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Annual Report
A Global Alternative Asset Management Company
Brookfield
Brookfield
OUR BUSINESS
Brookfield Asset Management Inc. is a global alternative asset manager with over $175 billion in assets
under management.
We have more than a century of experience owning and operating assets with a focus on property, renewable energy,
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, Toronto, and Euronext stock exchanges under the symbols BAM, BAM.A, and
UK, Europe &
Middle East
$9 billion AUM
5,500 employees
BAMA respectively.
Canada
$25 billion AUM
3,000 employees
United States
$116 billion AUM
5,500 employees
South America
$21 billion AUM
11,500 employees
Asia & Australia
$16 billion AUM
2,500 employees
AUM – Assets Under Management
$187B
Assets Under Management
28,000
Employees Globally
BAM
NYSE, TSX, Euronext listed
CONTENTS
Letter to Shareholders
MD&A of Financial Results
Internal Control Over Financial Reporting
4
11
77
Consolidated Financial Statements
81
Corporate Social Responsibility
Cautionary Statement Regarding
Forward-Looking Statements and
Information
146
Shareholder Information
Board of Directors and Officers
147
149
150
BROOKFIELD ASSET MANAGEMENT DELIVERING PERFORMANCE
In the process of delivering strong investment returns for clients, we are building a long-term asset management business
for shareholders.
AS AT AND FOR THE YEARS ENDED DECEMBER 31
PER FULLY DILUTED SHARE
Net income
Funds from operations
Market trading price – NYSE
TOTAL (MILLIONS)
Total assets under management
Consolidated results
Balance sheet assets
Revenues
Net income
Funds from operations
Diluted number of common shares outstanding
Note: See “Use of Non-IFRS Measures” on page 17
$
2013
3.12
5.14
38.83
$
2012
1.97
1.94
36.65
$
187,105
$
181,400
112,745
20,830
3,844
3,376
651.1
108,862
18,766
2,755
1,356
658.0
~20%
10 and 20-Year Compound
Annual Common Share
Performance
$3.4B
Funds from
operations
$3.8B
Consolidated
net income
2013 ANNUAL REPORT 1
EXPANDING OUR BUSINESS
We continue to attract fee bearing capital through our private funds, listed issuers and public securities and have
embedded growth opportunities in recurring fee streams.
30
Private funds
Multi-fund platform to
meet the diverse needs of
our global client base
4
Funds in Marketing
Solid pipeline
of private funds
in marketing
~220
Investors
Leading global
fund investors
FEE BEARING CAPITAL
($Billions)
FEE RELATED EARNINGS1
($Millions)
‘09
‘10
‘11
‘12
‘13
49
50
57
60
79
‘09
‘10
‘11
‘12
‘13
127
139
119
180
300
BAM
Third Party
1.
Net of direct costs; excludes carried interest
FEE BEARING CAPITAL BY FUND T YPE
($Billions)
FEE BEARING CAPITAL BY SEGMENT
($Billions)
Public
Securities
$21
Private
Funds
0
1
0
0
2
0
0
3
0
0
O
r
i
g
i
n
a
l
s
4
0
0
5
0
0
$26
6
0
0
2 BROOKFIELD ASSET MANAGEMENT
Listed
Issuers
$33
Private Equity
and other
$16
Property
$30
Infrastructure
Renewable
Energy
$22
5
0
0
1
0
0
1
5
0
2
0
0
2
5
0
$12
3
0
0
CORE INVESTMENT PRINCIPLES
Our 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
them conservatively with a goal of generating stable, predictable and growing cash flows for clients and shareholders. Our
culture 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
2013 ANNUAL REPORT 3
LETTER TO SHAREHOLDERS
Overview
We reported the highest funds from operations (FFO)
and net income in our history with $3.4 billion of FFO for
shareholders, or $5.14 per share, and $3.8 billion of total net
income for the company. In addition to strong results in most
of our operations, some of the investments made during the
financial crisis were monetized during the year, leading to
the realization of both significant carried interests that had
been built up over the past number of years, and gains realized
on our capital. In hindsight, many of these were exceptional
investments.
We continue to believe that real assets will generate excellent
risk-adjusted returns for our clients. For greater insight, we
encourage you to read our investment primer called Real
Assets: The New Essential that is posted on our website. As
these investments gain in popularity, we believe that investors
will substantially increase their portfolio allocation to real
assets. As one of the few asset management franchises that
can invest large-scale amounts of capital in Real Assets on a
global basis, we are well-positioned to increase our assets
under management over time.
Our assets under management increased to $187 billion
despite significant returns of capital to clients on realizations.
This was due to market appreciation as well as strong net capital
inflows. We continue to increase our scale and presence with
net fund inflows of $19 billion during 2013. We had final closes
on our highly successful $7 billion Infrastructure Fund II and
our $4.4 billion Strategic Real Estate Fund. The stand out in
fundraising for our public securities funds continues to be our
listed long-only infrastructure strategy, where we increased
assets under management by $3 billion to almost $5 billion.
In addition, we closed a $1 billion global Timberlands Fund V,
a $270 million Brazil Timber Fund II and raised $600 million
for a pooled investment in a group of Los Angeles office
properties.
Investment Performance
In 2013, real assets performed exceptionally well and our
funds reflected this strong performance. Many of our private
funds are performing at or above their targeted returns and
our flagship listed entities each made significant progress with
4 BROOKFIELD ASSET MANAGEMENT
their business plans. The performance of our public securities
strategies, focused around real estate and infrastructure,
infrastructure
was strong. For example, our
funds earned 24% last year while most of our long/short
funds achieved even better returns.
long-only
Based on stock market prices, our overall return was 11%
in 2013. This included the stock market increase in price,
our regular dividends and a special dividend distributed
to shareholders in the form of a partial share of Brookfield
the compound
Property Partners. More
shareholder returns over the last 10 and 20 years are
approximately 20%, which compares well with most other
investment alternatives. If we can come close to matching
these returns in the next 10 to 20 years, everyone should be
very pleased.
importantly,
Investment
Performance
1
5
10
20
Brookfield
NYSE
11%
24%
19%
19%
Market Environment
S&P 500
32%
18%
7%
9%
10 Year
Treasuries
(6)%
3%
5%
6%
The equity markets in developed countries (U.S., UK, Europe,
Japan, Australia, Canada) performed extremely well in 2013,
with most other risk oriented financial assets following
suit. Emerging market stocks, on the other hand, were
down significantly in local currency terms and even more
dramatically in U.S. dollar terms, as most of these currencies
weakened against the U.S. dollar. Bonds did poorly, as would
be expected at this point in the cycle, and at these yields there
still seems no great upside to owning fixed income securities
if one has discretion to allocate capital elsewhere.
The Fed’s decision to begin tapering the pace of its asset
purchase program in December and the mention of tapering
in June was an important catalyst in a shift of capital away from
many emerging markets and back towards developed markets.
This was particularly evident in the underperformance of
markets and currencies with the weakest current account
reserve balances,
lowest external
fundamentals and
highlighting their vulnerability to capital flight. Our efforts
for the last four years were concentrated on investing in
developed markets. However, as a result of this shift, our
focus has moved toward emerging markets where capital is
currently less available, valuations are more attractive and
the currencies are weak versus the U.S. dollar. The ability of
our platform to allocate capital across the globe to regions
where it is scarce represents a competitive advantage for our
clients, and as in past, should contribute to higher returns
over the longer term.
Real assets performed exceptionally well this year, as the
global economy continued to improve. Stocks associated
with real assets, however, underperformed mid-year in the
wake of the Fed’s first hint at tapering its asset purchases,
as mentioned above. This stock performance contrasted
with private asset markets, where there has been, and still is,
a robust bid for assets that generate cash flow, in particular
in the United States, Canada and Australia, where we have
extensive operations.
investments
Over the next 10 years, our view is that interest rates will
remain at levels that are supportive of a shift away from
traditional bond
towards higher yielding
alternatives such as real assets. These types of assets generate
strong cash flows, have equity-like features with growing cash
flows and have inflation protection. As a result, we continue
to see institutional investors shifting capital into real assets,
particularly towards platforms that are flexible enough to
capitalize on relative valuations across the global landscape.
Competitive Advantages
Our goal is to invest capital for our clients in opportunities
which have reasonable returns in a downside scenario (6% to
8% on equity), have the potential to generate good returns
under most scenarios (12% to 15%), and in the upside cases
will generate excellent returns (20% plus). These latter
scenarios usually require us to be able to buy right, execute
well, and reallocate capital wisely over time.
We consider ourselves value based investors who own
and operate real asset based businesses on a global basis.
This has proved to be an effective way to earn good risk-
adjusted returns over the last 20 years and looking forward,
we think we can continue to achieve similar returns for all of
our constituents.
We always try to use our competitive advantages to generate
superior returns and better understand the risks we are
taking. We believe the company has three major competitive
advantages: capital availability, operating expertise and our
global perspective.
Our capital availability stems from the fact that we have close
to $200 billion of assets under management, along with
access to ±$15 billion of liquidity to back our investment
strategies. There are few organizations that can commit to the
scale of transactions that we can. As a result, we are attractive
counterparties for those wishing to transact on large assets.
We have invested over 20 years in building best-in-class
operating platforms and now have 28,000 employees running
our businesses. This tremendous asset gives us real time
grass roots information needed to make more informed
investment decisions, as well as unlock the value of our assets
by managing them well.
Finally, our 100 year history as an international investor has
given us a very global outlook. We are currently operating in
virtually every country in which we wish to invest, and enjoy
enormous flexibility of where we can invest capital. We are
able to allocate capital to regions where it is scarce, which
often results in opportunities to acquire assets for less than
their replacement value, while avoiding regions that we
believe are fully valued.
Three recent investments illustrate how we put these
competitive advantages to work. The first is a rail and ports
business ( VLI) in Brazil which was owned by Vale, a global
mining company. Vale wanted to raise capital to fund its core
business and approached us to acquire a 27% interest in VLI.
We were a logical choice because we are a local investor in
Brazil and also have operating expertise, as owners of major
rail and port infrastructure globally. As a result of these two
attributes, we were able to diligence VLI’s operations and
structure a transaction with assistance from our people from
around the globe. The investment required approximately
$850 million, which few other investors are able to commit, in
particular in this stage of capital availability in Brazil.
2013 ANNUAL REPORT 5
The second example comes from Ireland, where we have
been named as the preferred bidder to acquire part of the
government-owned utility Bord Gáis. The International
Monetary Fund lent the Irish government significant capital
to weather the financial crisis, which they are now repaying,
in part by selling infrastructure assets. While we only had
small operations in Ireland, we were able to send our global
wind investment and operating teams to assess the wind
assets owned by Bord Gáis. We are finalizing our purchase
agreement with the state-owned seller. If successful, we
will acquire 630 megawatts of operating wind farms and
development projects. Our competitive advantages allowed
us to dedicate this amount of capital to Ireland, assess these
assets and transact in a challenging environment.
The third example is our investment in China Xintiandi, which
owns a world class portfolio of retail and office properties.
We believe that the combination of their owner, Shui On
Land, as a local participant with our global knowledge and
operating platforms will make our new venture one of the
leading commercial property platforms in China. In addition,
in a market where few others have been recently committing
capital, we pledged $1.25 billion to this opportunity –
$750 million to the initial portfolio and $500 million for new
ventures. Few others have access to this size of capital and can
devote the resources needed to succeed.
Our View on the United States
More recently, we have been investing a greater portion of our
investment dollars outside of the United States. As a result,
we are often asked if this means that we are negative on the
United States. The bottom line is, absolutely not.
We are very positive on the United States for many reasons,
which we will attempt to highlight here. For us, the attraction
to other markets is simply that on a relative basis, they are
currently offering far greater investment opportunities. This
is largely the result of the United States recovery taking hold
and capital availability coming back. As a result, the price now
being paid in the United States for assets and the terms one
receives are far different than a few years ago. This compares
to emerging markets today, where capital is less available and
therefore, relatively speaking, values are attractive; terms of
acquisition are good, or both.
Our investments in the United States span every business
we have and encompass over 50% of our operations, with
approximately $100 billion of our assets. We continue to
expand and grow each of these operations organically, and
when opportunities arise with acquisitions. Each year we
inevitably find acquisitions, but we always invest substantial
capital with organic growth. For example, we are completing
the development of a new electricity transmission system in
Texas, building wind power facilities in California, expanding
a major shopping mall in Hawaii, building a 5 million square
foot complex for residential apartments and office space in
Manhattan, and will build upwards of 5,000 single family and
multifamily homes this year.
Our reasons for being positive on the United States are as
follows:
Housing Recovery – The U.S. housing recovery is still only
mid-cycle and a large number of jobs are being created as
housing starts move towards 1.5 million homes built annually.
This is good for employment and the wealth effect.
Demographics – Immigration brings additional people to the
U.S. each year and has kept the U.S. demographics looking
better than most countries in the world, including a fertility
rate close to 2.1 births per couple; well beyond all developed
countries of the world. This bodes well for continued GDP
growth.
Labour Flexibility and Productivity – The entrepreneurial
spirit in the United States drives great labour flexibility and
productivity improvements. More jobs are lost and created
than in any other place in the world. This leads to productivity
enhancements and a good business environment, especially
for risk taking start-ups.
Shale Oil and Gas Revolution – The U.S. is on track to
be energy self-sufficient as the technology breakthrough
of hydraulic fracking has unlocked vast shale oil and gas
resources. This brings jobs, makes the country less reliant on
oil from foreign suppliers and helps reduce the trade deficit.
Technological Advancements and Reinvention – From Silicon
Valley advances, to the shale oil and gas revolution, to global
leadership with financial institutions, investment managers
and global companies, the U.S. leads both technological
6 BROOKFIELD ASSET MANAGEMENT
advances and global competitiveness. Well-developed U.S.
bankruptcy laws also form part of this advantage, as few other
countries have refined this framework as successfully.
Global Currency Standard and Deep Financial Markets
– The U.S. has both the deepest financial markets in the
world, as well as the global reserve currency. No country
has yet come close on either. This is an incredible advantage
which the United States possesses and provides tremendous
strength and flexibility while they solve their fiscal issues.
The China Story
Our success depends on our ability to find opportunistic
investments in real assets around the world, underwrite and
acquire the assets, and operate them well in order to generate
our targeted returns. While we have made small investments
in China in the past, we were unable to find a significant
opportunity where we could invest comfortably. During 2013,
we found such an opportunity with a portfolio of Shanghai
commercial properties.
The Chinese economy is incredibly large and diverse,
and contains some economic regions that at best would
be described as “pioneer,” has regions that are classically
“emerging,” but most importantly has regions that are fully
competitive on a global stage. Our view is that the Chinese
economy will experience peaks and valleys along a rapid
growth path. But by being careful with how we invest and
by being integrated into the economy, these transitions
will provide many opportunities for us, as they do in other
countries around the world.
The misunderstanding by many Western observers lies in
the premise that once China stumbles, it will fall behind, and
never come back. To put this into context, one can compare
China to the United States. In 1820, agriculture represented
80% of the U.S. economy. By 1920, agriculture had declined
to 25%, and during this century of transition and growth there
were both good and not so good economic periods. Contrast
that to China, where in 1975 agriculture represented 80%
of the Chinese economy and by 2030 it will represent 25%.
In these 55 years of transition there were, and will be, many
economic cycles. But like the U.S., we believe China will be a
good place to invest over the long term.
The most commented on economic item is the impact of a
Chinese slowdown on China, and the global economy. Our
take is that many forget that this is largely the law of big
numbers at work as the Chinese economy is now the second
largest in the world. One must remember that at $8 trillion,
even 6% growth creates a GDP increase which in itself is
larger than most countries’ GDP, and in aggregate as large as
the growth being added by the United States to the world’s
economy annually.
We were fortunate to find a Chinese partner that not only
recognized that our brand of institutional capital management,
asset management and operations is greatly needed within
China, but also owns one of the highest quality commercial
property portfolios in the country. While we will only own
22% of the entity, we will be providing a number of our people
into positions within the company. Our growth plans for
China Xintiandi will be market and opportunity dependent,
but we believe we can assist our partner in becoming one
of the leading owners and operators of premier commercial
properties within China.
The initial portfolio of properties owned by China Xintiandi
consists of over 3.4 million square feet of premier quality
office and retail assets in two truly irreplaceable locations
within Shanghai. We believe Shanghai is one of the world’s
leading cities and we are thrilled to be able to be a part of its
future.
Operations
Overall assets under management are over $187 billion with
fee bearing capital increasing to $79 billion. The distribution
is as follows:
US$ billions
Property
Renewable Energ y
Infrastructure
Private Equity
Assets Under
Management
$ 108
19
29
31
$ 187
Fee Bearing
Capital
30
$
11
22
16
79
$
Total carried interests realized in the year were $565 million
with our expected annualized target carried interest now
approximately $350 million based on current private fund
capital. Fee related earnings increased by nearly 70%, due to
2013 ANNUAL REPORT 7
the expansion of fee bearing capital in our listed and private
funds, as well as our public securities mandates. Combined
with base fees and other incentive distributions, the estimated
run-rate of fees and carry for our franchise is over $1 billion
and growing rapidly as we continue to expand our business.
Performance across our funds was strong due to operational
improvements and monetizations at attractive valuations.
This has resulted in attractive returns for our private funds
and continued FFO growth and distribution increases in our
listed funds. In our public securities group, our real estate
and infrastructure funds have developed exceptional long-
term track records with top-decile performance over the
past five and 10 years. This performance led to $30 million of
performance fees in 2013.
Brookfield Property Group
Our property group recorded solid performance, with FFO
increasing 3% year over year to nearly $560 million. This
reflected excellent returns from our U.S. retail property
portfolio,
leasing, and growth
initiatives undertaken in the past five years.
improvements
in office
We consolidated our real estate group with the launch of our
flagship public entity, Brookfield Property Partners (BPY ),
and more recently launched a merger of our office business
into BPY. This transaction has now received independent
endorsement by the Board of Brookfield Office Properties,
and we have received positive feedback from virtually
all shareholders. Once complete in the first half of 2014,
we believe BPY will have taken the next major step in its
establishment as one of the largest and most diverse real
estate investment entities globally.
We increased our stake in our U.S. shopping mall business by
acquiring further shares from institutional clients who backed
our restructuring of General Growth Properties (“GGP”) in
2010. This investment by BPY was funded by the issuance of
a further $1 billion of shares to us and approximately $450
million to two of our sovereign wealth clients. In addition, we
crystallized approximately $560 million in performance fees
on our original investment, which was received in the fourth
quarter of 2013. BPY now owns a 32% stake in GGP directly
and we manage a further 8% for client accounts.
8 BROOKFIELD ASSET MANAGEMENT
We closed fundraising for our $4.4 billion private real estate
fund, which combined with our public market capital gives
us a competitive advantage as we execute our strategy of
building our premier global commercial property portfolio.
We made a number of acquisitions to increase the scope of
our property operations, including the previously mentioned
investment in Shanghai based China Xintiandi. We took over
management of a property fund in India with $300 million
of commitments and commercial real estate investments in
two major business centres by working with an international
financial company that wanted to exit this market.
We expanded our high quality office property portfolio by
acquiring a Los Angeles office company with institutional
clients, creating a $1.1 billion fund with seven high quality
office properties comprising 8.3 million square feet of office
space in downtown Los Angeles. We launched construction
of new buildings in London, Perth, Calgary and Toronto after
receiving significant leasing commitments from tenants. We
began construction of the platform over the rail yards at our
Manhattan West project in New York.
We acquired two leading warehouse operators and now have
over 62 million square feet of operating assets and more
than 79 million square feet of development assets across
North America, Europe, the Middle East and China. We also
acquired 36 multifamily properties in the United States with
9,100 apartment units.
Brookfield Renewable Energy Group
Our renewable energy business benefitted from improved
hydrology, an expanded portfolio of hydroelectric assets and
higher prices on sales of uncontracted electricity, with FFO
rising 43% in 2013 to $447 million. In addition, we continued
to find opportunities to expand our portfolio in Europe
and North and South America through acquisitions and
organic growth.
In Europe, we were recently named the preferred bidder
to acquire part of a state-owned energy company which
owns a portfolio of 330 megawatts of operating plants and
300 megawatts of development projects. This positions our
group for future growth in a region that places a premium
on renewable energy. If successful, we will integrate these
operations and look to utilizing this business to expand in
the future.
We also added to our existing hydroelectric and wind
operations in New England, California and British Columbia
by acquiring approximately 700 megawatts of generating
facilities. In addition, we completed construction of three
hydroelectric projects with nearly 100 megawatts of capacity.
Subsequent to the end of the year, we announced plans
to acquire one third of a 417 megawatt hydroelectric plant
in Pennsylvania, one of the largest hydro facilities in the
northeastern U.S. Looking ahead, our pipeline of organic
developments should add 1,700 megawatts of generating
capacity to our portfolio.
Brookfield Infrastructure Group
Organic growth initiatives and acquisitions over the past
three years are now contributing to excellent performance
from our infrastructure group, with FFO rising 111% in 2013
to $472 million. We increased the scale of this business over
the last year and are well positioned for future growth with a
widely-held public entity and our follow-on flagship $7 billion
private fund.
Our infrastructure group announced plans to acquire a
number of assets in the fourth quarter, including a 27%
stake in a rail and ports business in Brazil for approximately
$850 million. This partnership with Vale should lead to other
investment opportunities in the future. We also recently
committed to acquire ports in Los Angeles and Oakland,
partnering with a major shipping company that wanted to
raise capital. Earlier in the year, we increased our stake in
a network of South American toll roads with a $700 million
investment and added to our district energy businesses with
acquisitions in Houston and New Orleans.
the year
initiatives during
Organic growth
included
commissioning our Texas electrical transmission network. The
merger of our UK utility business with its largest competitor
was also completed early in the year, and after refinancing this
asset, we increased FFO by more than 70%.
The expansion of our infrastructure portfolio was funded in
part by recycling capital from mature assets, newly issued
shares in Brookfield Infrastructure, and institutional clients.
We sold Canadian and U.S. timber investments for $3 billion
and a minority ownership in a New Zealand utility for proceeds
of $410 million.
Brookfield Private Equity Group
We often spend many years improving investee businesses
and investing capital before reaping the rewards of our efforts.
Last year, we harvested the results of many years of hard work
on a number of companies involved in the U.S. homebuilding
business. This resulted in FFO increasing by 152%, year over
year, to $658 million.
Realizations over last year included the sale of a U.S. paper
and packaging business to a strategic buyer for $1 billion.
We also agreed to sell our stake in a major oriented strand
board producer to a competitor in a cash and stock deal
that generated $250 million in cash and gives us continued
exposure to improving housing markets though a meaningful
equity position in North America’s largest OSB producer. We
sold an additional $265 million of shares in forest product
companies and continue to hold a significant position in
these businesses. Our North American residential property
development operations also achieved excellent results with
land values increasing across virtually every market and home
sales velocity increasing.
We made a number of promising investments in the energy
business in 2013, where we believe relatively low natural
gas prices had led to attractive valuations. This has resulted
in us building one of North America’s largest coal bed
methane businesses, adding significant scale in 2013 with a
$215 million acquisition. We also privatized two junior oil and
gas companies and merged their operating platforms.
We invested in a cold storage business with facilities in
Toronto and Calgary that we believe can be developed into
a significant national company. And as part of our strategy
to assist commodity companies which have lost access to
public market financing, we made a $170 million loan to a
palladium mining company that needed capital to complete
an expansion project.
2013 ANNUAL REPORT 9
buying or selling assets or parts of a business if the
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 those which would otherwise be earned.
In addition, we often capitalize on mispricing of our
securities in the stock market by repurchasing shares of
the company when opportunities arise and the valuation
is compelling.
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 for the capital employed.
The primary objective of the company continues to be
generating increased cash flows on a per share basis, and as a
result, higher intrinsic value per share over the longer term.
And, while I personally sign this letter, I respectfully do 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 14, 2014
Strateg y 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 energy, 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.
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 clients; while utilizing our discretionary capital
to invest beside these clients, 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, having 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;
• 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 disproportionately larger contribution to the
bottom line; and
• 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
10 BROOKFIELD ASSET MANAGEMENT
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL RESULTS
Our 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, 2013. This MD&A should be read in conjunction with our 2013
annual consolidated financial statements and related notes and is dated March 28, 2014. 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 2013 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
PART 3 – Operating Segment Results
Our Business
Strategy and Value Creation
Economic and Market Review
and Outlook
Basis of Presentation and Use of
Non-IFRS Measures
12
13
14
16
PART 2 – Financial Performance
Review
Selected Annual Financial
Information
Annual Financial Performance
Financial Profile
Quarterly Financial Performance
Corporate Dividends
18
19
26
31
33
Basis of Presentation
Results by Operating Segment
Asset Management
Property
Renewable Energy
Infrastructure
Private Equity
Residential Development
Service Activities
Corporate Activities
34
36
37
40
43
45
47
47
48
49
PART 4 – Capitalization and Liquidity
50
50
55
Financing Strategy
Capitalization
Interest Rate Profile
Liquidity
Review of Consolidated Statement
of Cash Flows
Contractual Obligations
Exposures to Selected Financial
Instruments
PART 5 – Operating Capabilities,
Environment and Risks
Operating Capabilities
Risk Management
Business Environment and Risks
PART 6 – Additional Information
Accounting Policies and
56
57
58
58
59
59
60
72
76
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.
Related Party Transactions
Internal Controls
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 operating 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 and Information” on page 146.
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.
2013 ANNUAL REPORT 11
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 energy, infrastructure
and private equity.
We manage a wide range of investment funds and other entities that enable institutional and retail clients to invest alongside us
in these assets. As at December 31, 2013, our managed funds and entities represented approximately $80 billion of invested and
committed fee bearing capital, of which $26 billion was from Brookfield. These products include publicly traded entities that are
listed on major stock exchanges as well as private institutional partnerships 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 business model is simple: utilize our global reach to identify and acquire high-quality assets at favourable valuations,
finance them on a long-term basis, enhance the cash flows and values of these assets through our operating platforms to earn
reliable, attractive long-term total returns, and when opportunities arise realize capital from asset sales or refinancings.
Organization Structure
Our operations are organized into four principal groups (“operating platforms”): property, renewable energy, infrastructure and
private equity. These platforms are responsible for operating the assets owned by our various funds and investee companies. The
equity capital invested in these assets is provided by a series of listed and private funds managed by us that are in turn funded by
capital from ourselves and our clients.
We have formed large capitalization listed entities in each of our property, renewable energy and infrastructure segments, which
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”
or “Brookfield Infrastructure Partners”), a publicly listed entity that currently has a $8.2 billion market capitalization. In addition
to owning and operating a portfolio of infrastructure assets, BIP is also the cornerstone investor in our Brookfield Infrastructure
Fund II, a private investment partnership with $7.0 billion of committed capital. 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.
Our private equity business is conducted primarily through private funds with capital provided by institutions and ourselves. We
do not currently envisage the formation of a listed entity within these operations as we do not believe these investments would
be properly valued in the capital markets on a standalone basis.
Our balance sheet capital is invested primarily in our three flagship listed issuers, our private equity funds, and in several directly
held investments and businesses.
The following chart is a condensed version of our organizational structure.
Brookfield
Asset Management1
Public
Funds
66%2
Brookfield
Property Partners
(BPY)
65%
28%
100%
Brookfield Renewable
Energy Partners
(BREP)
Brookfield
Infrastructure Partners
(BIP)
Brookfield
Capital Partners3
Private
Institutional
Funds
Brookfield
Property
Funds
Brookfield
Infrastructure
Funds
Brookfield
Private Equity
Funds
1.
2.
3.
Includes asset management and corporate activities
Proforma to the merger of BPY with Brookfield Office Properties Inc. which is expected to be completed in 2014; December 31, 2013 economic interest in BPY was 89%
Privately held, includes private equity, residential development and service activities
Operating Assets and Investments
12 BROOKFIELD ASSET MANAGEMENT
STRATEGY AND VALUE CREATION
Our business is centred around the ownership and operation of real assets, which we define as long-lived, hard assets that
form the critical backbone of economic activity, including property, renewable energy and infrastructure facilities. Whether
they provide high-quality office or retail space in major urban markets, generate reliable clean electricity, or transport goods
and resources between key locations, these assets play an essential role within the global economy. Additionally, these assets
typically benefit from some form of barrier to entry, regulatory regime or other competitive advantage that provide for relatively
stable cash flow streams, strong operating margins and value appreciation over the longer term.
We currently own and manage one of the world’s largest portfolios of real assets. We have established a variety of investment
products through which our clients can invest in these assets, including both listed entities and private funds. We actively invest
our own capital alongside our clients, ensuring a meaningful alignment of interests.
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 28,000 employees worldwide who are
instrumental in maximizing the value and cash flows from our assets. As Real Asset operations tend to be industry-specific
and often driven by complex regulations, we believe operational experience is necessary in order to maximize efficiency and
productivity. Our track record shows that we can add meaningful value and cash flow through “hands-on” operational expertise,
whether through the negotiation of property leases, energy contracts or regulatory agreements, or through a focus on optimizing
asset development, operations or other activities.
We finance our operations on a long-term, investment-grade basis, typically employing stand-alone asset-by-asset financing with
minimal recourse to other parts of the organization. We also strive to maintain excess liquidity at all times in order to respond
to opportunities as they arise. 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 withstand financial downturns and provides the strength
and flexibility to capitalize upon attractive opportunities.
