Partners Foundation supports hospitals, schools and cultural organizations in Canada. Our Brookfield U.S.
Foundation provides funding and support for programs and organizations that improve the quality of life by providing heating,
shelter, food and other basic needs assistance to families and communities, as well as environmental education and programs.
And on a global basis, our individual operations and employees work with charities and organizations on local initiatives.
In addition to a commitment to philanthropy, our corporate responsibility means ensuring that we, as an organization, adhere to
high standards of business conduct wherever we operate. We have backed up our commitment to corporate social responsibility
and ethical conduct with a comprehensive Code of Business Conduct that employees, contractors and consultants throughout the
organization sign each year, certifying adherence to these important practices and principles.
Corporate Governance
Management and the Board of Directors are committed to strong and effective corporate governance at all levels of the
organization. We believe the directors are well equipped to represent the interests of shareholders, with an independent chairman
leading a board with global business experience and proven governance skills. We continually strive to ensure that we have
sound governance practices to maintain investor confidence in the way in which we do business. 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 constantly review our corporate governance policies and practices in relation to evolving legislation, guidelines and best
practices. Our directors believe that communication with shareholders is a critical part of the governance process and the board
encourages shareholders to express their views.
Our Statement of Corporate Governance Practices (the “Statement”) is set out in full in the Management Information Circular
prepared each year and mailed to shareholders who request it. The Statement is also available on our website, www.brookfield.com,
at “About Brookfield/Corporate Governance.”
You can also access the following documents referred to in the Statement on our website: our Board of Directors Charter, the
Charter of Expectations for Directors, the Charters of the Board’s four Standing Committees (Audit, Governance and Nominating,
Management Resources and Compensation and Risk Management), Board Position Descriptions, our Code of Business Conduct
and Ethics and our Corporate Disclosure Policy.
An Ongoing Commitment
We are proud of our record on corporate social responsibility at Brookfield, and we will strive to further enhance our approach
to sustainable growth, employee health and safety, community engagement and corporate governance initiatives and programs.
We look forward to reporting on our performance in years to come.
2012 ANNUAL REPORT 147
SHAREHOLDER INFORMATION
Shareholder Enquiries
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
T: 416-363-9491 or toll free in North America: 1-866-989-0311
F: 416-363-2856
www.brookfield.com
inquiries@brookfield.com
Shareholder enquiries relating to dividends, address changes and share
certificates should be directed to our Transfer Agent:
CIBC Mellon Trust Company
P.O. Box 700, Station B
Montreal, Quebec H3B 3K3
T: 416-682-3860 or toll free in North America: 1-800-387-0825
F: 1-888-249-6189
www.canstockta.com
inquiries@canstockta.com
Canadian Stock Transfer Company Inc. acts as the Administrative Agent
for CIBC Mellon Trust Company
Stock Exchange Listings
Symbol
Stock Exchange
Class A Limited Voting Shares BAM
BAM.A
BAMA
New York
Toronto
Euronext – Amsterdam
Class A Preference Shares
Series 2
Series 4
Series 8
Series 9
Series 12
Series 13
Series 14
Series 17
Series 18
Series 21
Series 22
Series 24
Series 26
Series 28
Series 30
Series 32
Series 34
Series 36
BAM.PR.B Toronto
BAM.PR.C Toronto
BAM.PR.E
Toronto
BAM.PR.G Toronto
BAM.PR.J
Toronto
BAM.PR.K Toronto
Toronto
BAM.PR.L
BAM.PR.M Toronto
BAM.PR.N Toronto
BAM.PR.O Toronto
BAM.PR.P
Toronto
BAM.PR.R Toronto
Toronto
BAM.PR.T
BAM.PR.X Toronto
Toronto
BAM.PR.Z
Toronto
BAM.PF.A
Toronto
BAM.PF.B
Toronto
BAM.PF.C
Investor Relations and Communications
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 website 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 communications
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 our 2012 Annual Report is available in French on request
from the company and is filed with and available through SEDAR at
www.sedar.com.