We prefer to invest when capital is less available to a specific market or industry and in situations that tend to require a broader
range of expertise and be more challenging to execute. 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
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 through our managed funds and entities that will, in turn, enable
us to earn base management fees based on the amount of capital that we manage, 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 our specialized Real
Asset experience can help to ensure that an investment’s full value creation potential is realized. 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 an appropriate level of investment-grade secured debt with long-dated maturities 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.
2013 ANNUAL REPORT 13
ECONOMIC AND MARKET REVIEW AND OUTLOOK
(As at January 31, 2014)
Overview and Outlook
The global investment landscape was shaped by several key trends during 2013, as the positive catalyst of a generally improving
economic environment was offset by concerns over rising interest rates. In particular, the U.S. economy gained further strength
over the course of the year, driven by an improving labour market, an expansion in household net worth and continued recovery
of both the residential and commercial property markets. This positive momentum led the U.S. Federal Reserve to begin tapering
its asset purchase program late in the year, in a move that had been widely discussed and debated in the marketplace for months.
Indeed, anticipation of a tapering announcement weighed on investor sentiment for much of the year, leading to rising interest
rates and capital market volatility. Fortunately, the Federal Reserve reiterated its commitment to maintaining a low interest rate
environment for the foreseeable future and to providing sufficient support as needed. As a result, we believe implementation of
tapering activity will serve to reduce uncertainty surrounding U.S. monetary policy and provide a meaningful vote of confidence
in U.S. economic growth.
Over the course of the year, developed markets outperformed emerging markets, as developed markets tended to benefit from
ongoing economic recovery and strong capital flows while emerging markets faced the challenges of elevated inflation, falling
currency values and the overhang from reduced monetary stimulus in the U.S., in addition to uncertainty surrounding China’s
transition away from an investment-led economy. Although we expect short-term volatility to persist within emerging markets,
we believe recent performance may lead to attractive investment opportunities over the medium term.
Looking ahead, we anticipate a period of normalizing interest rates and economic growth. Importantly, we expect accommodative
monetary policy to continue in the U.S. and across many developed markets, providing further support for the global economic
recovery. While the performance of yield-oriented asset classes may be challenged in a rising interest rate environment, we
believe demand for assets offering current income and upside growth potential will continue to accelerate. In particular, real
assets, such as property, renewable energy and infrastructure, should benefit from an improving economy and the eventual return
of inflation, resulting in growing revenues and cash flow streams. Accordingly, we believe that real assets are well-positioned
to benefit from a recovering global economy while offering attractive current income and capital preservation to guard against
future market volatility.
United States
Following an upward revision of U.S. real GDP growth to 4.1% in the third quarter, growth slowed in the fourth quarter to 3.2%,
due in part to the effect of the federal government shutdown in early October as well as to inclement weather in December.
However, real GDP growth should rebound in 2014 as consumer confidence improves, private spending continues to increase
and the effect of government spending cuts and tax increases diminish further. Many economists are now forecasting U.S. real
GDP growth to exceed 3% over the next several years, which would mark the most robust pace of U.S. economic expansion
since before the 2008/9 recession. Business confidence continues to strengthen and the ISM Manufacturing Index is pointing to a
strong expansion, which should bode well for U.S. industrial production. Furthermore, capacity utilization is high across almost
all sectors and corporate profits are strong, indicating that capital investment is poised to increase.
In terms of construction, a key driver of the U.S. economic recovery, housing starts exceeded one million units on an annual basis
in November and December for the first time since the recession. We continue to expect a positive trend given the strength in
homebuilders’ confidence, further improvements in household balance sheets and the low level of unsold housing stock.
As the U.S. economy improved during 2013, the labour market continued to heal as well. The year as a whole produced average
monthly job gains of 182,000, leading the unemployment rate to fall from 7.9% in December 2012 to 6.7% in December 2013.
Importantly, this figure is nearing the 6.5% target rate set by the U.S. Federal Reserve as a key threshold of its forward monetary
policy guidance. However, inflation remains low, averaging 1.1% during the first two months of the fourth quarter, down from
1.6% in the previous quarter. The lack of underlying inflationary pressure in this early stage of economic recovery suggests that
short-term interest rates will remain low even as the Federal Reserve winds down its quantitative easing program. As a result, we
expect relatively robust U.S. economic growth during 2014, as private consumption and investment advance further.
Canada
Canadian economic growth continues to moderate as household debt deleveraging has led to softer housing and labour market
activity. Residential building activity slowed during 2013, with housing starts averaging 188,000 units, or 12.7% below the level
recorded in 2012. Job growth slowed in 2013 as well, with employment increasing by approximately 100,000 jobs in the year,
down from the 300,000 jobs created during 2012. The unemployment rate was essentially unchanged in 2013, ending the year at
7.2%. Given the general slowing of the overall economy, the inflation rate remained well below the Bank of Canada’s target of
2.0%, suggesting that the central bank will maintain a low interest rate environment for the foreseeable future. Importantly, as
the U.S. economy continues to gather momentum, Canada should benefit from increased exports, particularly given the recent
depreciation of the Canadian dollar. We expect this implicit economic stimulus to provide support for modest economic growth
near 2.0% in 2014.
14 BROOKFIELD ASSET MANAGEMENT
United Kingdom
Economic growth in the UK continued to advance in the fourth quarter, with real GDP expanding by 2.8%. During a year in
which growth was largely supported by consumption, retail sales surged 5.3% in December relative to the same period in 2012.
This robust end to the year helped to generate full year 2013 economic growth of 1.8%. While consumption is expected to remain
supportive of growth in the year ahead, we believe investment and exports are likely to become the main drivers of the UK
economy. Although industrial production remains nearly 9% below pre-recession levels, recent business confidence surveys and
PMI data indicate that activity is poised to accelerate. Moreover, the labour market ended the year with an increase of 280,000
jobs in the three months to November, the largest increase on record, with almost all of the increase in permanent, full-time
employment. As a result, the unemployment rate fell to just 7.1%, only slightly above the 7.0% target adopted by the Bank of
England under its forward guidance policy. The improving labour market is likely to place additional pressure on the central
bank to revisit its current low interest rate policy, although Bank of England officials have not provided any indication that rate
hikes are on the horizon and inflation has eased back to the official target. Overall, it is likely that monetary policy will remain
accommodative in 2014 and we expect the UK economy to generate growth of 2.5% during the course of the year.
Europe
Positive economic developments in the Eurozone continued in the fourth quarter, with real GDP growth of 0.4% on a year-over-
year basis. Growth has improved in Germany and France to 1.4% and 0.5%, respectively, while the pace of decline continues to
moderate in Italy, Spain and Greece. Additionally, the Eurozone trade balance is near record highs, as Germany continues to run
a large trade surplus while peripheral countries have reduced their trade deficits. A stronger external environment should provide
additional support for Eurozone economies in 2014, although debt levels remain high in many member states and a roadmap to
deleveraging remains elusive. Eurozone inflation continues to trend below 1.0%, as the rate of price growth slows or declines
in many countries. This weakness raises the possibility of deflation, although the European Central Bank appears determined to
avoid such a situation. Looking ahead, we believe European policymakers will need to make further progress on reforms during
2014 while carefully managing the dual risks of debt deleveraging and potential deflation.
Brazil
Near-term growth in Brazil weakened during the fourth quarter to approximately 2.0% year-over-year, as rising interest rates
and currency volatility continued to challenge the economy. Although the rate of inflation has fallen from a peak of 6.7% in
July to 5.9% in December, the rate remains near the upper end of the target range set by Brazil’s central bank. Moderating food
prices have helped to lower overall inflation and recent agricultural commodity price declines suggest that food inflation may
slow further, but energy and transport prices may become sources of inflationary pressure going forward. In an attempt to curb
rising price levels, the Brazilian central bank increased the benchmark interest rate by 275 basis points in 2013 and an additional
50 basis points in January 2014, to a level of 10.5%. Despite this tightening of monetary policy, the Brazilian Real depreciated
by 15.0% over the course of the year, as investors reduced holdings of emerging market currencies. Importantly, the decline in
the exchange rate should help to offset the drag that net exports have recently placed on Brazilian growth. In a further positive
sign, the share of GDP growth from investment has been increasing in recent quarters and currently stands near 20.0%, as the
economy strives to meet the demands of a growing middle class. Although we anticipate that current challenges are likely to
persist, we believe that recent levels of growth are well below Brazil’s long-term potential. Accordingly, we continue to expect
that subdued growth in the short term will give way to longer-term growth in the range of 3.0% to 4.0%.
China
Real GDP growth in China slowed slightly to 7.7% during the fourth quarter but remained firmly within the central government’s
target range. Although nominal GDP growth remains near 10.0%, economic indicators are suggesting a modest level of
deceleration. Additionally, optimism surrounding market reforms is softening, as fixed asset investment grew by nearly 20% in
2013 and supplied approximately 45% of total nominal GDP. Although retail sales increased 11.5% over the same time period,
private consumption only contributed 36% to total nominal GDP, suggesting the transition from an investment-based economy to
a consumption-based economy will be a long-term process. The Chinese central bank remains concerned over the pace of credit
growth and has been selective in efforts to ease interbank liquidity, resulting in sporadic volatility within the lending market.
Moving forward, slower credit expansion is likely, which may weigh on overall growth. Nonetheless, we view recent policy
decisions intended to accelerate the transition away from an investment-led economy as positive developments and expect that
growth in the services sector within China will be meaningful over the coming years.
Australia
On a relative basis, the Australian economy continues to produce solid results, with annualized real GDP growth of 2.3% in the
third quarter. However, this result marks the fourth consecutive quarter of growth below historical averages, as the pace of mining
investment has begun to decelerate. A key driver of recent economic growth, mining investment has plateaued and will subside
over the next few years as capital intensive mega projects commence production. We expect the Australian economy to revert to
trend-line growth of 3.0% by 2015, with increases in residential construction and government infrastructure investment expected
to help mitigate the effects of declining mining investment. Importantly, the Australian economy continues to be supported by
accommodative monetary policy, with the base rate currently at a historical low of 2.5%. This environment has led to strong
2013 ANNUAL REPORT 15
house price gains, new dwelling approvals and retail spending. The labour market has also remained healthy, with unemployment
ending the year at 5.8%. However, we are monitoring early indicators of potential weakness that may lead to an increase in the
unemployment rate in the year ahead, including low levels of advertised jobs and a decrease in full-time employment during
2013. The Australian dollar has steadily declined over the past three months, dropping by over 6.5% since last October, driven
largely by increased expectations of U.S. dollar outperformance as the U.S. economic outlook improves and the U.S. Federal
Reserve reduces monetary stimulus. Going forward, we believe recent lifts in consumer and business confidence will endure and
the lower Australian dollar will benefit many sectors through improved international competitiveness. When combined with low
interest rates, these factors should encourage business activity and provide an offset to slowing mining investment.
BASIS OF PRESENTATION AND USE OF NON-IFRS MEASURES
Basis of Accounting
We are a Canadian corporation and, as such, we 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. The following discussion contains a summary of two key features of IFRS that we
believe are particularly relevant to users of our financial statements. Our significant accounting policies are described in Note 2
to our consolidated financial statements, which also contains a summary of critical judgments and estimates.
Use of Fair Value Accounting
We account for a number of our assets at fair value including our commercial properties, renewable energy assets, and certain of
our infrastructure and financial assets. Property, plant and equipment and inventory included within our private equity 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 amortized cost or cost. Equity accounted investments follow the same accounting principles
as our consolidated operations and accordingly, include amounts recorded at fair value and amounts recorded on another basis
depending on the nature of the underlying assets.
We classify the vast majority of our commercial property assets, including our office and retail property portfolios, as investment
properties. Investment properties are revalued on a quarterly basis and changes in value are 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 that are fair valued.
Our renewable energy facilities and certain of our infrastructure assets 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
on an annual basis and changes in value are recorded as revaluation surplus within other comprehensive income and accumulated
within common equity. Depreciation is recorded on the revalued carrying values at the beginning of each year and recorded in net
income. 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. We also record a relatively
small amount of property, plant and equipment within our property operations using the revaluation method.
A significant amount of the carrying value of our infrastructure operations is recorded as intangible assets and reflect the fair
value of the regulatory rate base or other characteristics at acquisition. Intangible assets are carried at cost, subject to 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 recorded at fair value
in our financial statements and changes in their value are recorded in net income or other comprehensive income, 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 more 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.
16 BROOKFIELD ASSET MANAGEMENT
Consolidated Financial Information
We consolidate a number of entities even though we hold only a minority economic interest. This is the result of our exercising
control, as determined under IFRS, over the affairs of these entities due to contractual arrangements and our significant economic
interest in these entities. As a result, we include 100% of the revenues and expenses of consolidated entities in our consolidated
statement of operations, even though a substantial portion of the net income of the entity is attributable to non-controlling
interests. On the other hand, revenues and expenses between consolidated entities, such as asset management fees, are eliminated
in our consolidated statement of operations; however these items impact the allocation of net income between shareholders and
non-controlling interest.
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. 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 within equity accounted income.
Certain of our consolidated subsidiaries and equity accounted investments do not utilize IFRS for their own statutory 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 provides a reporting issuer a policy
election to fair value its investment properties such as office and retail properties, as described above, whereas other accounting
principles such as U.S. GAAP may not. Accordingly, their stand-alone statutory financial statements, which may be publicly
available, may differ from those which we consolidate.
Foreign Currency Translation
Changes in the rate of exchange between the U.S. dollar and the currencies in which we conduct our non-U.S. operations will
typically impact our operating results and our financial position. As a general rule, changes in the average annual rate of exchange
will impact the value at which the results of non-U.S. operations are included in consolidated net income, whereas changes in the
spot rates will impact the values at which non-U.S. assets and liabilities are included in our consolidated balance sheet. Please
refer to note 2(d) of our consolidated financial statements (Significant Accounting Policies – Foreign Currency Translation).
The relevant exchange rates that impact our business are shown in the following table:
Year-end Spot Rate
Change
Average Annual Rate
Change
Australian dollar
Brazilian real
2013
0.8918
2.3635
2012
1.0395
2.0435
2011
1.0205
1.8758
Canadian dollar
0.9414
1.0079
0.9787
Use of Non-IFRS Measures
2013
vs. 2012
2012
vs. 2011
2013
(14)%
(16)%
(7)%
2%
0.9682
(9)% 1.9552
2012
1.0357
1.9546
2011
1.0329
1.8000
3%
0.9713
1.0004
1.0109
2013
vs. 2012
2012
vs. 2011
(7)%
—
(3)%
—
(9)%
(1)%
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 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.
2013 ANNUAL REPORT 17
PART 2 – FINANCIAL PERFORMANCE REVIEW
SELECTED ANNUAL FINANCIAL INFORMATION
2013
2012
2011
2013 vs 2012
2012 vs 2011
Change
FOR THE YEARS ENDED DECEMBER 31
(MILLIONS, EXCEPT PER SHARE AMOUNTS)
CONDENSED STATEMENT
OF OPERATIONS
Total revenues and other gains
Direct costs
Other income
Equity accounted income
Expenses
Interest
Corporate costs
Fair value changes
Depreciation and amortization
Income taxes
Net income
2,778
(2,004)
—
(962)
(145)
10
(242)
(358)
(4)
(927)
350
(577)
(301)
724
(285)
138
(420)
$
20,830
$
18,766
$
15,988 $
2,064 $
(13,928)
(13,961)
(11,957)
525
759
(2,553)
(152)
663
(1,455)
(845)
3,844
(1,724)
2,120
3.12
—
1,237
(2,500)
(158)
1,153
(1,263)
(519)
2,755
(1,375)
1,380
1.97
$
$
—
2,199
(2,355)
(168)
1,395
(905)
(515)
3,682
(1,725)
33
525
(478)
(53)
6
(490)
(192)
(326)
1,089
(349)
Non-controlling interests
Net income attributable to shareholders
Net income per share
$
$
$
$
1,957 $
740 $
2.89
CONDENSED STATEMENT OF OTHER
COMPREHENSIVE INCOME
Fair value changes and other
Foreign currency translation
Taxes on above items
Other comprehensive income
Non-controlling interests
Other comprehensive income
attributable to shareholders
Comprehensive income attributable
$
1,508
$
1,618
$
1,919 $
(110) $
(2,429)
(280)
(1,201)
406
(110)
(432)
1,076
(563)
(834)
(147)
938
(143)
(2,319)
152
(2,277)
969
(795)
513
795
(1,308)
(282)
to shareholders
$
1,325
$
1,893
$
2,752 $
(568) $
(859)
BALANCE SHEET INFORMATION
AS AT DECEMBER 31
(MILLIONS)
Consolidated assets
Borrowings and other non-current
financial liabilities
Equity
$ 112,745
$ 108,862
$
91,236 $
3,883 $
17,626
53,061
47,526
51,887
44,338
42,383
37,489
1,136
3,188
9,504
6,849
Dividends declared for each class of issued securities for the three most recently completed years are presented on page 33.
18 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 eight operating 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. The 2012 and 2011 consolidated IFRS results have been adjusted to reflect changes in the company’s accounting
policies on a retroactive basis, as noted in Part 6 of this MD&A and Note 2 of the December 31, 2013 consolidated financial
statements.
Overview
2013 vs. 2012
Net income attributable to shareholders of $2.12 billion increased $740 million or 54% from a year ago. On a per share basis, net
income was $3.12 and $1.97 in the current and prior year, respectively.
The increase in net income reflects improved operating performance in almost all of our operations. Of particular note, we earned
$566 million of carried interests within our asset management activities and a $664 million gain on the sale of an investment
within our private equity operations ($261 million attributable to shareholders), both of which are included in total revenue
and other gains in our Consolidated Statement of Operations. We also recorded $525 million of other income on the settlement
of long-dated interest rate swaps. Direct costs were virtually unchanged as the addition of costs within recently acquired or
expanded operations were offset by the removal of costs associated with operations sold during the past two years.
We recorded a lower level of fair value gains on consolidated investment property assets as well as those held through equity
accounted investments, resulting in a decrease of $478 million in equity accounted income and a decrease of $490 million in fair
value changes. Our provision for income taxes increased by $326 million, while the net income attributable to non-controlling
interests increased by $349 million, reflecting the higher level of earnings.
2012 vs. 2011
In 2012, net income attributable to shareholders of $1.38 billion decreased by $577 million or 29% from 2011. Net income per
share for was $1.97 for 2012 and $2.89 in 2011.
The most significant contributor to the decrease in net income in 2012, compared to 2011, was the amount of fair value changes
recorded in 2011, including our proportionate share of fair value gains recorded by equity accounted investments. 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.
Statement of Operations
Total Revenues and Other Gains and Direct Costs
The following tables present consolidated total revenues and other gains and direct costs, which we have disaggregated into our
operating segments, consistent with Note 3 to our consolidated financial statements, in order to facilitate a review of year-over-
year variances. Segmented revenue is presented in the following table and reconciled to consolidated revenues.
FOR THE YEARS ENDED DECEMBER 31
(MILLIONS)
Total revenues and other gains
2013
2012
2011
2013 vs 2012
2012 vs 2011
Change
Asset management
$
1,183
$
450
$
331
$
Property
Renewable energy
Infrastructure
Private equity
Residential development
Service activities
Corporate activities
Eliminations and adjustments1
4,569
1,620
2,388
4,804
2,521
3,817
347
(419)
3,982
1,179
2,178
4,424
2,476
4,140
260
(323)
2,760
1,140
1,792
3,912
2,850
3,204
228
(229)
$
733
587
441
210
380
45
(323)
87
(96)
119
1,222
39
386
512
(374)
936
32
(94)
Total consolidated revenues
$
20,830
$
18,766
$
15,988
$
2,064
$
2,778
1.
Adjustment to eliminate base management fees and interest income earned from entities that we consolidate. See Note 3 to our Consolidated Financial Statements
2013 ANNUAL REPORT 19
FOR THE YEARS ENDED DECEMBER 31
(MILLIONS)
Direct costs
2013
2012
2011
2013 vs 2012
2012 vs 2011
Change
Asset management
$
318
$
260
$
226
$
Property
Renewable energy
Infrastructure
Private equity
Residential development
Service activities
Corporate activities
Eliminations and adjustments1
2,333
550
1,125
3,391
2,297
3,687
66
161
1,812
475
1,190
3,826
2,279
3,911
114
94
1,077
379
959
3,592
2,537
3,054
46
87
$
58
521
75
(65)
(435)
18
(224)
(48)
67
34
735
96
231
234
(258)
857
68
7
$
13,928
$
13,961
$
11,957
$
(33)
$
2,004
1.
Adjustment to reallocate unallocated segment costs
2013 vs. 2012
Total revenues and other gains increased by $2.06 billion or 11% from last year and direct costs decreased by $33 million or 0.2%.
Asset management: Revenues increased by $733 million to $1,183 million with carried interests contributing $549 million of the
increase. We realized $566 million of carried interests upon crystallizing client investment gains in 2013, including $558 million
on our consortium investment in General Growth Properties. Base management fees increased by $150 million to $502 million
due to a 32% increase in fee bearing capital following the formation of Brookfield Property Partners and increases in capital
committed to property and infrastructure funds. The increase in direct costs reflects the higher level of fee bearing capital, which
in turn gave rise to an increased level of investment activity and professional resources. We reallocated costs from our corporate
activities segment to our asset management segment following the formation of Brookfield Property Partners to match them with
the associated fee revenues. The increase in performance based fees within our public securities operations resulted in increased
performance based compensation awards.
Property: Revenues and direct costs increased by $587 million and $521 million, respectively, primarily due to the inclusion of
a full year of results of a large hotel resort property that was acquired in April 2012 and the revenues and costs of industrial and
logistics businesses acquired in 2013 and during the latter part of 2012.
Renewable energy: Generation revenues were $441 million higher than the prior year. Revenue from facilities owned throughout
both years increased by $209 million from a return to near normal hydrology conditions in North America, compared to very
dry conditions in 2012, which resulted in generation that was 12% below long-term averages. Newly acquired or commissioned
assets contributed an additional $218 million of revenues. Direct costs are largely fixed and increased by $75 million over the
prior year reflecting the costs incurred by new assets.
Infrastructure: Revenues increased $210 million compared to prior year due to additional revenues from recently completed
capital expansions initiatives, including our Australian rail expansion, and acquisitions of a utility business in the United Kingdom
and toll roads in South America. This was partially offset by lower timber revenues following the sale of our Pacific Northwest
timberlands during the third quarter of the year. Direct costs decreased by $65 million during the year, following the sale of
Pacific Northwest timberlands which was partially offset by costs incurred within recently acquired or expanded businesses.
Private equity: Total revenues and other gains increased by $380 million and direct costs decreased by $435 million, primarily
as a result of the sale of a paper and packaging business midway through 2013 on which we recorded a gain of $664 million.
Excluding the gain, revenues decreased following the elimination of revenues generated by disposed assets. This decrease was
partially offset by the impact of higher prices and increased volumes within our wood-based panel production and forestry
operations. U.S. housings starts, the largest driver of the North American panelboard demand, improved 18% in 2013, resulting
in oriented strand board prices reaching the highest level in nine years. Average realized prices during 2013 for lumber and logs
were higher by 8% and 21%, respectively, over last year in our forest products business.
Residential development: The increase in residential revenues of $45 million is due to increased volumes of home closings
combined with an increase in average home selling price resulting in higher housing margins. The increase in revenues from
home closings was offset by decreased land sales revenue for the year ended December 31, 2013. We completed a larger volume
of lots and multifamily acre parcel sales in 2012. Direct costs increased by $18 million reflecting the costs incurred in respect
of increased home sales.
Service activities: Revenues decreased by $323 million, the majority of which reflects the absence of revenues and costs
following the partial sale of an Australian property services business in early 2013 and the majority sale of a large U.S. property
brokerage business in late 2012 which resulted in both of these operations being deconsolidated. These decreases were partially
offset by higher construction revenues relating to increases in the number and scale of projects under construction.
20 BROOKFIELD ASSET MANAGEMENT
Corporate activities: Revenues increased, primarily from stronger capital market performance within our cash and financial asset
portfolio.
2012 vs. 2011
Total revenues and other gains increased by $2.78 billion or 17% in 2012 and direct costs increased by $2.00 billion or 17%.
Asset management: Revenues and direct costs increased by $119 million and $34 million over the prior year, respectively. Base
management fees increased by $83 million to $352 million, due to a higher level of fee bearing capital during the year and also
included a full year of base management fees from Brookfield Renewable Energy Partners, which was launched in late 2011.
Direct costs in our asset management business were consistent between 2011 and 2012. Although we increased the number of
funds we manage and our overall fee bearing capital, the operating resources and related costs were largely in place in 2011.
Property: Revenues and direct costs increased by $1.2 billion and $735 million, respectively. The consolidation of our U.S.
Office Fund and Brookfield Place New York in the second half of 2011 meant that we included their results in revenues and costs
whereas before they were included in equity accounted income. Brookfield Place Perth was completed in May 2012 and began
contributing to rental revenue at that time. The two large resort properties acquired in March 2011 and April 2012, contributed
increases in revenues and costs over the prior year of $579 million and $549 million, respectively, and have large operating costs
relative to office and retail properties due to the nature of their business.
Renewable energy: Generation revenues were up marginally as the addition of revenues from acquired and commissioned facilities
was offset by lower generation, reflecting unusually low water conditions during the second and third quarters of 2012. Direct
costs within our renewable energy operations were not significantly impacted by the reduced generation as they are largely fixed
in nature. The increase in costs largely reflects acquisitions and the impact of increased foreign exchange rates on our Brazilian
operations.
Infrastructure: Revenues increased by $386 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
direct costs of $231 million reflects additional costs incurred within newly acquired or expanded businesses.
Private equity: The increase in revenues within our private equity group was $512 million which primarily relates to significantly
higher North American OSB prices and shipment volumes on our wood-based panel production operations benefitting from the
U.S. housing recovery. Direct costs increased as a result of the increased volumes.
Residential development: Residential development revenues decreased by $374 million as our Brazilian operations experienced
lower levels of completed projects in comparison to the prior year. The 2011 results also included the one-time disposition of
non-core residential assets. Direct costs decreased by $258 million primarily reflecting the lower level of completed projects
within our Brazilian residential operations.
Service activities: The increase in revenues within our service activities group was $936 million 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 $170 million relates to increases in property services revenue reflecting the acquisition of a
large U.S. relocation and property brokerage business in late 2011. Direct costs increased proportionately.
Corporate activities: Both revenues and direct costs increased as a result of market performance.
Other Income
We recorded a $525 million gain on the termination of a long-dated interest rate swap contract, which originated in 1990. In
August 2013, we paid $905 million to terminate the contract, which had accrued to a total liability of $1,440 million in our
consolidated financial statements at the time of settlement. The gain is equal to the difference between the accrued amount and
termination payment, adjusted for associated transaction costs.
Equity Accounted Income
Equity accounted income represents our share of the components of net income recorded by investments over which we exercise
significant influence and is reported as a single line item in our consolidated statement of operations.
Change
2011
2013 vs 2012
2012 vs 2011
FOR THE YEARS ENDED DECEMBER 31
(MILLIONS)
General Growth Properties
U.S. Office Fund1
Other property operations
Infrastructure operations
Other
$
$
2013
426
—
447
(193)
79
2012
979
—
198
9
51
$
1,401
$
(553)
$
437
216
109
36
—
249
(202)
28
1.
Excludes income from equity accounted investments within the U.S. Office Fund
$
759
$
1,237
$
2,199
$
(478)
$
(422)
(437)
(18)
(100)
15
(962)
2013 ANNUAL REPORT 21
Equity accounted income from our investment in GGP decreased by $553 million between 2012 and 2013 and by $422 million
between 2011 and 2012. GGP recorded particularly large fair value gains in both 2012 and 2011 due to increases in the cash
flows generated by its portfolio of retail malls as well as increasing valuation metrics for that asset class. Our share of gains
in 2012 and 2011 were $707 million and $1,170 million, respectively. GGP’s fair value gains in 2013 were largely related to
redevelopment activities progressing ahead of plan and increases in budgeted cash flows. In connection with the recognition of
these gains, we reviewed the embedded goodwill within our investment and recorded a $249 million impairment of the goodwill
associated with GGP’s redevelopment operations. Our share of GGP’s net income excluding these items for 2013, 2012 and 2011
was $283 million, $272 million and $231 million, respectively, and increased as a result of increases in occupancy and net rents
per square foot and lower financing costs.
Equity accounted income from other property operations increased by $249 million in 2013 compared to a $18 million decrease
in 2012. The increase was due to our share of higher fair value gains at in our North American office investments and our share
of net income at Rouse Properties Inc. (“Rouse Properties”).
Equity accounted income from infrastructure operations declined $202 million compare to 2012. We recorded a valuation
charge of $87 million against the carrying value of our North American natural gas pipeline investment reflecting weak market
fundamentals. This was partially offset by increased earnings associated with our increased ownership percentage at our Brazilian
toll road investment. The decrease in equity accounted income between 2011 and 2012 was due to decline in the level of fair
value gains within our transmission operations.
Interest Expense
The following table presents interest expense organized by the balance sheet classification of the associated liability:
FOR THE YEARS ENDED DECEMBER 31
(MILLIONS)
Corporate borrowings
Non-recourse borrowings
Property-specific mortgages
Subsidiary borrowings
Capital securities
2013
2012
2011
2013 vs 2012
2012 vs 2011
Change
$
204
$
209
$
197
$
(5)
$
1,837
464
48
1,808
408
75
1,724
340
94
29
56
(27)
$
2,553
$
2,500
$
2,355
$
53
$
12
84
68
(19)
145
The majority of our borrowings are fixed rate long-term financings. Accordingly, changes in interest rates are generally limited
to the impact of refinancing activities or changes in the level of debt as a result of acquisitions and dispositions.
Interest expense from corporate borrowings decreased from 2012 as a result of lower cost and lower borrowing levels, following
the refinancing of higher coupon debt at lower rates. Interest expense increased in 2012 compared to 2011 due to higher average
levels of borrowings, as well as slightly higher exchange rates on Canadian dollar borrowings.
Interest expense on property-specific and subsidiary corporate borrowings increased over the prior year and is primarily
attributable to borrowings associated with acquisitions and capital projects in our Property, Renewable Energy and Infrastructure
operations, including the use of subsidiary revolving facilities to finance acquisitions until long-term financings are put into
place. This was partially offset by the termination of a long-dated high coupon interest rate swap which was previously included
within subsidiary borrowings and refinanced with corporate borrowings at lower rates. The increase in interest expense between
2011 and 2012 primarily relates to consolidation of our U.S. Office Fund in 2011, resulting in our recording its interest expenses
in our consolidated results, whereas previously it was presented on a net basis within equity accounted results.
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 (“Class A shares”), or when issued by a subsidiary, a variable number of the subsidiary’s shares.
We redeemed C$350 million of capital securities during the year and C$500 million in 2012, reducing the associated carrying
charges in both 2013 and 2012.
Fair Value Changes
As noted under “Use of Fair Value Accounting” on page 16, we utilize fair value accounting for 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.
22 BROOKFIELD ASSET MANAGEMENT
FOR THE YEARS ENDED DECEMBER 31
(MILLIONS)
Investment property
Power contracts
Interest rate and inflation contracts
Private equity and residential development
Sustainable resources
Redeemable units
Other
Investment Properties
Change
2013
2012
2011
2013 vs 2012
2012 vs 2011
$
1,031
$
1,276
$
1,477
$
(245)
$
(201)
(134)
10
(127)
19
(20)
(116)
9
(81)
(119)
135
(11)
(56)
54
(64)
(74)
301
(376)
77
(143)
91
(8)
(116)
(9)
(60)
$
663
$
1,153
$
1,395
$
(490)
$
(45)
(17)
(45)
(166)
365
(133)
(242)
Fair value gains from changes in investment property values totalled $1.0 billion in 2013 compared to $1.3 billion in 2012 and
$1.5 billion in 2011. In each year the gains related primarily to our office properties. Values benefitted from continued declines
in discount rates and terminal capitalization rates, each of which declined by approximately 10 basis points on average, reflecting
a continued favorable investment climate for high quality commercial office properties. Gains also reflected improvements
in projected cash flows based on tenant profile and local market conditions at each year end, based on improvements in local
economic conditions, tenant leasing profiles, and rental markets. The decline in rates contributed approximately 53% of the
gains, while improvements in projected cash flows contributed approximately 47% of the gains.
Fair value gains were larger in 2012 due to larger declines in discount rates and terminal capitalization rates. Average discount
rates declined in each of our principal regions by 20 to 30 basis points, while terminal capitalization rates decreased in Australia
and Canada by 40 basis points and 50 basis points, respectively. The changes in rates contributed approximately 70% of the
gains, while increases in projected cash flows contributed the remainder.
The 2011 fair value gains reflected larger declines in average discount rates (60 basis points) and terminal capitalization rates
(40 basis points) within our U.S. portfolio than in 2012 or 2011, with smaller declines in Australia and Canada. However the
declines in U.S. rates gave rise to a higher level of fair value gains in 2011 because our U.S. portfolio is significantly larger than
our Australia and Canadian portfolios.
Power Contracts
Certain of our long-term power contracts are accounted for as derivatives with changes in fair value recorded in net income.
These contracts generally relate to the future sale of electricity at fixed prices and therefore increase in value when prices decline,
and vice versa. We recorded a mark-to-market loss of $134 million in the current year on these contracts because the projections
for future electricity prices increased, compared to $9 million and $54 million of gains in 2012 and 2011, respectively.
Private Equity and Residential Development
Private equity fair value changes reflect lower reserves at investee companies in the energy sector, due to competitive drainage,
reductions in well performance and reduced pricing, resulting in a $94 million change in 2013. We also recorded valuation
charges within our Brazilian residential development operations as a result of higher costs and project overruns.
Sustainable Resources
We sold most of our North American timberlands in 2012 and 2013, with the result that the amount of sustainable resource
assets subject to fair value changes was significantly lower during 2013. We recorded fair value gains on our timberlands and
agricultural lands during 2011 and 2012, due in large part to declines in interest rates as well as improvements in projected cash
flows.
Redeemable Units
Fair value changes on redeemable units contributed 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 energy 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.
(“BREP” or “Brookfield Renewable Energy Partners”) in late 2011, the successor units are now treated as non-controlling
interests and no longer marked to market, giving rise to a lower amount of redeemable units issued by consolidated entities and
therefore lower levels of fair value changes.
2013 ANNUAL REPORT 23
Depreciation and Amortization
Depreciation and amortization includes the depreciation of property, plant and equipment as well as the amortization of intangible
assets. Two of the largest contributions to depreciation and amortization are our renewable energy and infrastructure facilities,
which are revalued annually in other comprehensive income (“OCI”); but which are depreciated in net income. 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 (for example our timberlands and
agricultural assets). The amount of depreciation and amortization is generally consistent year-over-year with large changes
typically due to the addition or removal of depreciable assets and revaluation of their carrying values.
Depreciation and amortization is summarized in the following table:
FOR THE YEARS ENDED DECEMBER 31
(MILLIONS)
Renewable energy
Infrastructure
Private equity
Property
Other
$
$
2013
553
346
275
256
25
$
2012
499
248
282
225
9
Change
2011
2013 vs 2012
2012 vs 2011
$
455
148
260
33
9
$
54
98
(7)
31
16
44
100
22
192
—
358
$
1,455
$
1,263
$
905
$
192
$
Depreciation and amortization on our renewable energy facilities increased by $54 million in 2013, which follows a $44 million
increase in the preceding year. We recorded increases in the value of our power facilities at the end of 2011 and 2012, which
increased the amount of depreciation during the ensuing years. Acquisitions and commissioning of new assets also contributed
to increases in depreciation in each year.
Infrastructure depreciation and amortization increased by approximately $98 million between 2013 and 2012, following a
similar increase between 2012 and 2011, due to depreciation recorded in respect of increased asset valuations, acquisitions and
the developments coming on line.
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 2013 and 2012 over 2011 is a result of depreciation and amortization recorded on tangible and
intangible assets within these operations.
Income Taxes
Our effective tax rate in 2013 was 18% (2012 – 16%; 2011 – 13%), while our Canadian domestic statutory income tax rate for
2013 was 26% (2012 – 26%; 2011 – 28%). The differences are primarily attributable to our role as a global asset manager.
As an asset manager, many of our operations and the associated net income occur within partially owned, “flow through” entities
such as partnerships, and any tax liability is incurred by the investors as opposed to the entity. As a result, while our consolidated
net income includes income attributable to non-controlling ownership interest in these entities, our consolidated tax provision
includes only our proportionate share of the tax provision of these entities. In other words, we are consolidating all of their net
income, but only our share of their tax provision. This gave rise to a 7% difference between the effective and statutory tax rate
in 2013.
In addition, as a global company, we operate in countries with different tax rates, most of which vary from our domestic statutory
rate and we also benefit from tax incentives introduced in various countries to encourage economic activity. Differences in global
tax rates gave rise to a 3% reduction in our effective tax rate compared to a 9% deduction in 2012. The difference will vary from
year to year depending on the relative proportion of income in each country.
The tax provision includes both a current and deferred tax provision. The current tax provision represents the portion of the
provision that gives rise to a current tax liability. The deferred tax provision arises from income that is subject to tax in future
periods (commonly referred to as “timing differences”) and the utilization of existing tax assets such as accumulated tax losses.
In our case, the deferred tax provision relate principally to fair value gains, which are not taxable until the assets are sold, and
therefore do not give rise to a current tax liability, as well as the depreciation of assets which are depreciated for tax purposes at
rates that differ from the rates used in our financial statements.
Our income tax provision does not include a number of non-income taxes paid that are recorded elsewhere in our financial
statements. For example, a number of our operations in Brazil are required to pay non-recoverable taxes on revenue, which
are included in direct costs as opposed to income taxes. In addition, we pay considerable property, payroll and other taxes that
represent an important component of the tax base in the jurisdictions in which we operate.
24 BROOKFIELD ASSET MANAGEMENT
2013 vs. 2012 vs. 2011
The provision of income taxes for 2013 was $845 million (2012 – $519 million; 2011 – $508 million). The increase from 2012
to 2013 is due in large part to a higher level of net income; in particular the deferred tax expense associated with a $525 million
gain recorded as other income. We also recorded a deferred tax expense of $178 million in connection with the formation of
Brookfield Property Partners, although this transaction did not impact pre-tax net income, while the 2012 period included a
$132 million charge in respect of an internal reorganization within our property operations, which similarly did not impact
pre-tax net income. The 2011 provision included a $71 million expense reflecting the impact of a reduction in the Canadian
corporate income tax rate on the carrying value of Canadian deferred tax assets.
Our effective tax rate in 2013 was 8% lower (2012 – 10% lower; 2011 – 15% lower) than our domestic statutory rate.
In 2013, a difference of 7% was due to the inclusion of income attributable to non-controlling interests that is taxed in
the hands of the investors as discussed above. Differences in international tax rates gave rise to a reduction of 3% in 2013
(2012 – 9%; 2011 – 11%). The differences in each year reflect changes in the proportion of income that was taxable at lower
international rates. In 2011, we recorded a 6% reduction in respect of income that was recorded for financial statement purposes,
but was not subject to tax.
In 2013, the tax provision includes current income taxes of $159 million (2012 – $135 million; 2011 – $97 million) and a
deferred tax provision of $686 million (2012 – $384 million; 2011 – $411 million) that was associated primarily with non-taxable
fair value gains and depreciation at higher tax rates, or was offset by existing tax assets such as accumulated tax losses. The level
of current income tax increased during each year, which is mainly due to expanding infrastructure and power operations in South
America where a higher level of current taxes are paid relative to prior years.
Non-controlling Interests
Non-controlling interests represent the portion of net income of consolidated entities that is attributable to other investors. Non-
controlling interests totalled $1.7 billion in 2013 compared to $1.4 billion in 2012 and $1.7 billion in 2011, representing 45%,
50% and 47% of consolidated net income, respectively, in each of these years. The variances between these three years reflect
the overall change in consolidated net income.
Other Comprehensive Income (“OCI”)
Fair Value Changes and Other
Fair value changes and other items recorded in OCI 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 sale
agreements that qualify for hedge treatment, changes in the value of available-for-sale securities and the revaluation of pension
assets and liabilities, as well as our share of similar items recorded by equity accounted investments.
FOR THE YEARS ENDED DECEMBER 31
(MILLIONS)
Revaluations of property,
plant and equipment
2013
2012
2011
2013 vs 2012
2012 vs 2011
Change
Renewable energy
$
(150)
$
$
2,292
$
(975)
$
(1,467)
Infrastructure
Property
Financial contracts and
power sale agreements
Equity accounted investments
Other
2013 vs. 2012
781
195
826
442
239
1
825
611
55
1,491
(17)
145
(1)
357
—
2,649
(855)
194
(69)
170
140
(665)
459
94
2
254
55
(1,158)
838
(49)
68
(301)
$
1,508
$
1,618
$
1,919
$
(110)
$
Fair value changes within our infrastructure operations totalled $781 million (2012 – $611 million). The 2013 fair value gains
reflect increases in the value of our Western Australian rail lines following the completion of a major expansion and securing
long-term take-or-pay contracts, and increased volumes, expansion backlog and margins within transmission and distribution
businesses. We also recorded $195 million of fair value gains in our property segment based on improved valuations from our
resort properties. These gains were partially offset by a $150 million decrease in the valuation of our renewable power facilities,
reflecting the impact of higher discount rates on these assets.
2013 ANNUAL REPORT 25
We recorded $442 million of gains on our financial contracts and power sale agreements compared to a loss of $17 million in
2012. The current year benefitted from gains recorded on interest rate contracts that “lock-in” the benchmark interest rate on new
financings which increased in value as a result of increases in interest rates during the year.
2012 vs. 2011
Fair value changes and other in OCI during 2012 included a $825 million increase in the valuation of our renewable energy
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 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.
Foreign Currency Translation
We record the impact of changes in foreign currencies on the carrying value of our net investments in non-U.S. operations in
other comprehensive income. As at December 31, 2013, our IFRS net equity of $17.8 billion was invested in the following
currencies, principally in the form of net investments which are revalued through other comprehensive income: United States –
51%; Australia – 14%; Brazil – 15%; Great Britain – 10%; Canada – 5%; and other – 5%. 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 2013, the value of our principal non-U.S. currencies (Australia, Brazil and Canada) all declined
against the U.S. dollar (see table on page 17), giving rise to a total decrease of $2.4 billion after the mitigating impact of hedges,
or $1.2 billion after non-controlling interests. During 2012, the value of the Brazilian real declined by 9% compared to the U.S.
dollar, which resulted in a loss of $110 million after considering the impact of other currency movements and hedging activities.
FINANCIAL PROFILE
Consolidated Assets
The following table presents our consolidated assets at the end of the past years:
AS AT DECEMBER 31
(MILLIONS)
Investment properties
Property, plant and equipment
Sustainable resources
Investments
Cash and cash equivalents
Financial assets
Accounts receivable and other
Inventory
Intangible assets
Goodwill
Deferred income tax asset
Total Consolidated Assets
2013
2012
$
38,336
$
33,161
$
31,019
502
13,277
3,663
4,947
6,666
6,291
5,044
1,588
1,412
31,148
3,516
11,618
2,850
3,111
6,952
6,581
5,770
2,490
1,665
2011
28,366
22,865
3,381
9,332
2,031
3,773
6,732
6,062
3,974
2,607
2,113
$
112,745
$
108,862
$
91,236
Consolidated balance sheet assets increased to $112.7 billion at the end of 2013. This represents an increase of $3.9 billion over
the 2012 year end, which followed a $17.6 billion increase between 2011 and 2012. Acquisition and development initiatives
increased the carrying value of our investment properties, property, plant and equipment, and investments as well as positive
fair value changes. We sold $6.0 billion of non-core assets during 2013, including Pacific Northwest timberlands within our
sustainable resources operations, a pulp and paper company within our private equity operations and numerous non-core
investment properties within our property operations. A higher U.S. dollar resulted in a decrease the translated value of assets
denominated in non-U.S. dollar currencies, which further offset the impact of acquisition and development initiatives in 2013
and had a smaller impact in 2012.
26 BROOKFIELD ASSET MANAGEMENT
Investment Properties
The following table presents the major contributors to the year-over-year variances for our investment properties:
AS AT AND FOR THE YEARS ENDED DECEMBER 31
(MILLIONS)
Balance, beginning of year
Acquisitions and additions
Dispositions
Fair value changes
Foreign currency translation
Net increase
Balance, end of year
2013
$
33,161
$
7,365
(1,908)
1,031
(1,313)
5,175
2012
28,366
4,508
(1,136)
1,276
147
4,795
$
38,336
$
33,161
Acquisitions and development activity increased our investment properties by $7.4 billion. Acquisitions included logistics and
distribution properties in the UK and the southwestern U.S. The company also purchased, together with fund partners, a large
portfolio of office properties in Los Angeles. We sold 56 properties during the year, which decreased investment properties
by $1.9 billion and crystallized $244 million of valuation gains. The prior year included $107 million of losses on non-core
asset sales.
Fair value changes increased carrying values by $1,031 million (2012 – $1,276 million), as discussed on page 23.
The fair value of investment properties is generally determined by discounting the expected future cash flows of the properties,
generally over a term of 10 years using discount and terminal capitalization rates reflective of the characteristics, location
and market of each property. The key valuation metrics of our investment properties are presented in the following table on
a weighted average basis, disaggregated into the principal operations of our property segment for analysis purposes. The
valuations are most sensitive to changes in discount rates 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) usually give rise to increased cash flows although
timing may vary.
Office
Retail
Multifamily,
Industrial and Other
Weighted
Average
AS AT DECEMBER 31
Discount rate
Terminal capitalization rate
Investment horizon (years)
2013
7.4%
6.3%
11
2012
7.6%
6.5%
11
2013
9.2%
7.6%
10
2012
8.7%
7.5%
10
2013
8.6%
7.5%
10
2012
8.8%
8.1%
10
2013
7.7%
6.6%
11
2012
7.8%
6.8%
11
Property, Plant and Equipment
The following table presents the major components of the year-over-year variances for our property, plant and equipment
(“PP&E”), disaggregated by operating platform for analysis purposes:
Renewable
Energy
Infrastructure
Property
Other
Total
AS AT AND FOR THE YEARS ENDED DECEMBER 31
(MILLIONS)
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
Balance, beginning of year
$ 16,532 $ 14,727 $ 8,736 $ 4,702 $ 2,968 $
640 $ 2,912 $ 2,796 $ 31,148 $ 22,865
Acquisitions and additions
1,606
1,530
533
3,472
Dispositions
Fair value changes
Depreciation
Foreign currency translation
(28)
(150)
(551)
(798)
(20)
830
(489)
(46)
Net increase (decrease)
79
1,805
(654)
691
(286)
(456)
(172)
(48)
707
(201)
104
4,034
153
(16)
166
2,490
—
4
(130)
(166)
(99)
74
—
2,328
656
(336)
(94)
(217)
(119)
(110)
469
(64)
(58)
2,948
7,961
(1,034)
(132)
613
1,483
(283)
(1,184)
(1,139)
52
116
(1,472)
110
(129)
8,283
Balance, end of year
$ 16,611 $ 16,532 $ 8,564 $ 8,736 $ 3,042 $ 2,968 $ 2,802 $ 2,912 $ 31,019 $ 31,148
We carry PP&E in our renewable energy operations and a significant portion of the PP&E within our infrastructure operations
at fair value and revalue these assets at the end of each fiscal year.
2013 ANNUAL REPORT 27
Renewable Energy
Renewable energy PP&E increased slightly to $16.6 billion during 2013. Acquisition and development activity added $1.6 billion
of assets during the year (2012 – $1.5 billion), which was offset by $551 million of depreciation, a $150 million fair value
reduction and a decrease of $798 million due to the impact of lower currency exchange rates on our Brazilian and Canadian
operations.
We acquired additional hydroelectric facilities in Tennessee, New England and Brazil and completed the development of wind
energy facilities in Brazil. We also acquired the remaining 50% of a joint venture and commenced consolidating the PP&E
within the venture, which was previously included in investments.
In 2012 we acquired nearly 1,000 megawatts of renewable power facilities capacity through our institutional funds including two
large-scale hydroelectric portfolios valued at $1.4 billion.
We discuss fair value changes on pages 25 and 26.
The key valuation metrics of our hydro and wind generating facilities at the end of 2013 and 2012 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 to 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 common equity by $1.8 billion and
$0.5 billion, respectively.
United States
Canada
Brazil
Dec. 31, 2013 Dec. 31, 2012 Dec. 31, 2013 Dec. 31, 2012 Dec. 31, 2013 Dec. 31, 2012
Discount rate
Contracted
Uncontracted
Terminal capitalization rate
Exit date
5.8%
7.6%
7.1%
2033
5.2%
7.0%
7.0%
2032
5.1%
6.9%
6.4%
2033
4.7%
6.5%
6.5%
2032
9.1%
10.4%
n/a
2029
8.6%
9.9%
n/a
2029
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.
Infrastructure
Infrastructure PP&E decreased slightly to $8.6 billion during 2013. During the year we sold our Pacific Northwest timberlands
and the associated production assets which reduced PP&E by $654 million after having increased by $3.4 billion during 2012.
Fair value changes increased the carrying values by $691 million during 2013 (2012 – $707 million), as discussed on pages
25 and 26. During 2012 we completed the acquisition of a UK regulated distribution business and a Chilean toll road which
contributed towards a $3.5 billion increase in PP&E. The decline in the exchange rates for the Australian and Brazilian currency
contributed to a $456 million decrease due to foreign currency translation.
We revalue our infrastructure assets on an annual basis using discounted cash flow models, which includes estimates of
forecasted revenues, operating costs, maintenance and other capital expenditures. Discount rates are selected for each asset
giving consideration to the assets revenue streams and geography where they are located.
The key valuation metrics of our utilities, transport and energy operations are summarized below:
Utilities
Transport
Energy
Dec. 31, 2013 Dec. 31, 2012 Dec. 31, 2013 Dec. 31, 2012 Dec. 31, 2013 Dec. 31, 2012
Discount rate
8% – 13%
8% – 13% 11% – 12% 11% – 12% 15% – 16% 12% – 15%
Terminal capitalization multiples
10x – 16x
Investment horizon (years)
10 – 20
9x – 17x
10 – 20
7x – 11x
10 – 11
8x – 11x
10 – 11
8x – 12x
10 – 11
7x – 8x
10 – 11
28 BROOKFIELD ASSET MANAGEMENT
Property
Property PP&E primarily consists of hotel and resort operations, which increased by $74 million. The largest change was the
increase in the valuation of a resort operation which increased in value based on increased expected cash flows. We acquired a
controlling interest in a large resort property in 2012 which gave rise to a $2.5 billion increase in property PP&E in that year.
Key valuation assumptions for our hospitality operations included a weighted average discount rate of 10.5% (2012 – 9.9%),
terminal capitalization rate of 7.6% (2012 – 7.5%), and investment horizon of 7 years (2012 – 5 years).
Sustainable Resources
Sustainable resources declined to $0.5 billion at December 31, 2013. The $3 billion reduction is due almost entirely to the sale
of our Pacific Northwest and Western Canadian timber operations. We carry our sustainable resources assets at fair value, and
revalue them quarterly with adjustments recorded as fair value changes in our statement of operations. We recorded modest
fair value gains during each of 2013 and 2012. During 2012 our sustainable resource assets increased due to an increase in the
valuation of these assets.
Our sustainable resources key valuation assumptions include a weighted average discount and terminal capitalization rate of
6.9% (2012 – 6.2%), and terminal valuation dates of 20 to 28 years (2012 – 20 to 90 years). Timber and agricultural asset prices
were based on a combination of forward prices available in the market and the price forecasts. The decrease in terminal valuation
dates was a result of the sale of our Pacific Northwest timber operations.
Investments
Our largest investment is a 28% interest in General Growth Properties (“GGP”) with a carrying value at December 31, 2013
of $6.0 billion. Certain of our investee entities, including GGP, carry their assets at fair value, in which case we record our
proportionate share of any fair value adjustments. Changes in the carrying values of equity accounted investments typically
relate to the purchase or sale of shares and our share of their comprehensive income, including fair value changes, and are
reduced by our share of any dividends or other distributions.
Investments increased by $1.7 billion during 2013 and by $2.3 billion during 2012. The majority of the increases in 2013 include
our follow-on investment in GGP ($995 million) and in our South American toll roads. These increases were partially offset by
valuation charges against the carrying value of our natural gas pipeline investment and GGP, as well as lower foreign currency
valuation.
Investments increased by $2.3 billion in 2012, reflecting our share of their net income, in particular fair value changes, and we
acquired several equity accounted investments within our infrastructure operations.
GGP owns a large U.S. retail mall portfolio which at year end was valued on a discounted cash flow basis using a discount rate
of 7.6%, a terminal capitalization rate of 5.8%, and an investment horizon of 10 years.
Intangible Assets
Intangible assets relate primarily to concession arrangements within our infrastructure operations, in particular our Australian
coal terminal ($2.2 billion) and Chilean toll roads ($1.3 billion). Intangible assets declined by $726 million during 2013 due to
amortization and the impact of lower exchange rates on intangible assets within non-U.S. operations. Intangibles increased by
$1.7 billion during 2012 as the acquisition of the Chilean toll roads during the year gave rise to $1.4 billion of intangibles at the
year end and amortization was offset by foreign currency appreciation.
Goodwill
Goodwill decreased by $902 million from December 31, 2012 to $1,588 million, primarily due to the elimination of $591 million
of goodwill within our Pacific Northwest timberlands, which were sold during 2012 and a reduction in non-U.S. dollar balances
from negative currency revaluation. During 2012 goodwill decreased due to the impact of lower exchange rates on the translated
value of goodwill in our Brazilian residential operations, and the sale of a property services business.
2013 ANNUAL REPORT 29
Borrowings and Other Non-Current 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
Non-current accounts payable
and other liabilities1
Capital securities
Other non-current financial
liabilities
2013
2012
2011
2013 vs 2012
2012 vs 2011
$
3,975 $
3,526 $
3,701 $
449 $
(175)
35,495
7,392
4,322
791
1,086
33,720
7,585
5,440
1,191
425
28,487
4,441
3,771
1,650
333
1,775
(193)
(1,118)
(400)
661
$
53,061 $
51,887 $
42,383 $
1,174 $
5,233
3,144
1,669
(459)
92
9,504
1.
Excludes accounts payable and other liabilities that are due within one year. See Note 16 to our Consolidated Financial Statements for 2013 and 2012 balances
Corporate borrowings increased by $449 million in part from financings completed to fund the settlement of the long-dated
interest swap contract that was included in subsidiary borrowings, offset by proceeds received on asset sales.
The increase in property-specific borrowings of $1.8 billion during 2013 ($5.2 billion in 2012) is due primarily to borrowings
incurred or assumed to fund acquisitions within our property and infrastructure operations. Borrowings are generally denominated
in the same currencies as the assets they finance and therefore as the U.S. dollar appreciated during the 2013, our non-U.S. dollar
denominated borrowings decreased in value.
The decrease in subsidiary borrowings of $193 million during 2013 is attributable to the settlement of a long-dated interest
rate swap contract which was carried at $1.1 billion in the prior year. Offsetting this reduction is increased borrowings under
subsidiary credit facilities to finance acquisitions, usually as bridge financing until long-term financing can be arranged, as well
as the issuance of long-term corporate bonds by our managed listed issuers. The increase in subsidiary borrowings of $3.1 billion
during 2012 reflects acquisitions as well as the issuance of long-term corporate bonds.
Accounts payable and other liabilities with a maturity greater than one year decreased from year end, primarily a result of the
timing of payments and the completion of construction in our Brazilian residential operations, partially offset by foreign currency
translation. We also extinguished a $213 million mark-to-market liability on settlement of the interest rate swap contract. The
increase in 2012 was a result of long-term liabilities assumed on acquisitions within our property and infrastructure operations
and continued expansion of our residential development operations.
In 2012 and 2013 we redeemed C$500 million and C$350 million of capital securities, respectively, with the proceeds from
preferred shares issued at lower rates.
Equity
Consolidated equity increased by $3.2 billion in 2013 following a $6.8 billion increase during 2012. The 2013 increase primarily
reflects $3.8 billion of net income, and $1.6 billion of net equity issuances, offset by $1.5 billion of shareholder distributions
and $1.2 billion of negative revaluation from other comprehensive income, which included a $2.4 billion reduction from foreign
currency translation.
We paid a $906 million special dividend of a 7.6% interest in Brookfield Property Partners L.P. (“BPY” or “Brookfield Property
Partners”) resulting in a reduction in common equity and a corresponding increase in non-controlling interests. Non-controlling
interests increased overall by $3.4 billion due to the BPY special dividend, capital called in our private equity funds and the
sale of units of Brookfield Renewable by us during the first quarter of 2013, offset by a $1.2 billion negative foreign currency
translation revaluation.
In 2012 non-controlling interests increased by $4.7 billion which reflects the acquisition of consolidated businesses, particularly
within our infrastructure operations, as well as undistributed comprehensive income and increases in revaluation surplus
attributable to non-controlling interests, including fair value changes, which totalled $1.9 billion. Common equity increased
by $1.4 billion in 2012, reflecting comprehensive income for shareholders and increases in revaluation surplus less shareholder
distributions.
We provide a more detailed discussion of our capitalization in Part 4 of the MD&A.
30 BROOKFIELD ASSET MANAGEMENT
QUARTERLY FINANCIAL PERFORMANCE
Our condensed statement of operations for the eight most recent quarters are as follows:
FOR THE THREE MONTHS ENDED
(MILLIONS EXCEPT PER SHARE AMOUNTS)
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
Total revenues and other gains
$ 5,537 $ 5,176 $ 5,166 $ 4,951 $ 5,641 $ 4,661 $ 4,425 $ 4,039
2013
2012
Direct costs
Other income
Equity accounted income
Expenses
Interest
Corporate costs
Fair value changes
Depreciation and amortization
Income taxes
Net income
Net income for shareholders
Per share
- diluted
- basic
$
$
$
$
Summary of Quarterly Results
(3,672)
(3,230)
(3,606)
(3,420)
(4,393)
(3,420)
(3,284)
(2,864)
—
75
(613)
(36)
33
(360)
(114)
525
194
(617)
(36)
104
(357)
(264)
—
224
(668)
(36)
465
(373)
(370)
—
266
(655)
(44)
61
(365)
(97)
—
338
(638)
(40)
415
(352)
(192)
—
254
(593)
(41)
495
(327)
(154)
—
257
(614)
(35)
(100)
(287)
17
—
388
(655)
(42)
343
(297)
(190)
850 $ 1,495 $
802 $
697 $
779 $
875 $
379 $
722
717 $
813 $
230 $
360 $
492 $
334 $
138 $
416
1.08 $
1.23 $
0.31 $
0.51 $
0.72 $
0.48 $
0.17 $
1.11 $
1.26 $
0.31 $
0.52 $
0.74 $
0.49 $
0.17 $
0.60
0.63
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 timing and
amount of realized disposition gains and losses also impacts our consolidated results.