Annual Meeting of Shareholders
Our 2013 Annual Meeting of Shareholders will be held at 10:00 a.m.
on Thursday, May 9, 2013 in The Auditorium, 300 Madison Avenue,
New York, New York, U.S.A.
Dividend Reinvestment Plan
The Corporation has a Dividend Reinvestment Plan which enables
registered holders of Class A Limited Voting Shares who are resident
in Canada and the United States to receive their dividends in the form
of newly issued Class A Limited Voting Shares.
Registered shareholders of our Class A Limited Voting Shares who
are resident in the United States may elect to receive their dividends
in the form of newly issued Class A Limited Voting Shares at a
price equal to the volume-weighted average price (in U.S. dollars)
at which the shares traded on the New York Stock Exchange
based on the average closing price during each of the five trading
days immediately preceding the relevant dividend payment date
(the “NYSE VWAP”).
Registered shareholders of our Class A Limited Voting Shares who
are resident in Canada may also elect to receive their dividends in
the form of newly issued Class A Limited Voting Shares at a price
equal to the NYSE VWAP multiplied by an exchange factor which
is calculated as the average noon exchange rate as reported by the
Bank of Canada during each of the five trading days immediately
preceding the relevant dividend payment date.
Our Dividend Reinvestment Plan allows current shareholders of
the Corporation who are resident in Canada and the United States
to increase their investment in the Corporation free 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 website.
Dividend Record and Payment Dates
Class A Limited Voting Shares 1
First day of February, May, August and November
Last day of February, May, August and November
Record Date
Payment Date
Class A Preference Shares 1
Series 2, 4, 12, 13, 17, 18
21, 22, 24, 26, 28, 30, 32, 34 and 36 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
148 BROOKFIELD ASSET MANAGEMENT
BOARD OF DIRECTORS AND OFFICERS
BOARD OF DIRECTORS
Jack L. Cockwell
Group Chair
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
J. Bruce Flatt
Chief Executive Officer
Brookfield Asset Management Inc.
Robert J. Harding, f.c.a.
Chair, Brookfield Global Advisory
Maureen Kempston Darkes, o.c., o.ont.
Corporate Director, and former President
Latin America, Africa and Middle East
General Motors Corporation
Youssef A. Nasr
Former Chairman and CEO of HSBC
Middle East Ltd. and former
President of HSBC Bank Brazil
David W. Kerr
Corporate Director
Lance Liebman
Director
American Law Institute
Philip B. Lind, c.m.
Vice-Chairman
Rogers Communications Inc.
The Hon. Frank J. McKenna, p.c., o.c., o.n.b.
Chair, Brookfield Asset Management Inc.
and Deputy Chair, TD Bank Financial Group
James A. Pattison, o.c., o.b.c.
Chief Executive Officer
The Jim Pattison Group
Seek Ngee Huat
Chairman of the Latin American
Business Group, Government of
Singapore Investment Corporation
Diana L. Taylor
Managing Director
Wolfensohn & Co.
George S. Taylor
Corporate Director
Details on Brookfield’s Directors are provided in the Management Information Circular and on Brookfield’s website.
CORPORATE OFFICERS
J. Bruce Flatt
Chief Executive Officer
Brian D. Lawson
Chief Financial Officer
A.J. Silber
Corporate Secretary
Brookfield incorporates sustainable development practices within our
corporation. This document was printed in Canada using vegetable-based
inks on FSC certified stock.
2012 ANNUAL REPORT 149
BROOKFIELD ASSET MANAGEMENT INC.
CORPORATE OFFICES
REGIONAL OFFICES
New York – United States
Brookfield Place
250 Vesey Street, 15th Floor
New York, New York
10281-1023
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
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 1, Al Manara Building
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
Mumbai
Unit 203, 2nd Floor
Tower A, Peninsula Business Park
Senapati Bapat Marg, Lower Parel
Mumbai - 400013
T 91 (22) 6600.0400
F 91 (22) 6600.0401
www.brookfield.com NYSE: BAM TSX: BAM.A EURONEXT: BAMA