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. In the fourth quarter of 2013 we earned a carried interest distribution of
$558 million on the reorganization of the consortium that acquired our U.S. shopping mall business.
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.
Water flows and pricing within our renewable energy 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 infrastructure operations are generally stable in nature, as a result of the long-term sales and volumes contracts with our
clients.
Our private equity operations 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. We disposed of a pulp and paper business
within our private equity operations during the third quarter of 2013 and recognized $664 million of revenue on disposition.
Our residential development operations include our North American and Brazilian 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.
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.
The third quarter of 2013 includes other income of $525 million on the settlement of a swap agreement which more than offset
the seasonal reduction in renewable energy revenues.
We generally finance our operations with long-dated fixed-rate borrowings which results in interest expense being relatively
consistent on a quarterly basis.
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. Most of these relate to our commercial office portfolios, which have benefitted
2013 ANNUAL REPORT 31
from declines in discount rates and increasing cash flows from leasing and redevelopment activity over the past eight quarters.
Equity accounted income also includes fair value changes, most of which relate to our investment in General Growth Properties’
commercial retail properties, which have benefitted from similar factors as our office portfolios.
Depreciation and amortization increased in 2013 as a result of completion of capital expansion projects and new acquisitions
in our renewable energy and infrastructure operations, and increased in 2012 as a result of a higher valuation on our renewable
energy assets and acquisitions in that year.
In the fourth quarter of 2012 we acquired and commenced consolidating a number of businesses within our property and
infrastructure businesses resulting in increased revenues, direct costs and interest expense.
Fourth Quarter Results
We recognized $850 million of net income in the fourth quarter of 2013, $717 million of which was attributable to shareholders.
Net income to shareholders in the prior year comparable period was $492 million. The increase was primarily from $558 million
of carried interest earned in respect of our private funds. Our infrastructure operations benefitted from the contribution of newly
acquired assets and completed development projects coming online and our renewable energy operations saw a return to near-
average water levels. 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.
32 BROOKFIELD ASSET MANAGEMENT
CORPORATE DIVIDENDS
The dividends paid by Brookfield on outstanding securities during the past three years are as follows:
Class A and B* Shares
Special distribution to Class A and B Shares1
Class A Preferred Shares
Series 2
Series 4 + Series 7
Series 8
Series 9
Series 102
Series 113
Series 12
Series 13
Series 14
Series 15
Series 17
Series 18
Series 214
Series 22
Series 243
Series 264
Series 285
Series 306
Series 327
Series 348
Series 369
Series 3710
Distribution per Security
2013
0.64
1.47
$
2012
0.55
—
$
$
0.51
0.51
0.73
0.92
—
—
1.31
0.51
1.83
0.41
1.15
1.15
0.62
1.70
1.31
1.09
1.12
1.17
1.09
1.02
1.29
0.64
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
—
—
2011
0.52
—
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
—
—
—
—
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
*
Distribution of a 7.6% interest in Brookfield Property Partners based in IFRS values, paid April 15, 2013
Redeemed April 5, 2012
Redeemed October 1, 2012
Issued July 2, 2013
Issued February 8, 2011
Issued November 2, 2011
Issued March 13, 2012
Issued September 12, 2012
Initial distribution in 2013 includes $0.11 for the period from November 27, 2012 to December 31, 2012
Initial distribution includes $0.06 for the period from June 13, 2013 to June 30, 2013
Class B Limited Voting Shares (“Class B Shares”)
Dividends on the Class A and B Shares are declared in U.S. dollars whereas Class A Preferred Share dividends are declared in
Canadian dollars.
2013 ANNUAL REPORT 33
PART 3 – OPERATING SEGMENT RESULTS
BASIS OF PRESENTATION
How We Measure and Report Our Operating Segments
Our operations are organized into four operating platforms in addition to our corporate and asset management activities, which
collectively represent eight operating segments. We measure performance primarily using the funds from operations generated
by each operating segment and the amount of capital invested by the Corporation in each segment.
Our operating segments are described below:
i.
ii.
iii.
iv.
v.
vi.
vii.
Asset management operations consist of managing our listed entities, private funds and public securities on behalf of our
clients and ourselves. We generate contractual base management fees for these activities and we also are entitled to earn
performance fees, including incentive distributions, performance fees and carried interests. We also provide transaction
and advisory services.
Property operations include the ownership and operation of office properties, retail properties, industrial, multifamily,
and other property investments located primarily in major North American, Australian, Brazilian and European cities.
Renewable energy operations include the ownership and operation of primarily hydroelectric power generating facilities
on river systems in North America and Brazil, and wind power generating facilities in North America.
Infrastructure operations include the ownership and operation of utilities, transport, energy, and timberlands and
agricultural operations located in Australia, North America, Europe and South America.
Private equity operations include the investments and activities overseen by our private equity group. These include direct
investments and investments in our private equity funds. Our private equity funds have a mandate to invest in a broad
range of industries.
Residential development operations consist predominantly of homebuilding and land development in North America, and
condominium development in Brazil.
Service activities include construction management and contracting, and property services operations which include
global corporate relocation, facilities management and residential brokerage services.
viii. Corporate activities include the investment of the company’s cash and financial assets, as well as the management of our
corporate capitalization, including corporate borrowings, capital securities and preferred equity which fund a portion of
the capital invested in our other operations. Certain corporate costs such as technology and operations are incurred on
behalf of all of our operating segments and allocated to each operating segment based on an internal pricing framework.
During the current year, we changed the internal organization and supervision of our operating businesses to align our structure
more closely with the nature of the operations of our investments, which gave rise to changes in how we report information for
management reporting and decision making purposes. We have restated the comparative information in this MD&A to conform
with the new presentation.
Segment Financial Measures
The following section contains a description of key 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. The
non-IFRS measures are reconciled to the most comparable financial statement component in Note 3 to our consolidated financial
statements beginning on page 97 of this report.
Funds from Operations (“FFO”) is a key measure of our financial performance and we use FFO to assess operating results and
our business.
FFO includes gains or losses arising from transactions during the reporting period adjusted to include fair value changes and
revaluation surplus recorded in prior periods net of taxes payable or receivable, as well as amounts that are recorded directly in
equity, such as ownership changes, as opposed to net income because they result from a change in ownership of a consolidated
entity (“realized disposition gains”). We include realized disposition gains in FFO because we consider the purchase and sale of
assets to be a normal part of the company’s business. 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.
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. The key differences between our definition of funds from operations and the determination of funds from operations by
REALPAC and/or NAREIT, are that we include the following: realized 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.
34 BROOKFIELD ASSET MANAGEMENT
We do not use FFO as a measure of cash generated from our operations. We derive funds from operations for each operating
segment and reconcile total reportable segment FFO to net income in Note 3 of the consolidated financial statements and on
page 37.
In assessing results, we identify the portion of FFO that represents realized disposition gains or losses, as well as the FFO and
segment equity that relates to our primary listed entities: Brookfield Property Partners, Brookfield Renewable Energy Partners
and Brookfield Infrastructure Partners. We believe that identifying the segment FFO and segment equity attributable to our listed
entities enables investors to understand how the results of these public entities are integrated into our financial results and that
identifying realized disposition gains is helpful in understanding variances between reporting periods.
Segment Operating Measures and Definitions
The following are non-IFRS operating measures and definitions of terms that we employ to describe and assess the performance
on a segmented basis. The calculation of these measures may differ from others and as a result, may not be comparable to similar
measures presented by other issuers.
Fee Bearing Capital represents the capital committed, pledged or invested in our listed issuers, private funds, and public
securities that we manage which entitle us to earn fee revenues and/or carried interests. Fee bearing capital includes both called
(“invested”) and uncalled (“pledged” or “committed”) amounts. We believe this measure is useful to investors as it provides
additional insight into the capital base upon which we earn asset management fees and other forms of compensation.
Fee Revenues include base management fees, incentive distributions, performance fees and transaction and advisory fees
presented within our asset management segment. Many of these items are not included in consolidated revenues because they
are earned from consolidated entities and are eliminated on consolidation. Fee revenues exclude carried interest.
Fee Related Earnings is comprised of fee revenues less direct costs (other than costs related to carried interests). We use this
measure to provide additional insight into the operating profitability of our asset management activities and believe that it is
useful to investors for the same reason.
Base Management Fees are determined by contractual arrangements, are typically equal to a percentage of Fee Bearing Capital,
are accrued quarterly, include base fees earned on fee bearing capital from both clients and ourselves and are typically earned on
both called and uncalled amounts.
Incentive Distributions are determined by contractual arrangements and are paid to us by our three primary listed entities and
represent a portion of distributions paid by a listed issuer above a pre-determined threshold. Incentive distributions are accrued
when the associated distributions are declared by the board of directors of the entity.
Performance Fees are paid to us when we exceed pre-determined investment returns on certain portfolios managed in our public
securities activities. Performance fees are typically determined on an annual basis and are not subject to “clawback.”
Carried Interests are contractual arrangements whereby we receive a fixed percentage of investment gains generated within a
private fund provided that the investors receive a pre-determined minimum return. Carried interests are typically paid towards
the end of the life of a fund after the capital has been returned to investors and may be subject to “clawback” 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. Unlike fees and incentive distributions,
we only include carried interests earned in respect of third-party capital when determining our segment results.
Unrealized Carried Interests is a non-IFRS measure that represents the amount of carried interest that we would be entitled to if
private funds were wound up on the last day of the reporting period, based on the estimated value of the underlying investments.
We use this measure to gain additional insight into how investment performance is impacting our potential to earn carried
interests in future periods and believe that it is useful to investors for the same reason.
Uninvested Capital (also referred to as “Dry Powder” or “Client Commitments”) represents capital that has been committed or
pledged to private funds managed by us. 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. In certain cases, we earn fees only once the capital is invested
or earn a higher fee on invested capital than committed capital. 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.”
Average in-place Net Rents are a measure of leasing performance within our property segment, and calculated 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.
Long-term Average Generation is compared to actual generation levels to assess the impact on revenues and FFO of hydrology
and wind generation levels, in our renewable energy segment, which vary from one period to the next in the short term. Long-
term average generation is determined based on assets in commercial operation during the year. For assets acquired or reaching
commercial operation during the year, long-term generation is calculated from the acquisition or commercial operation date. In
Brazil, assured generation levels are used as a proxy for long-term average.
2013 ANNUAL REPORT 35
Realized Disposition Gains/Losses include gains or losses arising from transactions during the reporting period together with
any fair value changes and revaluation surplus recorded in prior periods and are represented net of taxes payable or receivable.
Realized disposition gains include amounts that are recorded in net income, other comprehensive income and as ownership
changes in our consolidated statement of equity and exclude amounts attributable to non-controlling interests unless otherwise
noted. We use realized disposition gains/losses to provide additional insight regarding the performance of investments on a
cumulative realized basis, including any unrealized fair value adjustments that were recorded in prior periods and not otherwise
reflected in current period FFO and believe it is useful to investors for similar reasons.
SUMMARY OF RESULTS BY OPERATING SEGMENT
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)
2013
2012
Variance
2013
2012
Variance
Funds from
Operations
Common Equity
by Segment
Asset management
Property
Renewable energy
Infrastructure
Private equity
Residential development
Service activities
Corporate activities
Funds From Operations
$
$
865
554
447
472
612
46
157
223
$
194
537
313
224
227
34
229
(402)
671
17
134
248
385
12
(72)
625
$
216
$
245
$
13,339
12,958
4,428
2,171
1,105
1,435
1,286
4,976
2,571
957
1,617
1,325
(6,199)
(6,499)
(29)
381
(548)
(400)
148
(182)
(39)
300
$
3,376
$
1,356
$
2,020
$ 17,781
$ 18,150
$
(369)
FFO from asset management activities was $865 million during 2013, and consisted of $565 million (2012 – $14 million) of
carried interest and $300 million (2012 – $180 million) of fee related earnings. We recorded $558 million of carried interest
on the wind up of the consortium that acquired our U.S. shopping business, representing our share of the gains generated for
our clients on this investment. Fee related earnings increased by $120 million over 2012, primarily due to a higher level of
fee bearing capital, which reflected additional capital committed to our private funds, capital issuances by our listed entities,
including the formation of BPY, and increases in market values.
FFO from our property operations was $554 million for the year, which increased by $17 million over 2012 and included
$28 million of realized disposition gains, whereas the prior year included $107 million of realized disposition losses. We
distributed a 7.6% interest in BPY to shareholders in April 2013 and because we hold the majority of our property operations
through BPY, this resulted in a reduced ownership of the underlying businesses and accordingly reduced the current year’s FFO
by $31 million on a comparative basis. Segment results include $36 million of asset management fees paid to Brookfield by
BPY, which commenced upon the formation of BPY in April 2013, reducing 2013 FFO on a comparable basis. Our portfolios
continue to perform well, with U.S. retail sales increasing 12% on a suite-to-suite basis. Our U.S. office occupancy decreased by
440 bps, largely due to a lease expiry in New York in the fourth quarter of 2013, which resulted in a $19 million decrease to FFO.
Our renewable energy operations contributed $447 million of FFO compared to $313 million in the comparative period, which
included a $172 million increase in FFO from operating activities. Generation increased 39% or 6,280 gigawatt hours (“GWh”)
compared to 2012, due to increased generation from newly acquired and commissioned facilities and above average hydrology
levels, whereas water flows in the prior year were significantly below average. Improved hydrology conditions increased FFO
by $122 million from facilities owned throughout 2013 and 2012. New facilities contributed an additional $39 million of FFO.
Increases in market prices for power not sold under long-term contract increased FFO by $68 million. These positive variances
were partially offset by a decreased ownership interest in Brookfield Renewable Energy Partners, following the sale of units by
us in the first quarter of 2013, increased borrowing levels to fund growth, capital expenditures and negative foreign currency
exchange rates.
Infrastructure FFO was $472 million, an increase of $248 million over the prior year. We recognized $250 million of realized
disposition gains in 2013, including the sale of our Pacific Northwest timber operations. The primary increase in FFO apart
from the realized disposition gains was from the contribution from new assets and completed development projects, including
$23 million of FFO from the completion of our rail expansion program, and our South American toll roads contributed an
additional $22 million. These positive variances were partially offset by the elimination of FFO from assets disposed of during
the year and challenging North American natural gas pricing, impacting our gas transmission business.
36 BROOKFIELD ASSET MANAGEMENT
FFO from our private equity operations increased by $385 million to $612 million compared to $227 million in the prior year and
included $316 million (2012 – $15 million) of realized disposition gains. Excluding realized disposition gains, FFO for 2013 was
$296 million (2012 – $212 million). The increase of $84 million reflects improved pricing and volumes in businesses related to
the U.S. housing market, particularly our panelboard manufacturing operations.
Our residential development operations contributed $46 million of FFO (2012 – $34 million). The contribution from our North
American operations increased by $53 million due to increased pricing and volumes within our U.S. operations. The contribution
from our Brazil operations declined by $25 million, as these operations continue to be challenged by increased construction costs
and slower economic growth.
FFO from our services activities was $157 million (2012 – $229 million). The 2012 results included a $70 million realization gain
on the partial disposition of our U.S. brokerage operations. FFO excluding realized disposition gains was relatively unchanged.
Our construction operations increased over the prior year, as we continue to manage an increased volume of work which was
offset by a reduced ownership level in our property services operations.
FFO from corporate activities includes a $525 million gain on the settlement of a long-dated interest rate swap, which
also resulted in reduced levels of borrowings and a lower interest rates following the settlement. Capital markets performed
strongly in 2013 and we benefitted from an additional $61 million contribution from our financial asset portfolio, compared to
the prior year.
Common Equity by Segment
Property segment common equity increased by $0.4 billion during the year. We acquired an additional 51 million units of BPY
for $995 million in the fourth quarter, offsetting the impact of the spin-off of a 7.6% interest in BPY ($906 million). The current
year’s FFO and $851 million of fair value changes also increased property segment equity. Our renewable energy segment
common equity decreased by $548 million, which included a $233 million sale of 8.1 million units of BREP in the first quarter
of 2013, and the impact of lower foreign currency exchange rates and higher discount rates on asset valuations. We disposed our
Pacific Northwest timberland operations in the third quarter of 2013, which reduced our infrastructure segment common equity
by $600 million.
Reconciliation of Non-IFRS Measures
The following table reconciles total operating segment FFO to net income:
YEARS ENDED DECEMBER 31
(MILLIONS)
Total operating segment FFO
Gains not recorded in net income
Non-controlling interest in FFO
Financial statement components not included in FFO
Equity accounted fair value changes and other non-FFO items
Fair value changes
Depreciation and amortization
Deferred income taxes
Net income
ASSET MANAGEMENT
Overview
2013
$
3,376
$
(434)
2,465
(85)
663
(1,455)
(686)
$
3,844
$
2012
1,356
(183)
1,498
578
1,153
(1,263)
(384)
2,755
Our asset management operations consist of managing listed entities, private funds and public securities on behalf of ourselves
and our clients. As at December 31, 2013, we managed approximately $80 billion of fee bearing capital, of which approximately
$54 billion was from clients and the balance was from Brookfield. We also provide transaction and other advisory services. The
following table disaggregates segment FFO into fee related earnings and carried interests to facilitate analysis.
AS AT AND FOR THE YEARS ENDED DECEMBER 31
(MILLIONS)
Funds from operations
Fee related earnings
Carried interests
2013
2012
$
$
300
565
865
$
$
180
14
194
Revenues in this segment include fees earned by us in respect of capital managed for clients as well as the capital provided by
Brookfield, with the exception of carried interests and performance fees which exclude amounts earned on Brookfield capital. This
is representative of how we manage the business and more appropriately measures the returns from our asset management activities
2013 ANNUAL REPORT 37
and the returns from the capital invested in our funds. We do not recognize carried interests until the end of any determination or
“clawback” period, which typically occurs at or near the end of a fund term, however we do provide supplemental information on
the estimated amount of unrealized carried interests that have accumulated to date based on fund performance up to the date of
the financial statements.
Fee Related Earnings
We generated the following fee related earnings during the year:
FOR THE YEARS ENDED DECEMBER 31
(MILLIONS)
Fee revenues
Base management fees
Incentive distributions
Performance fees
Transaction and advisory fees
Direct costs
Fee related earnings
2013
2012
$
502
$
32
30
53
617
(317)
$
300
$
352
15
17
53
437
(257)
180
Fee related earnings increased by 67% to $300 million for the year, as a result of substantial increases in fee bearing capital and
associated revenues as well as operating margins.
Base management fees increased 43% to $502 million compared to $352 million in the prior year. Our private funds contributed
$68 million to the increase mainly resulting from new commitments to our infrastructure and real estate flagship funds, including
$15 million of catch-up fees that had been deferred until the final close of a large real estate fund during 2013. Some of our
private funds earn fees only on invested capital or earn higher fees once capital is invested. We estimate that private fund base
management fees will increase by approximately $18 million upon calling the $9.0 billion of third-party capital that has not been
invested to date. Increases in the capitalization of our listed issuers through unit price appreciation and issuance of new capital
added a further $57 million of base fees. We earned $36 million of fees from Brookfield Property Partners, which was launched
in April 2013 and pays a minimum base fee to us of $50 million per year. Base fees from our public securities activities increased
by $25 million due to net inflows and market value appreciation of the securities under management. Base management fees
include $172 million (2012 – $119 million) earned in respect of Brookfield capital.
We received $32 million of incentive distributions from Brookfield Infrastructure Partners during 2013, representing an increase
of $17 million from 2012. The increase was the result of a 15% growth in BIP’s limited partnership unit distributions from $1.50
per unit during 2012 to $1.72 per unit in 2013.
We earned $30 million of performance fees for managing public securities portfolios, based on exceeding performance thresholds
in a number of our strategies, in particular our real estate hedge funds and structured products funds.
Transaction and advisory fees totalled $53 million in 2013, consistent with the prior year. We have expanded our investment
banking activities into the U.S., UK and India and we 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 business related technology costs and other
shared services. Operating margins, which are calculated as fee related earnings divided by fee revenues, increased to 49% for
the year, compared to 41% in 2012. We had expanded our operating capabilities considerably in prior years, which enabled us to
expand our asset management revenues without a commensurate increase in operating costs. Gross margins also benefitted from
the receipt of catch-up base management fees and increased performance fees during 2013. Direct costs increased by $60 million
year-over-year in particular due to geographic expansion in our infrastructure, public securities and advisory businesses, as well
as $25 million of costs reallocated from our corporate activities segment to our asset management segment following the launch
of Brookfield Property Partners and $9 million of additional costs incurred that directly relate to employee compensation income
based on the in-year performance fees.
Carried Interests
We concluded the initial phase of our investment in GGP with the reorganization of the consortium that we established to acquire
our initial investment. This reorganization enabled our clients to convert this investment into cash, units of Brookfield Property
Partners, or to continue to hold their GGP shares with us as manager. This investment had a 38% gross IRR and 2.6x gross
multiple of equity invested and we received $558 million of accumulated carried interest in accordance with the terms of our
consortium agreements.
38 BROOKFIELD ASSET MANAGEMENT
Accumulated unrealized carried interest totalled $318 million at December 31, 2013. This represents an increase of $195 million
compared to last year, prior to the $566 million realized in the year. We estimate that direct expenses of approximately $118 million
will arise on the realization of the income accumulated to date. The amount of unrealized carried interests and associated costs
are shown in the following table:
AS AT DECEMBER 31
(MILLIONS)
Unrealized balance, beginning
of year
In-period change
Generated
Less: realized
Unrealized
Carried
Interest
2013
Direct
Costs
2012
Unrealized
Carried
Interest
Net
Direct
Costs
Net
$
689
$
(57)
$
632
$
379
$
(51)
$
328
195
(566)
(62)
1
133
(565)
327
(17)
689
(9)
3
$
(57)
$
318
(14)
632
Unrealized balance, end of year
$
318
$
(118)
$
200
$
Fee Bearing Capital
The following table summarizes our fee bearing capital:
AS AT DECEMBER 31
(MILLIONS)
Property
Renewable energy
Infrastructure
Private equity
Other
December 31, 2013
December 31, 2012
Listed
Issuers1
15,396
9,325
8,276
—
—
32,997
21,301
$
$
$
$
$
$
Private
Funds1
12,185
2,169
8,588
2,683
—
25,625
23,244
Public
Securities
2,732
—
4,853
—
13,086
20,671
15,524
$
$
$
$
$
$
Total
30,313
11,494
21,717
2,683
13,086
79,293
2012
18,133
10,559
16,497
2,720
12,160
n/a
n/a
$
60,069
1.
Includes Brookfield capital of $6.0 billion in private funds and $19.7 billion in listed issuers
Fee bearing capital includes all capital on which we receive some form of asset management revenue and includes capital
committed or invested by us. For example, we include 100% of the market capitalization of listed issuers such as BIP and private
funds such as our private equity funds 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.
Listed issuer capital includes the market capitalization of our listed issuers: BPY, BREP, BIP, Brookfield Canada Office Properties,
Acadian Timber Corp. and several smaller listed entities. Fee bearing capital also includes corporate debt and preferred shares
issued by these entities to the extent these are included in determining base management fees.
The private fund capital includes $16.6 billion of invested capital and $9.0 billion of capital that has not been invested to
date but which is available to pursue acquisitions within each fund’s specific mandate. Of the total “dry powder,” $2.8 billion
relates to property funds, $5.3 billion relates to infrastructure funds and $0.9 billion relates to private equity funds. The invested
capital has an average term of 10 years and the uncalled capital has an average term during which it can be called of approximately
four years.
We manage fixed income and equity securities within our public securities operations, with a particular focus on real estate and
infrastructure, including high yield and distress securities.
2013 ANNUAL REPORT 39
Fee bearing capital increased by $19.2 billion during 2013. The principal variances are set out in the following table:
FOR THE YEAR ENDED DECEMBER 31, 2013
(MILLIONS)
Balance, December 31, 2012
Inflows
Launch of Brookfield Property Partners
Outflows
Changes in market value
Foreign exchange and other
Change
Balance, December 31, 2013
Listed Issuers
21,301
$
$
2,100
11,518
(926)
235
(1,231)
11,696
32,997
$
$
Private
Funds
23,244
7,922
—
(5,332)
—
(209)
2,381
25,625
$
$
Public
Securities
15,524
$
7,056
—
(3,090)
1,181
—
5,147
20,671
$
Total
60,069
17,078
11,518
(9,348)
1,416
(1,440)
19,224
79,293
The increase in listed issuer capital of $11.7 billion primarily relates to the launch of Brookfield Property Partners L.P. (“BPY”)
in April 2013. Other inflows are related to the issuance of additional capital including $1.4 billion of BPY equity units in
connection with the GGP consortium reorganization, while outflows include quarterly cash distributions and repayment of
corporate borrowings.
Private fund fee bearing capital increased by $2.4 billion during the year to $25.6 billion. The increase reflects $7.9 billion of new
commitments offset by distributions and the return of capital to investors. We held the final close for several private funds during
the year including $4.4 billion for Brookfield Strategic Real Estate Partners and $7.0 billion for Brookfield Infrastructure II. In
addition, we closed a $1.0 billion global Timberlands Fund V, a $270 million Brazil Timber Fund II and raised $600 million for a
pooled investment in a group of Los Angeles office properties. During the year, we concluded our Brookfield Global Timber Fund,
following the sale of our Pacific Northwest timberlands and our Real Estate Turnaround Protocol Fund, upon the sale of our U.S.
retail shopping business which resulted in the return of approximately $7 billion to investors.
Fee bearing capital in our public securities business increased by $5.1 billion during the year due to record inflows of $7.1 billion.
We have continued to expand our range of higher margin mutual funds and similar products and have received strong interest
from clients, supported in part by excellent performance in many of our funds.
Outlook and Growth Initiatives
We continue to experience increased interest by institutions and other investors in real asset investments, which is the focus of
most of our investment strategies and products. Our fundraising activities experienced tremendous success in 2013, and we have
four funds in marketing seeking over $2 billion of third-party capital.
Our listed issuers continue to have strong access to capital and to meet or exceed their annual distribution growth targets. Our
property listed issuer, Brookfield Property Partners, is in the process of completing a merger with 51% owned Brookfield Office
Properties Inc. (“BPO”), its global office subsidiary. Based on the shares of BPO properties tendered as at the date of this report
we expect that the transaction will be completed during 2014 and will result in BPY issuing 186 million units, which will
increase our fee bearing capital by approximately $3.7 billion based on current market prices.
PROPERTY
Overview
We own virtually all of our commercial property assets through BPY, which is listed on the New York and Toronto Stock
Exchanges. We also own $1.3 billion of preferred shares of BPY which yield 6.2%, and a small number of other property assets.
BPY was launched in April 2013 with the distribution of a 7.6% interest to Brookfield shareholders. Since that time, BPY issued
additional equity units for $1.4 billion. We purchased 70% of the issued units for $1.0 billion, reducing our fully diluted interest
in BPY to 89%. We expect our fully diluted interest in BPY to decline to 66% following the merger with BPO.
BPY’s operations are principally organized as follows:
Office Properties: We own interests in and operate commercial office portfolios, consisting of 163 properties containing
over 93 million square feet of commercial office space. The properties are located in major financial, energy, technology and
government cities in North America, Europe and Australia. We also develop office properties on a selective basis in close
proximity to our existing properties and our office development assets consist of interests in 21 sites totalling approximately
19 million square feet. The majority of BPY’s office properties are held through our 51% owned BPO and a 22% equity interest
in Canary Wharf Group. Of the total properties in our office portfolio, 136 properties consisting of 80 million square feet are
consolidated and the remaining interests are either equity accounted or accounted for as a financial asset under IFRS. The merger
with BPO would provide BPY with 100% ownership of BPO’s office portfolio.
40 BROOKFIELD ASSET MANAGEMENT
Retail Properties: Our retail portfolio consists of an interest in 163 retail properties in the United States, Brazil and Australia,
encompassing 153 million square feet. Our North American retail operations are held through our 32% fully diluted interest in
GGP and a 39% interest in Rouse Properties, both of which are equity accounted. Our Brazilian operations are held through a
35% owned institutional fund managed by us, and we also own direct property interests in Australia. Of the total properties in
our retail portfolio, 154 properties, consisting of 149 million square feet, are equity accounted investments and the remaining
are consolidated under IFRS.
Multifamily, Industrial and Other Properties: This category includes 25,500 multifamily units in the United States and Canada
and 68 million square feet of industrial space in North America and Europe. We also own distressed and under-performing real
estate assets and businesses and commercial real estate mortgages and mezzanine loans in North America, Europe and Australia,
as well as interests in hotel and resort properties.
The following table disaggregates segment FFO and segment equity into the amounts derived from our ownership of BPY, the
amounts represented by other assets and liabilities and realized disposition gains to facilitate analysis:
AS AT AND FOR THE YEARS ENDED DECEMBER 31
(MILLIONS)
Brookfield Property Partners1
Equity units2
Preferred shares
Other
Property assets
Liabilities
Realized disposition gains
Funds from
Operations
Common Equity
by Segment
2013
2012
2013
2012
$
$
492
56
548
6
(28)
28
587
—
587
91
(34)
(107)
$
12,180
$
1,275
13,455
469
(585)
—
13,163
—
13,163
434
(639)
—
$
554
$
537
$
13,339
$
12,958
1.
2.
BPY 2012 FFO and common equity by segment include assets contributed to BPY including BPO, GGP and our investment in Canary Wharf Group
Brookfield’s equity units in BPY consist of 432.6 million redemption-exchange units, 45.2 million Class A LP units, 4.8 million special limited partnership units and
0.1 million general partnership units; together representing an effective economic interest of 89% of BPY
FFO within our property segment was $554 million (2012 – $537 million). We recorded $28 million of realized disposition gains
compared to realized disposition losses of $107 million in 2012, resulting in a positive variance of $135 million. This increase was
partially offset by a decline in FFO from the operations that are now held through BPY to $548 million (2012 – $587 million).
Brookfield Property Partners
Our share of BPY’s FFO during 2013 was $548 million, of which $56 million was received as dividends on preferred shares that
were issued to us on the reorganization of the capital in our property segment on the formation of BPY. This represents a decline
of $39 million from the $587 million of FFO recorded from the same businesses during 2012. The distribution of the initial 7.6%
ownership position in BPY to shareholders in April 2013 reduced our interest in these operations, resulting in a $31 million
decline over the 2012 results on a comparative basis. In addition, BPY’s FFO during 2013 was reduced by $36 million of
base management fees paid to us and recorded as revenue in our asset management segment. BPY’s FFO from retail property
operations and multifamily, industrial and other operations increased during the year, which was partially offset by lower FFO
from office property operations.
Office Properties
BPY recorded FFO of $312 million from office property operations in 2013 compared to $338 million in 2012, of which our share
was $294 million and $338 million, respectively. Favourable leasing performance resulted in a 1% increase in in-place rents on
existing properties using consistent foreign exchange rates (1% decrease using actual foreign exchange rates), however this was
more than offset by the anticipated expiry of a large lease in New York City in the fourth quarter of 2013 that reduced BPY’s FFO
from our U.S. operations by $21 million. In addition, the dividend received by BPY from Canary Wharf in 2013 was $14 million,
lower than the $40 million received by us in 2012.
Leasing activity during the year consisted of 8.9 million square feet of new leases at an average in-place net rent of $30.27
during the year and 10.4 million square feet of lease expiries at expiring net rents of $27.90 per square foot. This resulted in an
increase in average in-place net rents from $29.40 to $30.15 per square foot and reduced the proportion of leases expiring over the
next five years by 180 basis points compared to the end of 2012. Overall occupancy decreased to 88.0% at December 31, 2013
(2012 – 91.1%). The decrease in portfolio occupancy was primarily due to the expiry of a large lease in New York, decreasing
U.S. occupancy from 87.7% to 83.3%. Our average remaining lease term is approximately seven years (2012 – seven years).
Contractual lease expiries in the upcoming year consist of 4.8 million square feet and the associated expiring average in-place
2013 ANNUAL REPORT 41
net rent is $32. Our 10 largest tenants occupy 15.4 million square feet with the largest tenant class consisting of government and
government agencies representing 5.5 million square feet.
In North America, average in-place net rents across our 81.3 million square foot portfolio approximate $26 per square foot
compared to $26 per square foot at the end of 2012. Net rents represent a discount of approximately 15.7% to the average market
rent of $31 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 net rents in our 10.8 million square foot portfolio are $48 per square foot, which represents a
6% discount to market rents. The occupancy rate across the portfolio remains high at 97.6% 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.
Of our 19 million square feet of office developments, 8.4 million are under active development, 2.3 million are in the planning
stage and 8.2 million are held for future development. Active developments at December 31, 2013 had incurred a cost of
$951 million and had a total planned development cost of $732 per square foot with a weighted average planned construction
period of seven years.
Retail Properties
BPY’s FFO from retail operations, which is derived largely from its ownership interest in GGP, increased to $298 million in 2013
(2012 – $259 million), of which our share was $281 million and $259 million, respectively.
BPY’s net share of GGP’s funds from operations was $271 million compared to $251 million in 2012. The growth in FFO
reflects increases in both net rents and occupancy. Initial rental rates for leases commencing in 2013 increased by 12.3% or
$7.05 per square foot, to $64.29 per square foot when compared to the rental rate for expired leases. Tenant sales were $564 per
square foot on a trailing 12-month basis as at year end, representing a 3.6% increase over the prior year on a comparable basis.
The remaining FFO includes the results of Rouse Properties, which was spun out of GGP during 2012, and our share of FFO
from our Brazilian retail property fund.
Total leasing activity during the year consisted of 14.6 million square feet of new leases at an average in-place net rent of $54.30
during the year and 13.5 million square feet of lease expiries at expiring net rents of $50.39 per square foot. This resulted in an
increase in average in-place net rents from $50.48 to $53.39 per square foot. Overall occupancy in our retail property portfolio
was 95.9% (2012 – 95.1%), and represented an average lease term of six years. Portfolio net rents represent a discount of
approximately 13% compared to market rents of $61.38 per square foot. Contractual lease expiries in the upcoming year consist
of 6.9 million square feet and the associated expiring average in-place net rent is $55.
GGP completed 10.7 million square feet of new and renewal leasing in 2013, excluding anchor tenants. Same store regional mall
percentage leased was 97.1% at year-end 2013, an increase of 100 basis points over year-end 2012 and in-place rents increased
by 5.2% to $57.75 per square foot.
Multifamily, Industrial and Other Properties
BPY holds industrial, multifamily and other property assets primarily through funds that are managed by us. The carrying value
of BPY’s investment in these operations increased by $404 million during 2013 to $1,042 million at December 31, 2013, and its
share of the associated FFO increased to $61 million (2012 – $10 million) largely as a result of acquisitions.
Common Equity by Segment
Common equity by segment at the end of 2013 was $13.3 billion (2012 – $13.0 billion). The distribution of BPY units in
April 2013 reduced segment equity by $0.9 billion, which was more than offset by our purchase of additional units in BPY for
$995 million in the fourth quarter of 2013 and undistributed net income.
Other Property Assets and Liabilities
We continue to sell other investments at opportunistic times as they are not core to our operations. We sold three retail properties
in 2013 for $265 million generating net proceeds of $115 million.
Outlook and Growth Initiatives
As noted above, we hope to complete the merger of BPY and BPO during the first half of 2014, positioning BPY as one of the
largest and most diverse global real estate investment entities.
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.
42 BROOKFIELD ASSET MANAGEMENT
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 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.
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 whole or partial interests 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 $6.2 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 our shopping centres in the United States.
RENEWABLE ENERGY
Overview
We hold our renewable energy operations primarily through a 65% fully diluted interest in Brookfield Renewable Energy
Partners. BREP is listed on both the NYSE and TSX and had a market capitalization of $6.9 billion at December 31, 2013. BREP
operates renewable power facilities and owns them both directly as well as through joint ventures and institutional infrastructure
funds that we manage.
We arrange for the sale of power generated by BREP through our energy marketing business (“Brookfield Energy Marketing”
or “BEMI”). We purchase a portion of BREP’s power pursuant to long-term contracts at pre-determined prices, providing
a stable revenue profile for unitholders of BREP and providing us with continued participation in future increases (or decreases)
in power prices.
The following table disaggregates segment FFO and segment equity into the amounts attributable to our ownership of BREP, the
operations of BEMI and realized disposition gains to facilitate analysis:
AS AT AND FOR THE YEARS ENDED DECEMBER 31
(MILLIONS)
Brookfield Renewable Energy Partners1
Brookfield Energy Marketing
Realized disposition gains
Funds from
Operations
Common Equity
by Segment
2013
2012
2013
390
$
236
$
3,534
$
(119)
176
447
$
(137)
214
313
894
—
$
4,428
$
2012
4,272
704
—
4,976
$
$
1.
Brookfield’s interest in BREP consists of 129.7 redemption-exchange units, 40.0 Class A LP units and 2.7 million general partnership units; together representing an
economic interest of 65% of BREP
FFO for the year was $447 million compared to $313 million in the prior year and included $176 million of realized disposition
gains (2012 – $214 million). Our share of BREP’s FFO increased by $154 million, or 65%, reflecting a return to normalized
levels of generation following a particularly dry year in 2012 and the contribution from newly acquired and commissioned
assets. We completed a secondary offering of BREP in the first quarter of 2013 which generated proceeds of $233 million and
recognized a $176 million realized disposition gain. Realized disposition gains in the prior year included a $214 million gain on
a previous sale of BREP units.
Brookfield Renewable Energy Partners
We own one of the world’s largest publicly traded, pure-play renewable power portfolios with 5,849 megawatts (“MW”) of
installed capacity and long-term average annual generation of 21,836 gigawatt hours (“GWh”). Our portfolio includes 193
hydroelectric generating stations on 69 river systems and 11 wind facilities, diversified across 12 power markets in the United
States, Canada and Brazil. We also have an approximate 1,700 MW development pipeline spread across all of our operating
jurisdictions.
2013 ANNUAL REPORT 43
BREP’s operating results are summarized as follows:
FOR THE YEARS DECEMBER 31
(GIGAWATT HOURS AND $MILLIONS)
Brookfield Renewable Energy
Revenues
Hydroelectric
Wind energy
Co-generation
Direct costs
Interest and other costs
Non-controlling interest
Actual
Generation (GWh)
Long-Term
Average (GWh)
Funds from Operations
2013
2012
2013
2012
2013
2012
19,232
2,220
770
22,222
13,336
1,709
897
15,942
18,399
2,538
899
21,836
15,647
$
1,409
$
1,079
2,034
521
18,202
258
71
1,738
(530)
(470)
(348)
$
390
$
189
70
1,338
(486)
(461)
(155)
236
Our share of FFO increased by $154 million to $390 million, from $236 million in 2012.
Generation at facilities owned throughout 2013 and 2012 increased by 2,640 gigawatt hours to 17,944 gigawatt hours, representing
a 17% increase. This resulted in additional revenues of $209 million and FFO of $122 million. Generation approximated long-
term average levels in 2013 whereas generation in 2012 was 12% below long-term average due to dry conditions in New York
State, the mid-western U.S. and eastern Canada.
Facilities acquired or developed since the beginning of 2012 contributed an increase in generation of 3,638 gigawatt hours over
2012, of which 3,093 GWh of generation were from recently acquired U.S. hydroelectric assets in Tennessee, North Carolina
and Maine. This resulted in $218 million of additional revenues and $39 million of additional FFO after deducting interest costs
associated with acquisition debt and FFO attributable to non-controlling interests.
The foregoing increases were partially offset by an $11 million decrease in FFO, as a result of our reduced ownership interest
in BREP.
Realized prices decreased to $78 per megawatt hour (“MWh”) on a total portfolio basis compared to $84 per MWh in 2012.
Much of the generation from hydroelectric capacity acquired during 2013 was sold pursuant to contracts that are at significantly
lower levels than the contracts for our existing portfolio, and in our view provide us with the opportunity for substantial revenue
growth should prices for renewable energy increase in line with our expectations. The decline in the value of the Brazilian
currency relative to the U.S. dollar also impacted our average realized price for hydroelectric power.
Operating costs increased by $44 million to $530 million. The increase is primarily attributable to the costs associated with
recently acquired or commissioned facilities. Costs within our renewable energy operations are largely fixed and therefore do
not vary with generation levels to the same extent as revenues.
Interest expense totalled $410 million, consistent with the prior year, as the impact of higher levels of borrowings in respect of
acquisitions was offset by lower borrowing costs on refinancings and changes in foreign exchange rates. Other costs increased
by $10 million to $60 million and include a $5 million increase in base management fees paid to us, as a result of a higher level
of capitalization, and a $5 million increase in cash taxes paid based on increased revenues. Non-controlling interests increased
to $348 million for 2013 (2012 – $155 million) reflecting a $79 million increase in BREP’s FFO attributable to non-controlling
interests, a $21 million increase from the completion of two preferred share issuances during the year, as well as the increase in
units held by non-controlling interests following sales by us during both 2013 and 2012.
Brookfield Energy Marketing
Our wholly owned energy marketing group has entered into long-term purchase agreements and price guarantees with BREP
as described below. We are entitled to sell the power as well as any ancillary revenues such capacity payments and renewable
credits or premiums.
BEMI purchased approximately 8,800 gigawatt hours of electricity from BREP during 2013 at an average price of $74 per megawatt
hour and sold this power at an average price, including ancillary revenues, of $60 per megawatt hour, resulting in an FFO loss
of $119 million (2012 – $137 million). Approximately 3,400 gigawatt hours of BEMI power sales were pursuant to long-term
contracts at prices modestly in excess of our purchase cost. The balance of 5,400 gigawatt hours was sold in the short-term
market at an average price of $45 per megawatt, including ancillary revenues and peaking premiums (2012 – $37 per megawatt
hour).
44 BROOKFIELD ASSET MANAGEMENT
Common Equity by Segment
Common equity by segment decreased by $548 million to $4.4 billion during the year, primarily due to the sale of a 3% interest
in BREP in the first quarter of 2013, a strengthening of the U.S. dollar relative to the Canadian dollar and Brazilian real, which
decreased the carrying value of our non-U.S. dollar operations, and as well as depreciation and amortization recorded during the
year and a reduction in the fair value attributable to these operations at year end.
Outlook and Growth Initiatives
Acquisition and development activities completed during the year increased our estimated annualized generation by 2,573 GWh,
which, together with the expected closing of a previously announced acquisition of a large-scale hydroelectric portfolio in the
northeast U.S., should increase overall portfolio generation by 15% at attractive projected returns. In addition, we continue to
advance a 45 MW hydroelectric facility with a total expected construction cost of approximately $200 million and maintain a
development pipeline of approximately 1,700 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 current market environment which has increased substantially in recent months due to
seasonal climate conditions. In the long term, we are well positioned to benefit from increasing electricity prices.
BREP has entered into long-term agreements that enable it to sell power at pre-determined prices, including contracts with BEMI.
These contracts have a weighted average term of 18 years and represent 88% and 79% of our long-term average generation for
2014 and 2015, respectively, based on long-term average generation, declining to 78% in 2016. The average price at which power
is sold under these agreements is $82 per megawatt hour in 2014, and averages $84 per megawatt hour over the next five years.
During 2013, BREP secured short-term contracts in Brazil for 513 GWh in 2014 and 160 GWh in 2015. At our recently acquired
360 MW hydroelectric portfolio located in Maine, we were able to secure short-term contracts at BREP for 150 GWh for the
first quarter of 2014.
BEMI is expected to purchase approximately 8,500 gigawatt hours of electricity from BREP during each of the next five years
based on long-term average generation, at an average price of $75 per megawatt hour, which increases annually based on a
percentage of inflation. BEMI has entered into long-term contracts to sell approximately 3,250 gigawatt hours of expected annual
purchases based on long-term average generation. These contracts have an average life of 15 years and an average price over the
next five years of $79 per megawatt hour. The remaining 5,250 gigawatt hours is expected to be sold on a short-term basis until
such time as we can secure long-term contracts at prices that are consistent with our long-term expectation for power prices.
The majority of our portfolio consists of hydroelectric generating facilities, and as a result, our revenues are subject to hydrology
levels. Over the long term we believe that generation at our existing facilities will approximate long-term average, however
significant variances may occur in any given year. Our North American assets have the ability to store water in reservoirs
approximating 32% of their annual generation which allow us to generate power during higher price periods to varying degrees.
In addition, our assets in Brazil benefit from a framework that exists in the country to levelize generation risk across hydroelectric
producers. This ability to store water and have levelized generation in Brazil, provides partial protection against short-term
changes in water supply.
INFRASTRUCTURE
Overview
Our infrastructure operations are held primarily through our 28% fully diluted interest in Brookfield Infrastructure Partners. BIP
is listed on the New York and Toronto Stock Exchanges and had a market capitalization of $8.2 billion at year end. BIP owns a
number of these infrastructure businesses directly as well as through private funds and joint ventures that we manage. We also
have direct investments in our sustainable resources operations.
The following table disaggregates segment FFO and segment equity into the amounts attributable to our ownership of BIP, our
directly held sustainable resources operations and realized disposition gains to facilitate analysis:
AS AT AND FOR THE YEARS ENDED DECEMBER 31
(MILLIONS)
Brookfield Infrastructure Partners1
Sustainable resources
Realized disposition gains
Funds from
Operations
2013
185
37
250
472
$
$
Common Equity
by Segment
$
2013
1,478
693
—
$
2012
127
52
45
224
$
2,171
$
2012
1,432
1,139
—
2,571
$
$
1.
Brookfield’s interest in BIP consist of 59.8 million redemption-exchange units representing an economic interest of 28% of BIP
2013 ANNUAL REPORT 45
Brookfield Infrastructure Partners
BIP’s operations are principally organized as follows:
Utilities operations: consist of our regulated distribution, regulated terminal and electricity transmission operations, located in
Australasia, North and South America and Europe. 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.
Transport operations: is comprised of open access systems that provide transportation for freight, bulk commodities and
passengers, for which we are paid an access fee. Profitability is based on the volume and price achieved for the provision of
these services. These operating are comprised of businesses with regulated tariff structures, such as our railroad and toll road
operations, as well as unregulated businesses, such as our ports. Approximately 70% of our transport operations are supported
by long-term contracts or regulation.
Energy operations: consists of systems that provide energy transportation, distribution and storage services. Profitability is
based on the volume and price achieved for the provision of these services. These operations are comprised of businesses that
are subject to light regulation, such as our natural gas transmission business whose services are subject to price ceilings, and
businesses that are essentially unregulated like our district energy business. Approximately 80% of our energy operations are
supported by long-term contractual revenues.
Utilities FFO increased by $19 million from the prior year, primarily due to the contribution from investments completed near
the end of 2012 that doubled the size of our UK regulated distribution business and an increased ownership interest in our
Chilean electricity transmission system. In addition, our businesses also benefitted from inflation indexation and contributions
from organic growth investments.
Transport FFO increased by $45 million. Our Australian railroad contributed an increase of $23 million over the prior year,
primarily due to the completion of our $600 million expansion program in the beginning of 2013 and a strong grain harvest.
Our South American toll roads contributed an additional $22 million of FFO compared to 2012, primarily from our increased
ownership in these toll roads, following our follow-on $670 million investment and by higher traffic volumes and regulatory
tariffs.
Energy FFO decreased by $2 million primarily due to the impact of a challenging North American natural gas market that
continues to negatively impact results at our North American gas transmission business. This decrease was partially offset by a
full year’s contribution from our district energy operations, which were acquired in the fourth quarter of 2012.
Sustainable Resources
Our share FFO from sustainable resource investments decreased by $15 million to $37 million primarily due to our lower level of
common equity in these operations after we sold our U.S. Pacific Northwest timberlands in June of 2013. These operations were
owned both directly and by BIP. Our other directly held assets include our investment in Acadian Timber Corp. which owns and
operates timberlands in the northeastern U.S. and Canada, and our equity invested in a number of timber and agriculture private
funds we manage. Our agriculture funds are focused on Brazil’s agricultural sector based on the country’s strong competitive
position as a leading agricultural producer.
Realized Disposition Gains
We sold non-core assets during the year, generating $1.5 billion of proceeds, of which our share was $833 million. Dispositions
included Pacific Northwest timberlands, a regulated distribution business in New Zealand and a 20% interest in our UK regulated
distribution business, which collectively gave rise to $250 million of realized disposition gains.
Common Equity by Segment
Invested capital decreased by $400 million to $2,171 million at the end of 2013 from $2,571 million at the end of 2012, reflecting
the sale of our direct investment in timberlands, offset by our proportionate participation in a $330 million equity offering at BIP.
Outlook and Growth Initiatives
In the utilities platform, we expect to earn a return on incremental investments which is consistent with our current return on
rate base and expect to benefit from the completion of a Texas electric transmission system. Within our transport and energy
operations we are increasing our investments in transportation assets such as ports and toll roads, as we see attractive valuations
and exposure to GDP growth through increasing traffic volumes. We have also recently completed or committed to $1.1 billion
of new investments in these operations.
Our timber funds continue to attract strong interest from institutional investors and we continue to deploy capital in these
funds. Our R$330 million Brazil Agriland Fund is currently almost fully invested and we will use the remaining capital to fund
conversion of additional lands to crop production.
46 BROOKFIELD ASSET MANAGEMENT
PRIVATE EQUITY
Our private equity operations are conducted through a series of institutional private equity funds operated under the Brookfield
Capital Partners brand with total committed capital of $3.1 billion as well as direct investments in several public companies
including Norbord Inc. (“Norbord”) and Western Forest Products Inc. (“Western Forest Products”).
FFO increased to $612 million during 2013 from $227 million in 2012, reflecting a large increase in realized disposition gains as
well as improved FFO at investee companies. FFO excluding realized disposition gains increased by $84 million to $296 million
compared to 2012, reflecting improved pricing and volumes primarily due to the ongoing recovery in the U.S. housing market,
particularly at our two panelboard investments.
The following table disaggregates segment FFO and segment equity into the amounts attributable to the capital we have invested
in the private funds that we manage, our investment in Norbord, other investments and realized disposition gains to facilitate
analysis:
AS AT AND FOR THE YEARS ENDED DECEMBER 31
(MILLIONS)
Brookfield Capital Partners
Private funds
Norbord
Other
Realized disposition gains
Funds from
Operations
Common Equity
by Segment
2013
2012
2013
2012
$
$
66
120
110
316
612
$
$
$
59
77
76
15
$
474
246
385
—
227
$
1,105
$
198
217
542
—
957
The private equity fund portfolios include 12 investments in a diverse range of industries. Our average investment is $41 million
and our largest single exposure is $114 million using IFRS values or $211 million based on stock market prices. 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 52% interest in 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, 2013 was approximately $890 million based on stock market
prices, compared to our carrying value of $246 million.
Increased prices and volumes within our panelboard businesses, which are benefitting from the U.S. housing recovery, led to a
$98 million increase in FFO from our various industrial and forest products businesses to $221 million.
Realized disposition gains include the sale of pulp and paper business, which was held in our private funds, achieving a 70%
IRR and a 10x multiple on capital. The fund recognized a $507 million realization gain, of which our proportionate share was
$200 million. In addition, we partially monetized our investments in Western Forest Products and Norbord during the year,
recognizing a gain of $47 million on the sale of 117.1 million shares of Western Forest Products, as well as a gain of $73 million
on the sale of 8.1 million shares of Norbord.
Segment common equity increased by $148 million over the prior year, as capital invested in our private funds and direct
investments in our energy and related services operations, more than offset the impact of asset sales within our industrial and
forest products.
RESIDENTIAL DEVELOPMENT
Our residential development operations consist of our direct investment in two public companies: Brookfield Residential
Properties Inc. (“BRPI”) and Brookfield Incorporações S.A. (“BISA”), as well as operations in Australia that we are in the
process of winding down.
Our North American business is conducted through BRPI. We hold approximately 69% of BRPI, which is listed on the New York
and Toronto stock exchanges. BRPI is active in 11 principal markets located primarily in Canada, and the U.S., and controls over
110,000 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 BISA. We hold approximately 45% 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 residential 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.
2013 ANNUAL REPORT 47
The following table disaggregates segment FFO and segment equity into the amounts attributable to our operations by region
and realized disposition gains to facilitate analysis:
AS AT AND FOR THE YEARS ENDED DECEMBER 31
(MILLIONS)
Residential
North America (BRPI)
Brazil (BISA)
Australia and other
Realized disposition gains
$
$
Funds from
Operations
Common Equity
by Segment
2013
2012
2013
2012
117
$
64
$
(61)
(10)
—
46
$
(36)
(10)
16
34
$
960
421
54
—
913
482
222
—
$
1,435
$
1,617
Our North American operations demonstrated strong growth reflecting the recovery in U.S. housing markets and continued
strength in Canada. Funds from operations increased from $64 million to $117 million due largely to an increase in gross margin
of $82 million (+28%), offset in part by associated income taxes. Funds from operations in 2012 includes a $16 million realized
disposition gain recognized on partial sell-downs of our interest in BRPI.
Home closings and housing gross margins increased in both our Canadian and U.S. operations when compared to the prior year.
We delivered 2,216 homes and 2,402 lots during the year, compared to 1,808 and 2,142, respectively, in 2012, representing a year-
over-year increase of 23% and 12%, respectively. The gross margin on our Canadian housing operations was 20.8% compared to
18.9% in 2012 reflecting a slight change in mix between the projects being delivered and between home and lot sales.
Our Brazilian operations experienced lower levels of sales and project launches during 2013, reflecting decreased levels of growth
in our principal development areas following several years of expansion and consistent with the experience of other developers.
We experienced margin pressure from cost increases, and project overruns; however, we remain focused on increasing launches
and sales in the near term.
The 2013 results for Australia are consistent with the prior year and we continue to wind down these businesses.
Outlook and Growth Initiatives
We believe our North American activities will continue to benefit from the continuing recovery of the U.S. housing industry
which should favourably impact our future prices and volumes. In addition, our residential development business benefits from
our strong market share within the energy-focused Alberta market. Net new home orders increased 15% to 2,356 units in 2013 as
a result of stable market performance in Canada and the recovery in the U.S., which increased the units and value of our backlog
units by 10% and 23% respectively, over the prior year, with much of the increase occurring within our U.S. operations. At the
end of 2013, the North American backlog of homes sold but not delivered was 915, with a sales value of $448 million, compared
to 834 homes with a value of $365 million at the same time last year.
Brazil is currently experiencing lower growth, which is having a negative impact on current returns. We are confident that the
country’s favourable demographics when combined with supportive government policies will contribute to increased sales and
FFO. 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. In February 2014, we
launched a tender offer for the shares of BISA that we do not own at a price of R$1.60 per share or approximately US$180 million
in total based on recent exchange rates.
SERVICE ACTIVITIES
The following table disaggregates segment FFO and segment equity into the amounts attributable to our construction services
and property services businesses and realized disposition gains to facilitate analysis:
AS AT AND FOR THE YEARS ENDED DECEMBER 31
(MILLIONS)
Service activities
Construction
Property
Realized disposition gain
Funds from
Operations
Common Equity
by Segment
2013
2012
2013
$
$
118
$
113
$
39
—
46
70
$
938
348
—
157
$
229
$
1,286
$
2012
1,029
296
—
1,325
Construction revenues increased relative to 2012 as we were managing a larger volume of projects during the year. Operating
margins decreased to 7.5% from 8.2% in 2012 as we are experiencing increased bidding competition in the current year, and we
completed several higher margin, large projects in the prior year.
48 BROOKFIELD ASSET MANAGEMENT
The remaining work-in-hand totalled $3.4 billion at the end of December 31, 2013 (2012 – $4.3 billion), and represented
approximately 1.3 years (2012 – 1.1 years) of scheduled activity. We continue to pursue and secure new projects which should
position us well for future growth.
Property services fees include property and facilities management, leasing and project management and a range of real estate
services. FFO was $39 million in 2013 compared to $46 million last year, reflecting the continued strength of our property
services business offset by a reduced ownership interest in these operations following the merger of our U.S. residential brokerage
business with another industry participant in late 2012. The merger gave rise to the $70 million disposition gain.
CORPORATE ACTIVITIES
Our corporate operations include: allocating capital to our various operating platforms, principally through our primary listed
issuers, (BPY, BREP and BIP) and through directly held investments and interests in our private equity funds, as well as funding
this capital through the issuance of corporate borrowings and preferred shares. We also invest capital in portfolios of financial
assets and enter into financial contracts to manage our foreign currency and interest rate risks.
The following table disaggregates segment FFO and segment equity into the principal assets and liabilities within our corporate
operations and associated FFO to facilitate analysis:
AS AT AND FOR THE YEARS ENDED DECEMBER 31
(MILLIONS)
Funds from
Operations
Common Equity
by Segment
Cash and financial assets, net
Corporate borrowings
Subsidiary borrowings
Capital securities
Preferred equity
Net working capital
Corporate costs
Realized disposition gains
$
$
2013
159 $
(204)
(87)
(13)
—
—
(157)
525
223 $
2012
96 $
(209)
(123)
(25)
—
—
(171)
30
(402) $
2013
814 $
(3,975)
—
(163)
(3,098)
223
—
—
(6,199) $
2012
1,133
(3,526)
(1,130)
(325)
(2,901)
250
—
—
(6,499)
We invest capital at the corporate level that is not deployed elsewhere into a variety of financial assets and enter into financial
contracts to manage our foreign currency and interest rate risks. Our financial assets are presented in more detail on page 51
and consist of $1,596 million (2012 – $1,719 million) of cash and financial assets which are partially offset by $782 million
(2012 – $586 million) of deposits and other liabilities. FFO from these activities includes dividends and interests from our
financial assets, mark-to-market gains or losses and realized disposition gains or losses. FFO in 2013 totalled $159 million and
included $104 million of mark-to-market and realized disposition gains, a charge of $12 million incurred on the early redemption
of higher cost debt and $67 million of gains on currency and interest rate contracts that are not treated as hedges. We describe our
corporate borrowings and preferred shares in more detail within Part 4 – Capitalization and Liquidity.
During the year we settled a group of long-dated high yielding financial contracts that were classified as a subsidiary borrowing
but included in our corporate capitalization because they were guaranteed by the Corporation. The accrued value of the contracts
at the end of 2012 was $1.1 billion and an associated mark-to-market liability of $257 million was included in net working
capital. The contracts were settled for $905 million in the third quarter of 2013 which was funded from the proceeds of asset
sales and incremental corporate borrowings. This gave rise to the elimination of the subsidiary borrowings and a reduction in
the associated carrying costs. Corporate borrowings increased as a result of funding a portion of the settlement, however interest
costs declined as a result of refinancing other corporate borrowings at reduced rates.
We continued to redeem capital securities with the proceeds from additional perpetual preferred shares at lower yields, giving
rise to a reduction in the balance of capital securities outstanding as well as associated interest costs and an increase in the
balance of preferred equity. Dividends on preferred equity during 2013 totalled $145 million (2012 – $129 million) and are not
included in segment FFO because they represent distributions on shareholders’ equity that are not included in net income.
Net working capital includes corporate accounts receivable, accounts payable, other assets and liabilities. Also included in net
working capital is our corporate deferred income tax asset of $625 million (2012 – $773 million). Net working capital was
relatively unchanged. The elimination of a $257 million mark-to-market liability on the subsidiary financial contract referred to
above was partially offset by a $148 million reduction in the deferred tax asset.
Corporate costs declined to $157 million in 2013 from $171 million in the prior year as a result of $25 million of costs being
reallocated to our asset management operations following the launch of BPY in 2013.
2013 ANNUAL REPORT 49
PART 4 – CAPITALIZATION AND LIQUIDITY
FINANCING STRATEGY
The following are key elements of our capital strategy:
• Match 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; and
Structure our affairs to facilitate access to a broad range of capital and liquidity at multiple levels of the organization.
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. We attempt to diversify our maturity schedule so that financing requirements in any given
year are manageable. Limiting recourse to specific assets or business units is intended to limit the impact of weak performance
by one asset or business unit on our ability to finance the balance of the operations.
Most of our financings have investment-grade characteristics which is intended to ensure that debt levels on any particular asset
or business can typically be maintained throughout a business cycle, and to enable 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
is intended to lessen our dependence 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
sufficient 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 historically 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 operating segments in order to facilitate discussion and analysis.
The following table presents our capitalization on a corporate (i.e., deconsolidated), a proportionally consolidated and
consolidated basis.
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
Consolidated
Corporate
Proportionate
2013
3,975
2012
3,526
$
2013
3,975
$
$
2012
3,526
2013
3,975
2012
3,526
$
$
$
35,495
7,392
46,862
10,316
6,164
791
1,086
33,720
7,585
44,831
11,652
6,425
1,191
425
—
—
3,975
978
24
163
—
—
1,130
4,656
1,199
—
325
—
20,319
3,998
28,292
6,041
3,737
655
—
21,794
4,928
30,248
7,175
3,753
758
—
26,647
3,098
17,781
47,526
$ 112,745
23,287
2,901
18,150
44,338
$ 108,862
—
3,098
17,781
20,879
$ 26,019
—
2,901
18,150
21,051
$ 27,231
—
3,098
17,781
20,879
$ 59,604
—
2,901
18,150
21,051
$ 62,985
1.
Represents interest rate swap contracts settled in August 2013 that was previously included in corporate subsidiary borrowings due to a corporate guarantee
50 BROOKFIELD ASSET MANAGEMENT
Consolidated Capitalization
Consolidated capitalization reflects the full consolidation of wholly owned and partially owned entities.
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 consolidated borrowings primarily reflects the assumption of non-recourse asset specific borrowings on newly
acquired or consolidated assets and businesses.
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 common equity and remitted cash flows. Corporate borrowings increased by $449 million as a result
of retained cash flow, asset monetizations and financing activities. We completed five corporate bond issues during the year for
total proceeds of C$980 million and used the proceeds in part to redeem higher cost debt. These activities reduced the average
coupon to 4.5%. The average term of our corporate term debt is eight years. Preferred equity increased by $197 million, reflecting
the issuance of C$200 million, 4.90% perpetual preferred shares. The proceeds were used in part to redeem C$150 million of
capital securities with an average rate 5.0%. 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 were guaranteed by
the Corporation and were settled during 2013.
Common and preferred equity totals $21 billion and represents 80% 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 we believe is an important component of enhancing shareholder returns. We believe that
the levels of debt relative to total capitalization are appropriate given the high quality of the assets, the stability of the associated
cash flows and the level of financings that assets of this nature typically support, as well as our liquidity profile.
Our proportionate share of non-recourse borrowings and accounts payable and other liabilities declined since 2012
primarily as a result of lower exchange rates on liabilities denominated in non-U.S. dollar currencies and the distribution of a
7.6% interest in Brookfield Property Partners, which holds the vast majority of our commercial property operations, including
the associated debt.
Cash and Financial Assets
The following table presents our cash and financial assets on a consolidated and corporate (i.e., deconsolidated) basis.
AS AT AND FOR THE YEARS ENDED DECEMBER 31
(MILLIONS)
Financial assets
Government bonds
Corporate bonds and other
Preferred shares
Common shares
Loans receivable/deposits
Total financial assets
Cash and cash equivalents
Consolidated
Corporate
$
$
2013
179
498
33
2,758
1,479
4,947
3,663
$
8,610
$
2012
178
344
39
2,034
516
3,111
2,850
5,961
2013
2012
$
$
141
303
18
730
43
1,235
361
$
1,596
$
137
380
297
690
40
1,544
175
1,719
2013 ANNUAL REPORT 51
Consolidated Cash and Financial Assets
Consolidated cash and financial assets reflects the full consolidation of wholly owned and partially owned entities and includes
financial assets which are held throughout our operations and include both publicly traded investments as well as investments in
private entities. Common shares and loans receivable / deposits include investments that are allocated to certain of our business
operating segments. For example, BPY’s 22% common share investment in Canary Wharf Group $1.0 billion is included within
consolidated financial assets, and loans receivable / deposits includes loans issued by our private equity and real estate finance
operations.
Corporate Cash and Financial Assets
We maintain a corporate portfolio of financial assets with the objective of generating favourable investment returns and providing
additional liquidity.
Government and corporate bonds include short duration securities for liquidity purposes and longer dated securities that match
$119 million of insurance liabilities that are included in net working capital within our corporate segment.
In addition to the carrying values of financial assets, we hold credit default swaps with a notional value of $800 million. The
carrying value of these derivative instruments reflected in our financial statements at December 31, 2013 was a liability of
$12 million.
Corporate Borrowings
Corporate borrowings at December 31, 2013 included $662 million (2012 – $744 million) of commercial paper and bank
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, 2013, approximately $170 million
(December 31, 2012 – $253 million) of the facilities were utilized for letters of credit issued to support various business initiatives.
Term debt of $3.3 billion (2012 – $2.8 billion) consists of public bonds and private placements, all of which are fixed rate
and have maturities ranging from 2016 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, 2012 – eight years). The average interest rate on
our corporate borrowings was 4.5% at December 31, 2013 (December 31, 2012 – 4.7%).
In January 2014, we issued C$500 million of 12 year 4.82% notes and used the proceeds to repay commercial paper borrowings.
Property-Specific Borrowings
As part of our financing strategy, the majority of our debt capital is in the form of property-specific mortgages, denominated in
local currencies that have recourse only to the assets being financed and have no recourse to the Corporation.
AS AT DECEMBER 31
($ MILLIONS)
Property
Renewable energy
Infrastructure
Residential development
Private equity
Corporate
Total
Average Term
2013
4
12
10
2
1
1
6
2012
4
12
6
3
3
2
5
Consolidated
2013
$
21,577
$
4,907
6,077
2,465
363
106
2012
18,709
4,347
7,093
2,890
671
10
$
35,495
$
33,720
Property-specific borrowings increased during 2013 due to debt issued or assumed through acquisitions in our property and
renewable energy operations. We completed a number of refinancings within our infrastructure business that extended the
average term from six years to 10 years. The decrease in infrastructure borrowings is due primarily to the sale of North American
timberlands.
52 BROOKFIELD ASSET MANAGEMENT
Subsidiary Borrowings
We endeavour to capitalize our principal 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 energy
Infrastructure
Residential development
Private equity
Other
Corporate – contingent swap accruals1
Total
1.
Guaranteed by the Corporation
Average Term
Consolidated
2013
2012
2
7
4
8
3
1
—
4
3
8
4
6
4
4
3
4
$
$
2013
3,074
1,717
436
1,080
899
186
—
$
7,392
$
2012
1,896
1,772
967
1,041
779
—
1,130
7,585
Subsidiary borrowings have no recourse to the Corporation with only a limited number of exceptions. Property borrowings
increased due to borrowings assumed on acquisitions, including U.S. and UK industrial companies and a Los Angeles office
portfolio. During the year we settled the contingent swap accruals at a discount and financed the payment with corporate
liquidity and borrowings. We also repaid all of the short-term borrowings within our infrastructure business with the proceeds
from asset sales.
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 of the issuer based
on the market price of the common shares at that time unless they are previously redeemed by the issuer. The dividends paid on
these securities are recorded in interest expense. As at December 31, 2013, C$175 million of the capital securities were issued
by the Corporation and the balance are obligations of BPO and its subsidiaries.
The average distribution yield on the consolidated capital securities at December 31, 2013 was 5.3% (December 31, 2012 – 5.4%)
and the average term to the holders’ conversion date was four years as at December 31, 2013 (December 31, 2012 – two years).
During 2013, we redeemed C$150 million of 5.0% capital securities at the corporate level and Brookfield Office Properties
redeemed C$200 million of 6.0% capital securities.
On March 6, 2014, the company notified holders that it will redeem all of its outstanding Class A Series 12 preferred shares for
cash on April 6, 2014. The redemption price for each preferred share will be C$26.00 plus accrued and unpaid dividends.
Preferred Equity
Preferred equity is comprised of perpetual preferred shares and represents permanent non-participating equity that provides
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
2013
2.13%
4.82%
5.00%
4.51%
2012
2.12% $
4.79%
5.00%
4.48% $
2013
480
753
1,865
3,098
$
$
2012
480
556
1,865
2,901
We issued C$200 million of 4.9% perpetual fixed rate preferred shares in June 2013 and used the proceeds to redeem C$150 million
of 5.0% capital securities.
On March 13, 2014, the company issued 8.0 million Series 38 preferred shares with an initial dividend rate of 4.4% for total
gross proceeds of C$200 million.
2013 ANNUAL REPORT 53
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
Property
Brookfield Property Partners L.P.1
Subsidiaries
Brookfield Office Properties Inc.1
Private funds and other
Other
Renewable energy
Brookfield Renewable Energy Partners L.P.1
Private funds and other
Infrastructure
Brookfield Infrastructure Partners L.P.1
Private funds and other
Other
Private equity
Residential development
Brookfield Incorporações S.A.1
Brookfield Residential Properties Inc.1
Non-participating interests
Brookfield Office Properties Inc.
Brookfield Renewable Energy Partners L.P.
Other
2013
2012
$
1,443
$
—
5,351
5,168
400
1,903
1,305
3,711
2,169
96
1,424
506
479
23,995
1,542
796
354
2,692
$
26,647
$
5,093
4,128
363
2,030
1,022
3,592
2,566
104
983
727
427
21,035
1,345
500
407
2,252
23,287
1.
Non-controlling interests in deconsolidated capitalization of the listed issuer shown separately from non-controlling interest in entities consolidated by the listed issuers
Common Equity
Issued and Outstanding Shares
Changes in the number of issued and outstanding Class A shares for the past two years are as follows:
FOR THE YEARS ENDED DECEMBER 31
(MILLIONS)
Outstanding at beginning of year
Issued (repurchased)
Repurchases
Long-term share ownership plans1
Dividend reinvestment plan
Outstanding at end of year
Unexercised options2
Total diluted shares at end of year
1.
2.
Includes management share option plan and restricted stock plan
Includes management share option plan and escrowed stock plan
2013
619.6
(8.8)
4.5
0.2
615.5
35.6
651.1
2012
619.3
(2.6)
2.7
0.2
619.6
38.4
658.0
We repurchased 8.8 million Class A shares during 2013 for $314 million of which 4.1 million shares ($150 million) are in respect
of long-term share ownership programs issued to employees.
54 BROOKFIELD ASSET MANAGEMENT
The company holds 9.6 million Class A shares (2012 – 5.5 million) for management long-term share ownership programs, which
have been deducted from the total amount of shares outstanding at the date acquired. Included in diluted shares outstanding is
1.0 million (2012 – 0.7 million) of these shares resulting in a net reduction of 8.6 million (2012 – 4.8 million) diluted shares
outstanding, based on the market value of the Class A shares at December 31, 2013 and 2012.
In calculating our book value per share, the cash value of our unexercised options of $904 million (2012 – $912 million) is
added to the book value of our common equity of $17,781 million (2012 – $18,150 million) prior to dividing by the total diluted
shares presented above.
As of March 28, 2014, the Corporation had outstanding 615,512,430 Class A shares and 85,120 Class B 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
2013
$
2,120
$
(145)
1,975
13
$
1,988
$
616.1
12.8
7.9
636.8
2012
1,380
(129)
1,251
25
1,276
618.9
12.1
18.0
649.0
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 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, 11 and 21
shares were redeemed on April 5, 2012, October 1, 2012, and June 30, 2013, 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
INTEREST RATE PROFILE
As at December 31, 2013, our net floating rate liability position on a proportionate basis was $4.0 billion
(December 31, 2012 – $4.9 billion). As a result, a 10 basis-point increase in interest rates would decrease funds from operations
by $4 million (December 31, 2012 – $5 million). Notwithstanding our practice of match funding long-term assets with long-term
debt, we 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 in
respect of these assets while preserving a long-term maturity profile.
The impact of a 10 basis-point increase in long-term interest rates on the carrying value of financial instruments recorded at
market value is estimated to increase net income by $2 million on an annualized basis before tax, based on our positions at
December 31, 2013 (December 31, 2012 – $1 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 completed approximately $20 billion of debt and preferred share financings during the year. These 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.
As at December 31, 2013, we held a $2.7 billion notional amount (2012 – $3.6 billion) of interest rate contracts, $1.7 billion net
to the Corporation (2012 – $2.2 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 2.53% (2012 – 2.39%). The effective rate will be approximately 3.76% (2012 – 3.34%)
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 (2012 – 50%) at our share. 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 increase in the interest rate would result in a $25 million positive mark-to-market (2012 – $50 million), and
$14 million net to Brookfield (2012 – $25 million), being recorded in other comprehensive income and vice versa.
2013 ANNUAL REPORT 55
LIQUIDITY
Overview
Our principal sources of short-term liquidity are our corporate cash and financial assets together with undrawn committed credit
facilities, which we refer to collectively as core liquidity. As at December 31, 2013 core liquidity at the corporate level was
$2.2 billion, consisting of $0.8 billion in net cash and financial assets and $1.4 billion in undrawn credit facilities. Aggregate
core liquidity includes the core liquidity of our principal subsidiaries, which consist for these purposes of BPY, BPO, BREP, and
BIP, and was $5.9 billion at year end, approximately $1.7 billion higher than at the end of 2012. 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. We also hold $9.0 billion
of third-party undrawn capital commitments to our private funds at year end.
The following table presents core liquidity and undrawn capital commitments on a corporate and consolidated basis:
AS AT DECEMBER 31
(MILLIONS)
Cash and financial assets, net
Undrawn committed credit facilities
Corporate
2013
814
$
1,405
2,219
$
2012
1,133
1,154
2,287
$
$
Principal
Subsidiaries
2013
2012
$
$
913
$
497
$
2,733
3,646
1,364
1,861
$
$
Total
2013
1,727
4,138
5,865
2012
1,630
2,518
4,148
$
$
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. 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
are typically funded by, and represent a relatively small proportion of, the 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.
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,
including participation in equity issues by our principal investee companies; 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 58.
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 BPY, BREP and BIP, although the agreements provide that we will fund any
commitments that our listed entities fail to fund. As at December 31, 2013 the Corporation had commitments to fund $4.7 billion
of capital to funds, of which $4.1 billion is expected to be funded by managed entities and the balance by the Corporation. In
addition, we had $9.0 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 65 and 66, 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.
Over the medium to longer term, we believe that our strategy of holding most of the capital we invest in our property, renewable
energy 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
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.
56 BROOKFIELD ASSET MANAGEMENT
In addition, we have the ability to sell a portion of our interests in the listed entities thereby generating additional liquidity. Our
interest in BREP, at 65%, and our interest in BPY, at 66% (proforma to the merger of BPY with BPO), are both well in excess of
what we expect our longer term ownership positions to be.
REVIEW OF CONSOLIDATED STATEMENT OF CASH FLOWS
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
$
2013
2,278
2,710
(4,041)
947
$
2012
1,505
3,917
(4,562)
860
$
$
Cash flow from operations generated $2.3 billion of cash flow, representing an increase of 51% or $773 million over 2012. 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. We also deduct other income and gains from net income, as the proceeds of these items are included
within financing and investing activities. Cash flow from operating activities 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 $378 million in 2013 (2012 – $861 million). The increase in cash flow from operating activities is primarily the result
of a $0.8 billion increase in revenues, excluding the impact of other gains and $558 million of carried interest received in kind.
Financing Activities
Financing activities generated $2.7 billion of cash flow, compared to $3.9 billion in the prior year. We generated $2.8 billion of
net cash proceeds through the issuance of $18.8 billion of secured and unsecured borrowings, primarily through the refinancing
of $16.7 billion of existing borrowings, increasing borrowing levels, while extending term and decreasing our weighted average
cost of capital. We issued $3.8 billion of equity capital, which we used to expand our operations, and we returned $1.5 billion to
our partners, primarily from the disposition of our of non-core timber, property and private equity investments. We also paid out
$1.5 billion of cash distributions and acquired $0.4 billion of our Class A limited voting shares.
Financing activities in the prior year included the generation of $1.9 billion of net proceeds through the refinancing of unsecured
and secured borrowings, the issuance of $737 million of preferred shares, the proceeds from which were used to redeem
$506 million of capital securities, and the issuance of $3.8 billion of equity capital.
Investing Activities
We invested $5.0 billion to expand our operations in the current year, which included $4.0 billion of net cash investments and an
additional $998 million of a non-cash investment of securities received in kind, compared with the $4.6 billion invested in 2012.
The following table reconciles total investing activities to our statement of cash flows.
FOR THE YEARS ENDED DECEMBER 31
(MILLIONS)
Cash flow from investing activities
In-kind investment in General Growth Properties
2013
(4,041)
$
(998)
2012
(4,562)
—
(5,039)
$
(4,562)
$
$
We deployed $11.6 billion of capital throughout our operations, including a follow-on $1.4 billion investment in General
Growth Properties, funded in part through securities received in kind on the liquidation of our real estate consortium that held
our investment in GGP. Our property operations also acquired UK and U.S. industrial real estate companies for aggregate
consideration of $1.2 billion, as well as a Los Angeles office property owner and operator for $0.5 billion and commercial
properties within our property private equity funds. We completed the acquisition of Western Wind Energy Corporation and
acquired hydroelectric generation facilities in the northeastern U.S. within our renewable energy operations, and acquired a
Brazilian timberland investment for $0.6 billion within our infrastructure operations. We also invested in financial assets during
the year within our real estate, infrastructure and private equity operations. We disposed of non-core assets generating cash
proceeds of $6.4 billion, including our Pacific Northwest timberlands, a pulp and paper business within our private equity
operations, and property assets.
2013 ANNUAL REPORT 57
Investing activities in the prior year included the acquisition of two hydroelectric portfolios within North America for $1.1 billion
and $2.1 billion to acquire a UK regulated distribution operation, a Brazilian toll road, and several other businesses within our
infrastructure operations. We also disposed of $0.9 billion of financial assets in the prior year, the proceeds of which were
reinvested into our operations.
CONTRACTUAL OBLIGATIONS
The following table presents the contractual obligations of the company by payment periods:
AS AT DECEMBER 31
(MILLIONS)
Corporate borrowings
Principal repayments
Non-recourse borrowings
Property-specific mortgages
Other debt of subsidiaries
Capital securities
Lease obligations1
Commitments
Interest expense2
Long-term debt
Capital securities
Payments Due By Period
Less than
1 Year
1 – 2
Years
2 – 5
Years
After 5
Years
Total
$
— $
282
$
1,137
$
2,556
$
3,975
5,647
1,823
188
34
1,755
2,044
42
9,610
1,721
440
94
—
3,457
47
6,665
1,593
—
49
—
2,251
11
13,573
2,255
163
142
35,495
7,392
791
319
—
1,755
6,322
—
14,074
100
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 $1.8 billion (2012 – $2.7 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 $269 million (2012 – $297 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
65% owned BREP as previously described on pages 43 to 44.
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 6 to our
consolidated financial statements and under Financial and Liquidity Risks beginning on page 65.
58 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. To this
end, we strive for excellence and quality in each of our core operating platforms in the belief that this approach will produce
strong 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 those competitors that have
shorter investment horizons and more of a speculative focus. These operating platforms have been established over the course of
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 institutional investors and believe we are well positioned
to continue increasing the 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. To achieve this, we are continually
expanding the breadth of resources we devote 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 ethical business conduct, as well as our position in the market 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
includes maintaining 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.
RISK MANAGEMENT
Managing risk is an integral part of Brookfield’s business and we have a disciplined and focused approach to risk management.
The assessment and management of risk is the responsibility of the Company’s management. Given the diversified and
decentralized nature of our operations, we seek to ensure that risk is managed as close to its source as possible, and by management
teams that have the most knowledge and expertise in the business or risk area.
As such, business specific risks are generally managed at the operating platform level, as the risks vary based on the unique
business and operational characteristics. The specific manner and methodologies by which risks are addressed and mitigated
vary based upon, among other things, the nature of the risks and of the assets and operations to which they apply, the geographic
location of the assets, the economic, political and regulatory environment, and Brookfield’s assessment of the benefits to be
derived from such mitigation strategies.
At the same time, we utilize a coordinated approach among our corporate group and our operating platforms to risks that can
be more pervasive and correlated in their impact across the organization, such as foreign exchange and interest rate risks, and
where we can bring together specialized knowledge to manage these risks. Management of strategic, reputational and regulatory
compliance risks are similarly coordinated to ensure consistent focus on organizational objectives.
The Corporation’s Chief Financial Officer has ultimate responsibility for the risk management function and discharges the
responsibility with the assistance of the Risk Management Group, which works with various operational and functional groups
within Brookfield to coordinate the risk management program and to develop and implement risk mitigation strategies that are
appropriate for the Corporation.
These efforts leverage the work conducted by management committees that have been formed to bring together required expertise
to manage and oversee key risk areas, and include:
• Risk Management Steering Committee to support the overall corporate risk management program, and coordinate risk
assessment and mitigation on an enterprise-wide basis;
•
Investment Committees to oversee the investment process as well as monitor the ongoing performance of investments;
2013 ANNUAL REPORT 59
• Conflicts Committee to resolve potential conflict situations in the investment process and other corporate transactions;
•
•
Financial Risk Oversight Committee to review and monitor financial exposures;
Safety Steering Committee to focus on health, safety, and environmental matters; and Disclosure Committee to oversee the
disclosure of non-financial information.
The Corporation’s Board of Directors has governance oversight for risk management with a focus on the more significant risks
facing the Corporation, and builds upon management’s risk assessment and oversight processes. The Board of Directors has
delegated responsibility for the oversight of specific risks to board committees as follows:
Risk Management Committee
Oversees the management of Brookfield’s significant financial and non-financial risk exposures, including market, credit,
operational, reputational, strategic, regulatory and business risks. These responsibilities include discussing risk assessment and
risk management practices with management to ensure ongoing, effective mitigation of key organizational risks, as well as
confirming that the company has an appropriate risk taking philosophy and suitable risk capacity.
Audit Committee
Oversees the management of risks related to Brookfield’s systems and procedures for financial reporting as well as for associated
audit processes (internal and external). Part of the Audit Committee’s responsibilities is the review and approval of the risk-based
internal audit plan, which ensures alignment with risk management activities and organizational priorities.
Management Resources and Compensation Committee
Oversees the risks related to Brookfield’s management resource planning, including succession planning, proposed senior
management appointments, executive compensation, and the job descriptions and annual objectives of senior executives, as well
as performance against those objectives.
Governance and Nominating Committee
Oversees the risks related to Brookfield’s governance structure, including the effectiveness of board and committee activities and
potential conflicts of interest, as well as with respect to related party transactions.
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 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 beyond
our control, including, but not limited to, credit and capital market volatility, business investment levels, government spending
levels, consumer spending levels, changes in laws (including laws relating to taxation), trade barriers, commodity prices,
currency exchange rates and controls, national and international political circumstances (including wars, terrorist acts or security
operations), changes in interest rates, inflation rates and general economic uncertainty. These economic conditions affect the
jurisdictions in which our entities are formed and where we own assets and operate businesses. Further, these factors may
affect securities prices and the liquidity and the value of existing and potential investments. 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. In particular, given the importance of the U.S. and Canada to our operations, an economic downturn in North America
could have an adverse effect on our operating margins and asset values.
Competition
Each segment of our business is subject to competition in varying degrees. We compete on the basis of a number of factors,
including, but not limited to, the quality of our employees, transaction execution, our products and services, innovation and
reputation and price. Our competitors include private equity funds, specialized investment funds, hedge funds, funds of hedge
funds and other sponsors managing pools of capital, as well as corporate buyers, traditional asset managers, commercial banks,
investment banks and other financial institutions (including sovereign wealth funds). We compete in pursuit of investor capital to
be invested in our securities and investment funds but also in acquiring investments in attractive assets. Competition for investor
capital, in particular, is intense and investors are increasingly seeking to manage their own assets or reduce their management
fees. Further, our competitors may have certain competitive advantages, including greater financial, technical, marketing and
other resources, more personnel, less onerous regulatory requirements or a lower cost of capital and access to funding sources or
other resources that are not available to us. These pressures and/or an increase in competition could result in downward pressure
on revenues which could, in turn, reduce operating margins and thereby reduce operating cash flows, investment returns and
60 BROOKFIELD ASSET MANAGEMENT
negatively affect 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 an asset by reducing the present value of the cash flows expected to be produced by such 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 interest rate risk. Further,
the value of any debt or preferred share that is subject to a fixed interest rate will be determined based on the prevailing interest
rates and, accordingly, this type of debt or preferred share is also subject to interest rate risk. In addition, over the last few years,
interest rates have been at historically low levels. These rates may remain relatively low or rise in the future either gradually or
abruptly. Should interest rates increase, the amount of cash required to service these obligations would increase and our earnings
could be adversely impacted.
Ownership of Common Shares
The trading price of our Class A shares is subject to volatility and cannot be predicted. Our shareholders may not be able to
resell their Class A shares at or above the price at which they purchased such shares due to 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 Class A Shares; (x) dilution from the issuance of
additional equity; (xi) investor perception of our businesses and the industries in which we operate; (xii) investment restrictions;
(xiii) our dividend policy; (xiv) the departure of key executives; (xv) sales of Class A Shares by senior management or significant
shareholders; and (xvi) the materialization of other risks described in this section.
Taxes
Our structure is based on prevailing taxation law and practice in the local jurisdictions in which we operate. Any change in tax
policy, tax legislation (including in relation to taxation rates), the interpretation of tax policy or legislation or practice in these
jurisdictions could adversely affect the return we can earn on our investments, on the capital available to be invested by us or our
institutional investors or on the willingness of investors to acquire our securities or invest in our funds. Further, taxes and other
constraints that would apply to our operating entities in such jurisdictions may not apply to local institutions or other parties,
and such parties may therefore have a significantly lower effective cost of capital and a corresponding competitive advantage in
pursuing acquisitions. A number of other factors may increase our effective tax rates, which would have a negative impact on
our net income. These include, but are not limited to, changes in the valuation of our deferred tax assets and liabilities, and any
reassessment of taxes by a taxation authority.
Laws, Rules and Regulations
There are many laws and governmental rules and regulations that apply to us, our assets and our businesses. Changes in these
laws, rules and regulations, or their interpretation by governmental agencies or the courts, could adversely affect our business,
assets or prospects, or those of our customers, clients or partners. Furthermore, economic and political factors, including civil
unrest, changes in government or government policy 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, renewable energy 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 can impose on us uncertainty, 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. Changes
in these laws may adversely affect us and our businesses or may benefit our competitors or their businesses. We must also
comply with municipal, state or provincial and federal laws, rules and regulations relating to the protection or preservation of
human health and safety and the environment. See “Business Environment and Risks - Health, Safety and the Environment” on
page 63. These laws, rules and regulations sometimes result in uncertainty and 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 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 successful claim is made against us. Any future
increases in regulatory requirements may require us to incur further compliance costs. Environmental laws and regulations can
change rapidly and significantly and we may become subject to more stringent environmental laws and regulations in the future.
Compliance with more stringent environmental laws and regulations and the associated costs could adversely affect our business,
financial condition or results of operation.
2013 ANNUAL REPORT 61
Our asset management business is subject to substantial and increasing regulatory compliance and oversight. The recent financial
crisis and various high profile financial scandals have resulted in active debate regarding the appropriate level of regulation and
oversight of asset management businesses in a number of jurisdictions in which we operate. The introduction of new legislation
and increased regulation may result in increased compliance costs and could materially affect the manner in which we conduct
our business and adversely affect our profitability.
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, but not limited to, 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. These requirements and regulations are
primarily intended to benefit investment advisory clients and investment company shareholders and generally grant supervisory
agencies broad administrative powers, including the power to limit or restrict the carrying on of business for failure to comply
with such laws and regulations. In the event that such powers are exercised, the possible sanctions that may be imposed include
the suspension of individual employees, limitations on the activities in which the investment adviser may engage, suspension
or revocation of the investment adviser’s registration as an adviser, censure and fines. Compliance with these requirements and
regulations 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 Investment Company Act of 1940 (the “40 Act”) and the rules promulgated thereunder (and similar legislation in other
jurisdictions) provide certain protections to investors and impose certain restrictions on companies that are registered as
investment companies. Among other things, such rules limit or prohibit transactions with affiliates, impose limitations on the
issuance of debt and equity securities and impose certain governance requirements. 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 also requires the registration of an entity 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 such entity’s assets on an unconsolidated basis. We are not currently nor do we intend to
become registered as an investment company under the 40 Act. In order to ensure that we are not deemed to be an investment
company, we may be required to materially restrict or limit the scope of our operations or plans, we will be limited in the types
of acquisitions that we may make and we may need to modify our organizational structure or dispose of assets that we would not
otherwise dispose of. 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 business activities (or have conditions placed on our business activities), issuing certain
securities and be required to limit the amount of investments that we make as a principal or otherwise conduct our business in a
manner that does not subject us to the registration and other requirements of the 40 Act.
Governmental Investigations; Anti-Bribery and Corruption
We are from time to time subject to various governmental investigations, audits and inquiries, both formal and informal
(“investigations”). These investigations, regardless of their outcome, could be costly, divert management attention, and damage
our reputation. The unfavourable resolution of such investigations could result in criminal liability, fines, penalties or other
monetary or non-monetary remedies and could materially affect our business or results of operations.
There is an increasing global focus on the implementation and enforcement of anti-bribery and corruption legislation, and
this focus has heightened the risks that we face in this area, particularly as we expand our operations globally. We are subject
to a number of laws and regulations governing payments and contributions to public officials or other third parties, including
restrictions imposed by the U.S. Foreign Corrupt Practices Act and similar laws in non-U.S. jurisdictions, such as the UK Bribery
Act and the Canadian Corruption of Foreign Public Officials Act. Different laws that are applicable to us may contain conflicting
provisions, making our compliance more difficult. The policies and procedures we have implemented to protect against non-
compliance with anti-bribery and corruption legislation may be inadequate. If we fail to comply with these laws and regulations,
we could be exposed to claims for damages, financial penalties, reputational harm, incarceration of our employees, restrictions
on our operations and other liabilities, which could negatively affect our operating results and financial condition. In addition, we
may be subject to successor liability for violations under these laws or other acts of bribery committed by companies in which
we or our funds invest.
Instances of bribery, fraud, accounting irregularities and other improper, illegal or corrupt practices can be difficult to detect, and
fraud and other deceptive practices can be widespread in certain jurisdictions. We invest in emerging market countries that may
not have established stringent anti-bribery and corruption laws and regulations, or where existing laws and regulations may not
be consistently enforced. For example, we invest in jurisdictions that are perceived to have materially higher levels of corruption
according to international rating standards, such as China, India, Latin America and the Middle East. Due diligence on investment
opportunities in these jurisdictions is frequently more challenging because consistent and uniform commercial practices in such
locations may not have developed or do not meet international standards. Bribery, fraud, accounting irregularities and corrupt
practices can be especially difficult to detect in such locations.
62 BROOKFIELD ASSET MANAGEMENT
The increased global focus on anti-bribery and corruption enforcement may also lead to more investigations in this area, the
results of which cannot be predicted. For example, we are currently facing anti-bribery and corruption investigations by the
SEC and U.S. Department of Justice (“DOJ”) related to a Brazilian subsidiary of ours that allegedly made payments to certain
third parties in Brazil and those payments were, in turn, used, with our knowledge, to pay certain municipal officials to obtain
permits and other benefits. A civil action against our Brazilian subsidiary has been commenced by a public prosecutor in Brazil.
All involved have denied the allegations. The SEC and DOJ are seeking information from us and we are cooperating with both
authorities in this regard. In 2012, we engaged a leading international law firm to conduct an independent investigation into the
allegations. Based on the results of that investigation, we have no reason to believe that our Brazilian subsidiary engaged in any
wrongdoing and hope to resolve this matter in due course. We do not expect that any legal outcome will be financially material
to the Corporation.
In addition, a legal action in Brazil has resulted in the arrest of four City of São Paulo officials for corruption. The four officials
allegedly perpetrated an extortion scheme that forced real estate developers to make illicit payments in order to obtain occupancy
permits necessary to complete development projects and other benefits. One of our affiliates is a real estate development
company in Brazil that builds residential high-rise condominiums and was one of many developers targeted by this extortion.
We have been cooperating fully with the public prosecutor’s office in São Paulo and providing relevant information and witness
testimony. There are no charges against our affiliate or any of its employees in connection with this matter and none are expected.
Litigation
In the normal course of our operations, we become involved in various legal actions, including claims relating to personal injury,
property damage, property taxes, land rights and contract and other commercial disputes. Further, we have significant operations
in the U.S., which may, as a result of the prevalence of litigation in the U.S., be more susceptible to legal action than certain of
our other operations. The final outcome with respect to outstanding, pending or future actions cannot be predicted with certainty,
and the resolution of such actions may 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. Even
if ultimately unsuccessful, litigation could adversely affect our business, including by damaging our reputation.
Health, Safety and the Environment
As an owner and operator of real property, we may become liable for the costs of removal and remediation of certain hazardous
substances released or deposited on or in our properties, or disposed of at other locations regardless of whether or not we were
responsible for the release or deposit of such hazardous materials. These costs could be significant and could reduce cash
available for our business. 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. Environmental laws and regulations can change rapidly and significantly and we may become subject to more stringent
environmental laws and regulations in the future. Compliance with more stringent environmental laws and regulations and the
associated costs could adversely affect our business, financial condition or results of operations.
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 set out in our licenses, permits
and other approvals are 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 or
maintaining an important license, permit or other approval or become subject to government orders, investigations, inquiries or
other proceedings (including civil claims) relating to health, safety and environmental matters. The occurrence of any of these
events or any changes, additions to, or more rigorous enforcement of, health, safety and environmental 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 policies on our assets. These policies contain policy specifications, limits and deductibles that
may mean that insurance may not provide coverage or sufficient coverage against all potential material losses. We may also
self-insure a portion of certain of these risks. There are certain types of risk (generally of a catastrophic nature such as war or
environmental contamination) which are either uninsurable or not economically insurable. Further, there are certain types of risk
for which insurance coverage is not equal to the full replacement cost of all of the assets. 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 any related properties to the extent the
borrowers have recourse beyond the specific asset or operations being financed, which could have an adverse effect on our
results of operations and financial position.
2013 ANNUAL REPORT 63
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 or extreme weather (such as floods, hurricanes and other storms) may impact hydrology and/or wind levels,
thereby influencing power generation levels or affect other of our businesses or damage our assets. Further, rising sea levels
could, in the future, affect the value of any low-lying real property that we may own or develop or result in the imposition of
new property taxes. 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. If we are unable to negotiate acceptable collective bargaining
agreements with any of our unions, as existing collective bargaining agreements expire we could experience a work stoppage,
which could result in significant disruption in 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.
In addition, we face competition in connection with the attraction and retention of qualified employees. Our ability to continue
to compete effectively in our businesses will depend upon our ability to attract new employees and retain and motivate our
existing employees. If we are unable to attract and retain qualified employees this could limit our ability to compete successfully
and achieve our business objectives, which could negatively impact our business, financial condition and results of operations.
Terrorist Acts
Our commercial office portfolio is concentrated in large metropolitan areas, some of which have been or may be perceived to be
threatened by 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 real estate portfolio. Renewable energy and infrastructure assets, such as roads, railways, power generation facilities and
ports, may also be targeted by 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. Any damage or business interruption costs as a
result of uninsured or underinsured acts of terrorism could result in a material cost to us and could adversely affect our business,
financial condition or results of operation. Adequate terrorism insurance may not be available at rates we believe are reasonable
in the future. All of the risks indicated in this paragraph could potentially be heightened by foreign policy decisions of the U.S.
and other influential countries or general political conditions.
Further, our information technology systems may be subject to cyber terrorism, intended to obtain unauthorized access to our
proprietary information, destroy data or disable, degrade or sabotage our systems, often through the introduction of computer
viruses, cyberattacks and other means, and could originate from a wide variety of sources, including unknown third parties
outside the firm. Although we have implemented measures to ensure system integrity, there can be no assurance that these
measures will provide adequate protection. If our information systems are compromised do not operate properly or are disabled,
we could suffer financial loss and/or a disruption in one or more of our businesses. This could have a negative impact on our
operating results and cash flows, or result in reputational damage.
Execution of Strategy
Value Investing
The successful execution of our 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 weakest, typically
when depressed economic conditions exist in the market relating to a particular entity or industry. However, there is no certainty
that we will be able to identify suitable or sufficient opportunities that meet our investment criteria and acquire additional
high-quality assets at attractive prices to supplement our growth. Conversely, overly favourable economic sentiment 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 well or as quickly as expected. Investments in companies or assets that are
experiencing significant financial or business difficulties are subject to a risk of poor performance or loss. We may fail to value
opportunities accurately or to consider all relevant facts that may be necessary or helpful in evaluating an opportunity, or we may
underestimate the costs necessary to bring an acquisition up to standards established for its intended market position or be unable
to quickly and effectively integrate new acquisitions into our existing operations. We may be required to sell a business before it
has realized our expected level of returns. If we are unable to realize the benefits we expect to achieve as a result of acquisitions,
our operating results and cash flows may be less than expected.
64 BROOKFIELD ASSET MANAGEMENT
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. We have experienced departures of key professionals in the past and may do so in the future, and we cannot predict the
impact that any such departures will have on our ability to achieve our objectives. Competition for the best people is intense
and 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. Furthermore, 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 similar arrangements affecting many of our assets and businesses.
Investments in partnerships, joint ventures, co-tenancies or other entities may involve risks and uncertainties not present absent
third-party involvement, including, but not limited to, our dependency on partners, co-tenants or co-venturers that are not under
our control and that might compete with us for opportunities, 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 economic or other business interests or goals that are different than or inconsistent
with those of the Corporation, and we could become engaged in a dispute with any of them that might affect our ability to
operate the business or assets in question. We do not have sole control over 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.
Some of our management arrangements permit our partners to terminate a management agreement in limited circumstances
relating to disputes over the managers’ obligations. Any such termination could adversely affect our revenue from management
fees or our ability to raise future capital. 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 are forced to do so because we do not have the inclination or financial
resources at the relevant 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 business to enhance returns to shareholders and our
investors and finance our operations. 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 and dividends; if we are unable to
obtain committed debt financing for potential acquisitions or can only obtain debt at an increased interest rate or on unfavourable
terms, we may have difficulty completing acquisitions or may generate profits that are lower than would otherwise be the case;
we may not be able to refinance indebtedness on our assets at maturity due to company and market factors such as the estimated
cash flow produced by our assets, the value of our assets, liquidity in the debt markets, and/or 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. Our ability to achieve attractive rates of return will depend on our ability to access
sufficient sources of indebtedness at attractive rates.
The use of leverage poses a significant degree of risk and enhances the possibility of a significant loss. Highly leveraged assets
are inherently more sensitive to declines in revenues, increases in expenses and interest rates, and adverse market conditions. A
leveraged company’s income and net assets also tend to increase or decrease at a greater rate than would otherwise be the case
if money had not been borrowed. As a result, the risk of loss associated with a leveraged company, all other things being equal,
is generally greater than for companies with comparatively less debt.
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, adequate insurance coverage and
certain credit ratings. These covenants may limit our flexibility in conducting 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.
2013 ANNUAL REPORT 65
We rely on our subsidiaries to provide us with the funds necessary to pay dividends and meet our financial obligations. The
leverage on our assets may affect the funds available to us if the terms of the debt impose restrictions on the ability of our
subsidiaries to make distributions to us. In addition, our subsidiaries will generally have to service their debt obligations before
making distributions to us or their parent entity.
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 we may need to dispose of one or more of our assets on
disadvantageous terms or raise equity, causing dilution to existing shareholders. If we are required to repay indebtedness using
cash on hand, cash provided by our continuing operations or cash from the sale of our assets, this could reduce dividends to our
shareholders. 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, a 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, if financial or operating difficulties of other owners result in distress sales, such 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 such syndications or assignments,
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, which we may be required to fund. Additionally, in the
ordinary course of business 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.
Investors in our private 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 funds may default on their capital commitment obligations to our private funds, which could have an adverse impact
on our earnings or result in other negative implications to our businesses such as the requirement to redeploy our own capital to
cover such obligations, even if the capital would otherwise earn a greater return.
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 currency utilized
in one or more countries where we have a significant presence 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
certain of our financial positions. However, a significant portion of this risk remains unhedged. We may also establish unhedged
positions in the ordinary course of business. 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. There is no
assurance that hedging strategies will fully mitigate the risks they are intended to offset, and 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 (if a counterparty fails to fulfill its obligations we may be exposed to risks we had sought to mitigate) and a potential
requirement to fund mark-to-market adjustments. 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”) imposes rules and regulations governing federal oversight of the over-the-counter (“OTC”)
derivatives market and its participants, including the Corporation. Regulations promulgated by the U.S. Commodities Futures
Trading Commission and the SEC under Dodd-Frank require, since June 10, 2013, certain types of OTC derivative transactions
to be executed through a centralized exchange or regulated facility and be cleared through a regulated clearinghouse. These new
rules impose additional costs and additional regulation on the Corporation. Derivative transactions executed through exchanges
or regulated facilities attract incremental collateral requirements in the form of initial margin, and require variation margin
to be cash settled on a daily basis which increases liquidity risk for the Corporation. The increase in margin requirements
(relative to bilateral agreements) combined with a more restricted list of securities that qualify as eligible collateral requires us
to hold larger positions in cash and treasuries, which could reduce income. Conversely, transactions executed through exchanges
largely eliminate OTC counterparty credit risk but increase our exposure to the risk of an exchange or clearinghouse defaulting,
and increased capital or margin requirements imposed on our OTC derivative counterparties could reduce our exposure to
66 BROOKFIELD ASSET MANAGEMENT
the counterparties’ default. In force OTC derivative transactions are grandfathered and will migrate to being cleared through
exchanges over time, or the Corporation may elect to accelerate the migration. As such, this does not become a significant risk
for the Corporation until a large portion of our derivatives have transitioned to clearing houses. Similar regulations in other
jurisdictions we operate in are expected to become effective as early as 2014. We cannot predict the effect of the legislation on our
hedging costs, our hedging strategy or its implementation, or whether Dodd-Frank and similar regulations in other jurisdictions
will lead to an increase or decrease in or change in composition of the risks we hedge. Such regulatory oversight could have an
adverse impact on our ability to hedge risks in our businesses. Specifically, Dodd-Frank, and any 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 operational risk and reduce the liquidity of the market for 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.
Asset Management
Our ability to raise capital from third party investors and successfully expand our asset management activities is dependent on
a number of factors, including certain factors that are outside our control. In the event that any of our funds were to perform
poorly, our revenue, income and cash flow would decline because the value of our assets under management would decrease,
which would result in a reduction in management fees, and our investment returns would decrease, resulting in a reduction in the
carried interest and incentive fees that we earn. Moreover, we could experience losses on our investments of our own capital as
a result of poor investment performance by our funds.
Poor performance could damage our reputation with our current and potential investment partners and make it more difficult for
us to raise new capital. Investors may decline to invest in future investment funds we raise, may withdraw their investments as
a result of poor performance in the funds in which they are invested, or may demand lower fees or fee concessions for new or
existing funds, which would decrease our revenue.
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 capital available to us to
invest, the returns we can make on our investments and the margins of our asset management business. Our asset management
business relies on the continued willingness 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, such as the performance of the stock market, asset allocation rules or regulations or
investment policies to which third party investors are subject could inhibit or restrict the ability of third party investors to make
investments in our funds or the asset classes in which our funds invest. The general appeal of our funds and asset classes could
also decline or fall into disfavour. In addition, certain institutional investors are demonstrating a preference to in-source their
own investment professionals and to make direct investments without the assistance of asset managers like us. These investors
may not continue to make new capital commitments to our managed funds and could become competitors to us for capital and
investment opportunities. As a result, we may need to identify and attract new investors in order to maintain or increase the size
of our funds. There are no assurances that we can find new investors or secure commitments from new or existing investors. If
we are unable to raise capital from third party investors, we will be unable to collect management fees or deploy their capital
into investments and potentially collect transaction fees or carried interest, which would materially reduce our revenue and cash
flow and adversely affect our financial condition.
We could be negatively impacted if there is misconduct by personnel of portfolio companies in which our funds invest. Failures
by personnel at our portfolio companies to comply with legal and regulatory requirements could adversely affect our business
and reputation. We may face increased risk of such misconduct to the extent our investment in emerging markets increases. Such
misconduct might undermine our due diligence efforts with respect to such companies and could negatively affect the valuation
of a fund’s investments.
Our private funds have a finite life that may require us to exit an investment made in a fund at an inopportune time. Volatility in
the exit markets for these 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
fund investment successfully. We cannot always control the timing of our private fund investment exits or our realizations upon
exit.
Our private fund investments may not meet their investment hurdles and we may not realize performance based income related
to these investments upon exit. If, as a result of poor performance of investments in a fund’s life, the fund does not achieve
certain investment returns for the fund over its life, we will be obligated to repay the amount by which the carried interest that
was previously distributed to us exceeds amounts to which we are ultimately entitled.
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
2013 ANNUAL REPORT 67
mortgage funds), local conditions (such as an oversupply of space or a reduction in demand for real estate in the markets in which
we operate), the attractiveness of the properties to tenants, competition from other landlords 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 in real estate assets, such as mortgage payments, property 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 could 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, discount shopping centres, 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 Energy
Our renewable energy 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. 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 could result at any time and potentially
continue for indefinite periods.
A significant portion of our renewable energy 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.
68 BROOKFIELD ASSET MANAGEMENT
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 power generation projects.
Our renewable energy 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, energy, timberlands and agrilands operations in North and South
America, Europe and Australasia. These operations include toll roads, electricity transmission systems, coal terminal operations,
electricity and gas distribution companies, rail networks and ports. 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 investments that we had planned or we may not be able to recover our initial cost.
Economic regulation can also involve ongoing commitments to economic regulators, safety regulators and other governmental
agencies. Our timberlands operations are subject to provincial or state and federal government regulations relating to forestry
practices and the export of logs, and several of our infrastructure 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 infrastructure
operations. 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.
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 the quality of our revenue streams 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.
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.
Our infrastructure 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.
2013 ANNUAL REPORT 69
Our infrastructure operations require the usage of large areas of land 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.
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 timber
that we may be able to sell. In addition to impacting our timberland 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.
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 timberland assets.
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 demand 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.
Private Equity
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 typically 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 or deplete our financial or management resources. 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.
Residential Development
We have residential land development and homebuilding operations located in Canada, the United States, Brazil 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, availability of qualified trade workers
and required materials, 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 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, Ontario and Brazil, where we derive a large proportion of our residential property revenue. Government
regulations, legal challenges and delays in the entitlement process may delay the start or completion of our communities or limit
our homebuilding or other activities, which could have an adverse impact on our results of operations. Our residential operations
may be affected by the ability to raise capital on favourable terms or at all and by fluctuations in exchange rates.
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
70 BROOKFIELD ASSET MANAGEMENT
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 prices at which we can sell them.
Service Activities
We have several companies that operate in the service industry. The revenues and profitability of these companies are largely
dependent on the awarding of new contracts, which they do not directly control, and the uncertainty of contract award timing
could have an adverse effect on these companies. Our companies in the service industry operate in highly competitive markets
where it is difficult to predict whether and when they will receive new contracts. These processes can be impacted by a wide
variety of micro and macroeconomic factors that may affect our clients and over which we have no control. In addition, our
service companies may not be able to compete effectively given the perception of their reputation, ability to perform and/or
perceived technology or other advantages held by competitors. Our competitors in the service industry may be more inclined to
take greater or unusual risks or accept terms and conditions in a contract that we do not deem market or acceptable.
Fluctuating demand cycles are common in the service industry. These fluctuations can have a significant impact on the degree of
competition for available projects and the awarding of new contracts, and as a result there may, from time to time, be significant
and unpredictable variations in the financial results of these businesses. In the construction industry, fluctuations in the demand
for services or the ability of the private and/or public sector to fund projects in a depressed economic climate could adversely
affect the awarding of new contracts and margins for our construction businesses. Large-scale domestic and international projects
involve uncertain timing, and it is particularly difficult to predict whether and when our construction businesses will receive a
contract award. The uncertainty of contract award timing can present difficulties in matching workforce size with contract needs.
If an expected contract award is delayed or not received, or if an ongoing contract is cancelled, our construction businesses could
incur costs that would have the effect of reducing operational efficiency, margins and profits.
2013 ANNUAL REPORT 71
PART 6 – ADDITIONAL INFORMATION
ACCOUNTING POLICIES AND INTERNAL CONTROLS
Accounting Policies and Critical Judgments and Estimates
The preparation of financial statements requires management to select appropriate accounting policies and to make judgments
and estimates that affect the carried 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. Actual amounts could
differ from those estimates.
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, 2013 consolidated financial statements.
i.
Critical Estimates
The significant estimates used in determining the recorded amount for assets and liabilities in the consolidated 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.
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.
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.
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;
estimated future cash flows; discount rates and volatility utilized in option valuations.
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 consolidated financial statements:
72 BROOKFIELD ASSET MANAGEMENT
a.
Control or Level of Influence
When determining the appropriate basis of accounting for the company’s investees, the company makes judgments about the
degree of influence that the company exerts directly or through an arrangement over the investees’ relevant activities. This may
include the ability to elect investee directors or appoint management. Control is obtained when the company has the power
to direct the relevant investing, financing and operating decisions of an entity and does so it its capacity as principal of the
operations, rather than as an agent for other investors. Operating as a principal includes having sufficient capital at risk in any
investee and exposure to the variability of the returns generated by the decisions of the company as principal. Judgment is used
in determining the sufficiency of the capital at risk or variability of returns. In making these judgments, the company considers
the ability of other investors to remove the company as a manager or general partner in a controlled partnership.
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.
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 the 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 unit’s future revenues and direct costs; and the determination of discount and capitalization rates, and when an asset’s
carrying value is above the value derived using publicly traded prices which are quoted in a liquid market.
f.
Income Taxes
The company makes judgments when determining the future tax rates applicable to subsidiaries and identifying the temporary
difference that relate to each subsidiary. Deferred income tax assets and liabilities are measured at the tax rates that are expected to
apply during the period when the assets are realized or the liabilities settled, using the tax rates and laws enacted or substantively
enacted at the consolidated balance sheet dates. The company measures deferred income taxes associated with its investment
properties based on its specific intention with respect to each asset at the end of the reporting period. Where the company has a
specific intention to sell a property in the foreseeable future, deferred taxes on the building portion of an investment property are
measured based on the tax consequences following from the disposition of the property. Otherwise, deferred taxes are measured
on the basis the carrying value of the investment property will be recovered substantially through use. Judgment is required in
determining the manner in which the carrying amount of each investment property will be recovered.
g.
Classification of Non-controlling Interests in Limited-Life Funds
Non-controlling interests in limited-life funds are classified as liabilities (interests of others in consolidated funds) or equity (non-
controlling interests) depending on whether an obligation exits to distribute residual net assets to non-controlling interests on
liquidation in the form of cash or other financial assets or assets delivered in kind. Judgment is required to determine whether the
governing documents of each entity convey a right to cash or other financial assets, or if assets can be distributed on liquidation.
h.
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.
2013 ANNUAL REPORT 73
Adoption of Accounting Standards
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 became effective on 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. 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
exercise power over the investee’s financial and operating decisions, have exposure or rights to variable returns from involvement
with the investee, and the ability to use its power over the investee to affect the amount of its returns in order to conclude it
controls an investee. 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 retrospective application of IFRS 10 increased consolidated assets,
liabilities and non-controlling interests by $218 million, $114 million and $104 million, respectively, as at December 31, 2012,
and increased consolidated revenues and net income by $69 million and $8 million, respectively, for the year then ended, with no
impact on common equity or net income to shareholders during the periods.
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
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.
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 the entity’s conclusion
during the reporting period. The disclosure requirements of IFRS 12 are applicable for interim consolidated financial statements
when significant events or transactions occur during the interim period requiring such disclosure. Otherwise, the additional
disclosures will be included in the company’s annual consolidated financial statements.
ii.
Employee Benefits
In September 2011, the IASB amended IAS 19, Employee Benefits (“IAS 19”) for items impacting defined benefit plans including
the recognition of: actuarial gains and losses within other comprehensive income; interest on the net benefit liability (or asset)
in profit and loss; and unvested past service costs in profit and loss at either the earlier of when an amendment is made or when
related restructuring or termination costs are recognized. Additionally, the adoption of the amendments to IAS 19 required the
company to retroactively exclude expected returns on plan assets from profit and loss, the result of which was a net charge against
common equity of $6 and $10 million as at January 1, 2012 and December 31, 2012, respectively.
iii.
Fair Value Measurement
IFRS 13, Fair Value Measurements (“IFRS 13”) establishes a single source of guidance under IFRS for all fair value measurements.
IFRS 13 does not change when an entity is required to use fair value, but rather provides guidance on how to measure fair value
under IFRS when fair value is required or permitted. The application of IFRS 13 has not materially impacted the manner in
which the company measures its financial and non-financial assets and liabilities. The adoption of IFRS 13 has resulted in more
comprehensive disclosures related to fair values used within the consolidated financial statements.
iv.
Presentation of Other Comprehensive Income
In September 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 may be reclassified subsequently to
profit or loss and items that will not be reclassified subsequently to profit and loss. Income tax on items of other comprehensive
income are required to be allocated on the same basis. The consolidated statements of comprehensive income were amended in
this interim report to reflect the changes in presentation.
v.
Financial Instruments: Disclosures
The amendments to IFRS 7 contain new disclosure requirements for financial assets and liabilities that are offset in the statement
of financial position or subject to master netting arrangements or similar arrangements. The amendments to IFRS 7 have been
applied prospectively, however the application of these amendments had no material impacts on the companies consolidated
financial statements.
74 BROOKFIELD ASSET MANAGEMENT
The following table includes select financial statement line items outlining the impact of the adoption of IFRS 10 and IAS 19 on
our previously reported consolidated financial statements as at January 1, 2012 and December 31, 2012 and for the year ended
December 31, 2012:
(MILLIONS)
Consolidated Balance Sheets:
As at December 31, 2012
As at January 1, 2012
Previously
Reported
Adjustment
Restated
Previously
Reported
Adjustment
Restated
Sustainable resources
$
3,283
$
Investments
Total Assets
11,689
108,644
233
(71)
218
$
3,516
$
11,618
108,862
$
3,155
9,401
91,022
$
226
(69)
214
3,381
9,332
91,236
Property-specific mortgages
$
33,648
$
72
$
33,720
$
28,415
$
72
$
28,487
Equity
Non-controlling interests
Common equity
Total Liabilities and Equity
23,190
18,160
108,644
97
(10)
218
23,287
18,150
108,862
18,516
16,743
91,022
96
(6)
214
18,612
16,737
91,236
(MILLIONS)
Consolidated Statement of Operations:
Total revenues and other gains
Net income
Net income to shareholders
Consolidated Statement of Comprehensive Income:
Other comprehensive income (loss)
Other comprehensive income (loss) to shareholders
Comprehensive income
Comprehensive income (loss) to shareholders
Future Changes in Accounting Standards
Year Ended
December 31, 2012
Previously
Reported
Adjustment
Restated
$
18,697
$
2,747
1,380
$
1,081
$
517
3,828
1,897
69
8
—
(5)
(4)
3
(4)
$
18,766
2,755
1,380
$
1,076
513
3,831
1,893
IFRIC 21, Levies (“IFRIC 21”) provides guidance on when to recognize a liability for a levy imposed by a government, both
for levies that are accounted for in accordance with IAS 37, Provisions, Contingent Liabilities and Contingent Assets, and those
where the timing and amount of the levy is certain. IFRIC 21 identifies the obligating event for the recognition of a liability as the
activity that triggers the payment of the levy in accordance with the relevant legislation. A liability is recognized progressively if
the obligating event occurs over a period of time or, if an obligation is triggered on reaching a minimum threshold, the liability
is recognized when that minimum threshold is reached. IFRIC 21 is effective for annual periods beginning on or after January 1,
2014. Management is currently evaluating the impact of IFRIC 21 on the consolidated financial statements.
IFRS 9, Financial Instruments (“IFRS 9”) was issued by the IASB on November 12, 2009 and will replace IAS 39, Financial
Instruments: Recognition and Measurement (“IAS 39”). IFRS 9 uses a single approach to determine whether a financial asset
is measured at amortized cost or fair value, replacing the multiple rules in IAS 39. The approach in IFRS 9 is based on how
an entity manages its financial instruments in the context of its business model and the contractual cash flow characteristics of
the financial assets. The new standard also requires a single impairment method to be used, replacing the multiple impairment
methods in IAS 39. IFRS 9 is tentatively effective for annual periods beginning on or after January 1, 2018. The company has
not yet determined the impact of IFRS 9 on its consolidated financial statements.
IAS 32, Financial Instruments: Presentation (“IAS 32”) was amended to clarify certain aspects as a result of the application
of offsetting requirements, namely focusing on the following four main areas: the interpretation of “currently has a legally
enforceable right of set-off,” the application of simultaneous realization and settlement, the offsetting of collateral amounts, and
the unit of account for applying the offsetting requirements. IAS 32 is effective for annual periods beginning on or after January
1, 2014. Management is currently evaluating the impact of IAS 32 on the consolidated financial statements.
2013 ANNUAL REPORT 75
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, 2013
and based on that assessment concluded that, as of December 31, 2013, our internal control over financial reporting was effective.
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, 2013 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, 2013. 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, 2013 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.
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 5:25d, paragraph 2, under c of the Dutch Act, confirm that to the best of their knowledge:
•
•
The 2013 financial statements included in this MD&A 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; and
The management report included in this MD&A gives a true and fair review of the information required under section 5:25d,
paragraph 8 and, as far as applicable, paragraph 9 of the Dutch Act regarding the Corporation and the undertakings included
in the consolidation taken as a whole as of December 31, 2013.
RELATED PARTY TRANSACTIONS
In the normal course of operations, we enter into transactions on market terms with related parties, including 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.
The following is a list of significant related party transactions of the Corporation during the years ended December, 31 2012 and
December 31, 2013.
In November 2013, we entered into a $500 million subordinated credit facility with wholly owned subsidiaries of BPY. The
terms of the facility, including the interest rate charged by the Corporation, are consistent with market practice given BPY’s
credit worthiness and the subordination of this facility. This transaction was approved by the independent directors of BPY.
In December 2012, BRPI, our 69% owned North American land developer and homebuilder, repaid its C$480 million loan to
BPO, using the proceeds from the completion of a senior unsecured debt offering. BRPI paid $35 million of interest to BPO
during the year ended December 31, 2012.
In October 2012, we agreed to sell the economic interest in our directly held 10% investment in a South American transmission
operation to BIP for proceeds of $235 million, subject to satisfaction of customary conditions. The transaction, which closed
in 2012, 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.
76 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 International Financial Reporting Standards as issued by the International
Accounting Standards Board 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, 2013, based
on the criteria set forth in Internal Control – Integrated Framework (1992) issued by the Committee of Sponsoring Organizations
of the Treadway Commission. Based on this assessment, management concludes that, as of December 31, 2013, Brookfield’s
internal control over financial reporting is effective. Management excluded from its design and assessment of internal control
over financial reporting EZW Gazeley Limited, Industrial Developments International Inc., and MPG Office Trust, Inc., which
were acquired during 2013, and whose total assets, net assets, total revenues and net income on a combined basis constitute
approximately 3%, 3%, nil% and 1%, respectively, of the consolidated financial statement amounts as of and for the year ended
December 31, 2013.
Brookfield’s internal control over financial reporting as of December 31, 2013, has been audited by Deloitte LLP, the
Independent Registered Public Accounting Firm, who also audited Brookfield’s consolidated financial statements for the year
ended December 31, 2013. As stated in the Report of Independent Registered Public Accounting Firm, Deloitte LLP expressed
an unqualified opinion on the effectiveness of Brookfield’s internal control over financial reporting as of December 31, 2013.
Toronto, Canada
March 28, 2014
J. Bruce Flatt
Chief Executive Officer
Brian D. Lawson
Chief Financial Officer
2013 ANNUAL REPORT 77
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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, 2013, based on the criteria established in Internal Control – Integrated Framework (1992)
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 EZW Gazeley Limited (“Gazeley”), Industrial Developments International Inc. (“IDI”), and MPG Office Trust, Inc.
(“MPG”), which were acquired during 2013, and whose total assets, net assets, total revenues and net income on a combined
basis constitute approximately 3%, 3%, nil% and 1%, respectively, of the consolidated financial statement amounts as of and for
the year ended December 31, 2013. Accordingly, our audit did not include the internal control over financial reporting at Gazeley,
IDI and MPG. 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 International Financial Reporting Standards
as issued by the International Accounting Standards Board. 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 International Financial Reporting Standards as issued
by the International Accounting Standards Board, 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, 2013, based on the criteria established in Internal Control – Integrated Framework (1992) 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, 2013 of the Company and our report dated March 28, 2014 expressed an unqualified opinion on those financial
statements.
Toronto, Canada
March 28, 2014
Chartered Professional Accountants, Chartered Accountants
Licensed Public Accountants
78 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 Public Accounting Firm appointed by the shareholders, have audited the consolidated
financial statements set out on pages 81 through 145 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, 2014
J. Bruce Flatt
Chief Executive Officer
Brian D. Lawson
Chief Financial Officer
2013 ANNUAL REPORT 79
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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, 2013 and December 31, 2012, 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, 2013 and December 31, 2012, 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, 2013, based on the criteria established in Internal
Control – Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission and
our report dated March 28, 2014 expressed an unqualified opinion on the Company’s internal control over financial reporting.
Toronto, Canada
March 28, 2014
Chartered Professional Accountants, Chartered Accountants
Licensed Public Accountants
80 BROOKFIELD ASSET MANAGEMENT
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
(MILLIONS)
Assets
Cash and cash equivalents
Other financial assets
Accounts receivable and other
Inventory
Equity accounted 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
1.
See Adoption of Accounting Standards, Financial Statement Note 2(b)
On behalf of the Board:
Note
Dec. 31, 2013
Dec. 31, 20121
31
6
7
8
9
10
11
12
13
14
15
16
17
18
18
15
19
20
21
21
21
$
$
$
$
3,663
4,947
6,666
6,291
13,277
38,336
31,019
502
5,044
1,588
1,412
112,745
10,316
3,975
35,495
7,392
6,164
791
1,086
3,098
26,647
17,781
47,526
112,745
$
$
$
$
2,850
3,111
6,952
6,581
11,618
33,161
31,148
3,516
5,770
2,490
1,665
108,862
11,652
3,526
33,720
7,585
6,425
1,191
425
2,901
23,287
18,150
44,338
108,862
Frank J. McKenna, Director
George S. Taylor, Director
2013 ANNUAL REPORT 81
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31
(MILLIONS, EXCEPT PER SHARE AMOUNTS)
Total revenues and other gains
Direct costs
Other income
Equity accounted income
Expenses
Interest
Corporate costs
Fair value changes
Depreciation and amortization
Income taxes
Net income
Net income attributable to:
Shareholders
Non-controlling interests
Net income per share:
Diluted
Basic
1.
See Adoption of Accounting Standards, Financial Statement Note 2(b)
Note
2013
22
23
24
9
25
15
21
21
$
20,830
$
(13,928)
525
759
(2,553)
(152)
663
(1,455)
(845)
3,844
$
2,120
1,724
3,844
3.12
3.21
$
$
$
$
$
$
$
$
$
20121
18,766
(13,961)
—
1,237
(2,500)
(158)
1,153
(1,263)
(519)
2,755
1,380
1,375
2,755
1.97
2.02
82 BROOKFIELD ASSET MANAGEMENT
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31
(MILLIONS)
Net income
Other comprehensive income (loss)
Items that may be reclassified to net income
Financial contracts and power sale agreements
Available-for-sale securities
Equity accounted investments
Foreign currency translation
Income taxes
Items that will not be reclassified to net income
Revaluations of property, plant and equipment
Revaluation of pension obligations
Equity accounted investments
Income taxes
Other comprehensive (loss) income
Comprehensive income
Attributable to:
Shareholders
Net income
Other comprehensive (loss) income
Comprehensive income
Non-controlling interests
Net income
Other comprehensive (loss) income
Comprehensive income
1.
See Adoption of Accounting Standards, Financial Statement Note 2(b)
Note
2013
$
3,844
$
9
15
9
15
442
(24)
8
(2,429)
(114)
(2,117)
825
26
231
(166)
916
(1,201)
$
2,643
$
$
$
$
$
2,120
$
(795)
1,325
$
1,724
$
(406)
1,318
$
20121
2,755
(17)
57
3
(110)
3
(64)
1,491
(58)
142
(435)
1,140
1,076
3,831
1,380
513
1,893
1,375
563
1,938
2013 ANNUAL REPORT 83
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Accumulated Other Comprehensive
Income
YEAR ENDED DECEMBER 31, 2013
(MILLIONS)
Common
Share
Capital
Contributed
Surplus
Retained
Earnings
Ownership
Changes1
Revaluation
Surplus
Currency
Translation
Other
Reserves2
Common
Equity
Preferred
Equity
Non-
controlling
Interests Total Equity
Balance as at December 31, 2012
$ 2,855
$
149
$ 6,813
$ 2,088
$ 5,289
$ 1,405
$
(449) $ 18,150
$ 2,901
$ 23,287
$ 44,338
Changes in year
Net income
Other comprehensive loss
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
—
—
—
—
—
—
44
—
—
44
—
—
—
2,120
—
2,120
— (1,287)
—
—
—
10
—
10
(145)
—
(331)
(31)
20
346
—
—
—
—
—
—
—
—
266
266
—
101
101
—
(1,183)
(1,183)
—
—
—
—
—
(225)
(32)
—
—
—
—
—
—
287
287
17
—
—
—
—
—
2,120
(795)
1,325
(1,302)
(145)
—
—
—
—
—
—
—
1,724
3,844
(406)
(1,201)
1,318
2,643
906
—
(910)
(396)
(145)
(910)
(287)
197
1,675
1,585
(21)
61
—
—
45
326
24
387
(124)
(1,215)
304
(369)
197
3,360
3,188
Balance as at December 31, 2013
$ 2,899
$
159
$ 7,159
$ 2,354
$ 5,165
$
190
$
(145) $ 17,781
$ 3,098
$ 26,647
$ 47,526
1.
2.
Includes gains or losses on changes in ownership interests of consolidated subsidiaries
Includes available-for-sale securities, cash flow hedges, actuarial changes on pension plans and equity accounted other comprehensive income, net of associated income taxes
YEAR ENDED DECEMBER 31, 2012
(MILLIONS)
Common
Share
Capital
Contributed
Surplus
Retained
Earnings
Ownership
Changes1
Revaluation
Surplus3
Currency
Translation
Other
Reserves3
Common
Equity
Preferred
Equity
Non-
controlling
Interests Total Equity
Balance as at December 31, 20112 $ 2,816
$
125
$ 5,982
$ 1,773
$ 5,101
$ 1,456
$
(510) $ 16,743
$ 2,140
$ 18,516
$ 37,399
Accumulated Other Comprehensive
Income
Changes in accounting policies
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
6
1,380
—
1,380
(340)
(129)
—
(111)
—
25
825
—
—
—
—
—
—
—
—
—
315
315
—
—
(12)
(6)
—
491
491
—
—
—
—
—
(303)
188
—
(51)
(51)
—
—
—
—
—
—
(51)
—
73
73
—
—
—
—
—
—
73
—
—
—
—
—
—
—
96
90
1,375
563
1,938
—
—
(714)
2,755
1,076
3,831
(340)
(129)
(714)
1,380
513
1,893
(340)
(129)
—
(72)
761
2,896
3,585
24
37
—
—
41
514
65
551
1,413
761
4,675
6,849
Balance as at December 31, 2012
$ 2,855
$
149
$ 6,813
$ 2,088
$ 5,289
$ 1,405
$
(449) $ 18,150
$ 2,901
$ 23,287
$ 44,338
1.
2.
3.
Includes gains or losses on changes in ownership interests of consolidated subsidiaries
See Basis of Presentation, Subsidiaries – Financial Statements Note 2(c)(i)
Includes available-for-sale securities, cash flow hedges, actuarial changes on pension plans and equity accounted other comprehensive income, net of associated income taxes
84 BROOKFIELD ASSET MANAGEMENT
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31
(MILLIONS)
Operating activities
Net income
Other income and gains
Share of undistributed equity accounted earnings
Fair value changes
Depreciation and amortization
Deferred income taxes
Investments in residential inventory
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 interests of others in consolidated funds
Capital provided from non-controlling interests
Capital repaid to non-controlling interests
Preferred equity issuances
Common shares issued
Common shares repurchased
Distributions to non-controlling interests
Distributions to shareholders
Investing activities
Acquisitions
Investment properties
Property, plant and equipment
Sustainable resources
Investments
Other financial assets
Cash assumed on acquisition of subsidiaries
Dispositions
Investment properties
Property, plant and equipment
Sustainable resources
Investments
Other financial assets
Cash disposed on disposition of subsidiaries
Restricted cash and deposit
Cash and cash equivalents
Change in cash and cash equivalents
Foreign exchange revaluation
Balance, beginning of year
Balance, end of year
1.
See Adoption of Accounting Standards, Financial Statement Note 2(b)
Note
2013
20121
$
3,844
$
22, 24
15
31
$
(1,820)
(307)
(663)
1,455
686
(378)
(539)
2,278
949
(224)
(35)
11,073
(10,029)
6,781
(6,115)
(343)
541
3,218
(1,543)
191
85
(388)
(910)
(541)
2,710
(4,673)
(1,566)
(53)
(1,622)
(2,745)
292
1,947
564
1,736
657
1,502
(70)
(10)
(4,041)
947
(134)
2,850
3,663
$
2,755
(70)
(868)
(1,153)
1,263
384
(861)
55
1,505
852
(782)
(321)
6,698
(6,539)
5,655
(3,641)
(506)
103
3,681
(785)
737
54
(106)
(714)
(469)
3,917
(2,123)
(3,544)
(21)
(1,585)
(1,327)
323
1,037
106
2
373
2,215
(5)
(13)
(4,562)
860
(41)
2,031
2,850
2013 ANNUAL REPORT 85
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 energy, infrastructure and private equity. 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, 2014.
b)
Adoption of Accounting Standards
In 2013, the company has applied new and revised standards issued by the IASB that are effective for the period beginning on
or after January 1, 2013 as follows:
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”). IAS 27
is not applicable to the company as it relates only to entities with separate financial statements.
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. 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
have power with existing rights to direct the relevant activities of the investee, have exposure or rights to variable returns from
involvement with the investee, and have the ability to use its power over the investee to affect the amount of its returns in order
to conclude it controls an investee. IFRS 10 requires continuous reassessment if the facts and circumstances change to one or
more of the elements of control. The company applied the principles of IFRS 10 retrospectively, and accordingly resulted in
the consolidation of an investee which was previously equity accounted. The retrospective application of IFRS 10 increased
consolidated assets, liabilities and non-controlling interests by $218 million, $114 million and $104 million, respectively,
as at December 31, 2012, and increased consolidated revenues and net income by $69 million and $8 million, respectively,
for the year then ended, with no impact on common equity or net income attributable to shareholders during the year ended
December 31, 2012.
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 a joint venture, the parties to the joint 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. There was no impact of adoption of IFRS 11 on the company’s 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 the entity’s conclusion
during the reporting period. As a result of the adoption of IFRS 12, the company has included more comprehensive disclosures
surrounding consolidated subsidiaries and equity accounted investments in the consolidated financial statements.
ii.
Employee Benefits
In September 2011, the IASB amended IAS 19, Employee Benefits (“IAS 19”) for items impacting defined benefit plans including
the recognition of: actuarial gains and losses within other comprehensive income; interest on the net benefit liability (or asset)
in profit and loss; and unvested past service costs in profit and loss at either the earlier of when an amendment is made or
when related restructuring or termination costs are recognized. Additionally, the adoption of amendments to IAS 19 required
the company to retroactively exclude expected returns on plan assets from profit and loss, the result of which was a net charge
against common equity of $6 and $10 million as at January 1, 2012 and December 31, 2012, respectively.
86 BROOKFIELD ASSET MANAGEMENT
iii.
Fair Value Measurement
IFRS 13, Fair Value Measurements (“IFRS 13”) establishes a single source of guidance under IFRS for all fair value measurements.
IFRS 13 does not change when an entity is required to use fair value, but rather provides guidance on how to measure fair value
under IFRS when fair value is required or permitted. The application of IFRS 13 has not materially impacted the manner in
which the company measures its financial and non-financial assets and liabilities. The adoption of IFRS 13 has resulted in more
comprehensive disclosures related to fair values used within the consolidated financial statements.
iv.
Presentation of Other Comprehensive Income
In September 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 may be reclassified subsequently to
profit or loss and items that will not be reclassified subsequently to profit and loss. Income tax on items of other comprehensive
income are required to be allocated on the same basis. The consolidated statements of comprehensive income were amended to
reflect the changes in presentation.
v.
Financial Instruments: Disclosures
The amendments to IFRS 7 Financial Instruments: Disclosures (“IFRS 7”) contain new disclosure requirements for financial
assets and liabilities that are offset in the consolidated balance sheet or subject to master netting arrangements or similar
arrangements. The amendments to IFRS 7 have been applied prospectively, however the application of these amendments had
no material impact on the company’s consolidated financial statements.
The following table includes select financial statement line items outlining the impact of the adoption of IFRS 10 and IAS 19 on
our previously reported consolidated financial statements as at January 1, 2012 and December 31, 2012 and for the year ended
December 31, 2012:
(MILLIONS)
Consolidated Balance Sheets:
As at December 31, 2012
As at January 1, 2012
Previously
Reported
Adjustment
Restated
Previously
Reported
Adjustment
Restated
Investments
$
11,689
$
(71)
$
11,618
$
9,401
$
(69)
$
9,332
Property, plant and equipment
Sustainable resources
Total Assets
31,114
3,283
$ 108,644
$
Accounts payable and other
Property-specific mortgages
Equity
Non-controlling interests
Common equity
11,599
33,648
23,190
18,160
Total Liabilities and Equity
$ 108,644
$
34
233
218
53
72
97
(10)
218
31,148
3,516
28,366
3,155
$ 108,862
$
91,022
$
33
226
214
28,399
3,381
$
91,236
11,652
33,720
23,287
18,150
9,266
28,415
18,516
16,743
45
72
96
(6)
9,311
28,487
18,612
16,737
$ 108,862
$
91,022
$
214
$
91,236
(MILLIONS)
Consolidated Statement of Operations:
Total revenues and other gains
Net income
Net income to shareholders
Consolidated Statement of Comprehensive Income:
Other comprehensive income
Other comprehensive income to shareholders
Comprehensive income
Comprehensive income to shareholders
Year Ended
December 31, 2012
Previously
Reported
Adjustment
Restated
$
18,697
$
2,747
1,380
1,081
517
3,828
1,897
69
8
—
(5)
(4)
3
(4)
$
18,766
2,755
1,380
1,076
513
3,831
1,893
2013 ANNUAL REPORT 87
c)
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(t).
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. Control exists when the company has the power to direct the relevant activities, exposure
or rights to variable returns from involvement with the investee, and the ability to use its power over the investee to affect the
amount of its returns. Subsidiaries are consolidated from the date the company obtains control, and continue to be consolidated
until the date when control is lost. The company continually reassesses whether or not it controls an investee, particularly if facts
and circumstances indicate there is a change to one or more of the control criteria previously mentioned. In certain circumstances
when the company has less than a majority of the voting rights of an investee, it has power over the investee when the voting
rights are sufficient to give it the practical ability to direct the relevant activities of the investee unilaterally. The company
considers all relevant facts and circumstances in assessing whether or not the company’s voting rights are sufficient to give it
power.
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. When control of a
subsidiary is lost, the difference between the carrying value and the proceeds from disposition is recognized within total revenues
and other gains in the Consolidated Statement of Operations.
In connection with partial dispositions of a subsidiary in 2011 and 2012, the company adjusted the carrying amounts of common
equity and non-controlling interests to reflect changes in their relative interests in the subsidiary; however, it did not reallocate
certain individual components within common equity, particularly between ownership changes and revaluation surplus. These
financial statements reflect the reallocation within common equity of $1,298 million and $303 million from revaluation surplus
to ownership changes as at December 31, 2012 and 2011, respectively.
Refer to Note 4 for additional information on subsidiaries of the company with significant non-controlling interests.
ii.
Associates and Joint Ventures
Associates are entities over which the company exercises significant influence. Significant influence is the power to participate
in the financial and operating policy decisions of the investee but without control or joint control over those policies. Joint
ventures are joint arrangements whereby the parties that have joint control of the arrangement have the rights to the net assets
of the joint arrangement. Joint control is the contractually agreed sharing of control over an arrangement, which exists only
when decisions about the relevant activities require unanimous consent of the parties sharing control. The company accounts
for associates and joint ventures using the equity method of accounting within investments on the Consolidated Balance Sheets.
Interests in associates and joint ventures accounted for using the equity method are initially recognized at cost. At the time of
initial recognition, if the cost of the associate or joint venture 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 or joint venture is greater than the company’s proportionate share of the underlying fair value,
goodwill relating to the associate or joint venture is included in the carrying amount of the investment. Subsequent to initial
recognition, the carrying value of the company’s interest in an associate or joint venture is adjusted for the company’s share of
comprehensive income and distributions of the investee. Profit and losses resulting from transactions with an associate or joint
venture are recognized in the consolidated financial statements based on the interests of unrelated investors in the investee.
iii.
Joint Operations
A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets,
and obligations for the liabilities, related to the arrangement. Joint control is the contractually agreed sharing of control of
an arrangement, which exists only when decisions about the relevant activities require unanimous consent of parties sharing
control. The company recognizes only its assets, liabilities and share of the results of operations of the joint operation. The
assets, liabilities and results of joint operations are included within the respective line items of the Consolidated Balance Sheets,
Consolidated Statement of Operations and Consolidated Statement of Comprehensive Income.
d)
Foreign Currency Translation
The U.S. dollar is the functional and presentation currency of the company. Each of the company’s subsidiaries, associates,
joint ventures and joint operations determines its own functional currency and items included in the financial statements of each
subsidiary, associate, joint venture and joint operation 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
88 BROOKFIELD ASSET MANAGEMENT
on translation are accumulated as a component of equity. On the disposal of a foreign operation, or the loss of control, joint
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 30. The company’s subsidiaries with significant non-controlling interests are described in Note 4 and
its associates and joint ventures are described in Note 9.
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 discount and terminal capitalization rates reflective of the characteristics, location and
market of each property. The future cash flows of each property are based upon, among other things, rental income from current
leases and assumptions about rental income from future leases reflecting current conditions, less future cash outflows relating
to such current and future leases. The company determines fair value using 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 or partial disposition of an
asset measured using the revaluation method, all accumulated revaluation surplus or the portion disposed of, respectively, is
transferred into retained earnings or ownership changes, respectively.
iii.
Renewable Energy Generation
Renewable energy 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 energy 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 determines fair value using internal
valuations. The company uses external appraisers to review fair values of our renewable energy generating assets, but external
valuations are not necessarily indicative of fair value.
2013 ANNUAL REPORT 89
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 terminal dates of 20 to 28 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.
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, bridge, roads and other equipment used in sustainable resources production are accounted for using
the revaluation method and included in property, plant and equipment. These assets are depreciated over their useful lives,
generally 10 to 35 years.
v.
Infrastructure
Utilities, transport and energy assets within our infrastructure operations 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,
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. Discount rates are selected
for each asset, giving consideration to the volatility of its revenue streams and geography where they are located.
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.
Hospitality Assets
Hotel operating assets within our property operations are classified as property, plant and equipment and are accounted for using
the revaluation method. The company determines the fair value for these assets by discounting the expected future cash flows.
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.
vii. 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.
90 BROOKFIELD ASSET MANAGEMENT
viii. 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.
ix.
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. 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. 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. Fair values for financial instruments 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.
The company assesses the carrying value of available-for-sale securities for impairment when there is objective evidence
that the asset is impaired. When objective evidence of impairment exists, 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)
Fair Value Measurement
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date, regardless of whether that price is directly observable or estimated using another
valuation technique. In estimating the fair value of an asset or a liability, the company takes into account the characteristics of
the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the
measurement date.
Fair value measurement is disaggregated into three hierarchical levels: Level 1, 2 or 3. Fair value hierarchical levels are directly
based on the degree to which the inputs to the fair value measurement are observable. The levels 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 asset’s or liability’s
anticipated life.
Level 3 – Inputs are unobservable and 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.
Further information on fair value measurements is available in Note 6, Note 10, Note 11 and Note 12.
i)
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 of disposal and 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 fair value changes within the Consolidated Statements of Operations. 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.
2013 ANNUAL REPORT 91
j)
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 uncollectibility.
k)
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. Amortization is recorded within depreciation and
amortization in the Consolidated Statements of Operations.
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 recoverable amount.
Indefinite life 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 indefinite life 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.
l)
Goodwill
Goodwill represents the excess of the price paid for the acquisition of an entity over the fair value of the net identifiable tangible
and intangible assets and liabilities acquired. Goodwill is allocated to the cash-generating unit to which it relates. The company
identifies cash-generating units as identifiable groups of assets that are largely independent of the cash inflows from other assets
or groups of assets.
Goodwill is evaluated for impairment annually or more often if events or circumstances indicate there may be 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. On
disposal of a subsidiary, any attributable amount of goodwill is included in determination of the gain or loss on disposal.
m)
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.
n)
i.
Revenue Recognition
Asset Management
Asset management revenues consist of base management fees, advisory fees, incentive distributions, and performance-based
incentive fees which arise from the rendering of services. Revenues from base management fees, advisory fees, and incentive
distributions are recorded on an accrual basis based on the amounts receivable at the balance sheet date and are recorded within
total revenues and other gains 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 total revenues and other gains in the Consolidated Statements of
Operations.
ii.
Property Operations
Property revenues primarily consist of rental revenues from leasing activities and 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
92 BROOKFIELD ASSET MANAGEMENT
to use the leased asset. The total amount of contractual rent to be received from operating leases is recognized on a straight-line
basis over the term of the lease; a straight-line or free rent receivable, as applicable, is recorded as a component of investment
property for the difference between the 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 Energy Operations
Renewable energy 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 Operations
Revenue from transport operations consists primarily of freight and transportation services revenue. Freight and transportation
services revenue is recognized at the time of the provision of services.
vii.
Energy Operations
Revenue from energy operations consists primarily of energy transmission, distribution and storage income. Energy revenue is
recognized when services are provided and are rendered based upon usage or volume throughput during the period.
viii. Private Equity 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.
ix.
Residential Developments Operations
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.
x.
Service Activities
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 revenue is only recorded to the extent that the costs are determined to be recoverable. 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. Other service revenues are recognized when the services are provided.
xi.
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.
2013 ANNUAL REPORT 93
Revenue from loans and notes receivable, less a provision for uncollectible amounts, is recorded on the accrual basis using the
effective interest method.
xii. Other Gains
Other gains represent the excess of proceeds over carrying values on the disposition of assets in the normal course of operations.
o)
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 within
the company’s consolidated financial statements. 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 values. 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.
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 or associate 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 Units are recorded together with the corresponding compensation expense. Realized and unrealized gains on
other derivatives not designated as hedges are recorded in total revenues and other gains, 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.
p)
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 and, 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.
q)
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.
94 BROOKFIELD ASSET MANAGEMENT
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.
r)
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 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.
s)
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 consolidated financial statements.
i.
Critical Estimates
The significant estimates used in determining the recorded amount for assets and liabilities in the consolidated 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 10.
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.
2013 ANNUAL REPORT 95
Further information on estimates used in the revaluation method for property, plant and equipment is provided in Note 11.
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 12.
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;
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 6,
26 and 27.
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 consolidated financial statements:
a.
Control or Level of Influence
When determining the appropriate basis of accounting for the company’s investees, the company makes judgments about the
degree of influence that the company exerts directly or through an arrangement over the investees’ relevant activities. This may
include the ability to elect investee directors or appoint management. Control is obtained when the company has the power
to direct the relevant investing, financing and operating decisions of an entity and does so in its capacity as principal of the
operations, rather than as an agent for other investors. Operating as a principal includes having sufficient capital at risk in any
investee and exposure to the variability of the returns generated by the decisions of the company as principal. Judgment is used
in determining the sufficiency of the capital at risk or variability of returns. In making these judgments, the company considers
the ability of other investors to remove the company as a manager or general partner in a controlled partnership.
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.
c.
Property, Plant and Equipment
The company’s accounting policy for its property, plant and equipment requires critical judgments over the assessment of
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 the 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.
96 BROOKFIELD ASSET MANAGEMENT
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 unit’s future revenues and direct costs; and the determination of discount and capitalization rates, and when an asset’s
carrying value is above the value derived using publicly traded prices which are quoted in a liquid market.
f.
Income Taxes
The company makes judgments when determining the future tax rates applicable to subsidiaries and identifying the temporary
difference that relate to each subsidiary. Deferred income tax assets and liabilities are measured at the tax rates that are expected to
apply during the period when the assets are realized or the liabilities settled, using the tax rates and laws enacted or substantively
enacted at the consolidated balance sheet dates. The company measures deferred income taxes associated with its investment
properties based on its specific intention with respect to each asset at the end of the reporting period. Where the company has a
specific intention to sell a property in the foreseeable future, deferred taxes on the building portion of an investment property are
measured based on the tax consequences following from the disposition of the property. Otherwise, deferred taxes are measured
on the basis the carrying value of the investment property will be recovered substantially through use. Judgment is required in
determining the manner in which the carrying amount of each investment property will be recovered.
g.
Classification of Non-controlling Interests in Limited-Life Funds
Non-controlling interests in limited-life funds are classified as liabilities (interests of others in consolidated funds) or equity
(non-controlling interests) depending on whether an obligation exits to distribute residual net assets to non-controlling interests
on liquidation in the form of cash or another financial asset or assets delivered in kind. Judgment is required to determine
whether the governing documents of each entity convey a right to cash or another financial asset, or if assets can be distributed
on liquidation.
h.
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.
t)
Future Changes in Accounting Standards
IFRIC 21, Levies (“IFRIC 21”) provides guidance on when to recognize a liability for a levy imposed by a government, both
for levies that are accounted for in accordance with IAS 37, Provisions, Contingent Liabilities and Contingent Assets, and those
where the timing and amount of the levy is certain. IFRIC 21 identifies the obligating event for the recognition of a liability as the
activity that triggers the payment of the levy in accordance with the relevant legislation. A liability is recognized progressively if
the obligating event occurs over a period of time or, if an obligation is triggered on reaching a minimum threshold, the liability
is recognized when that minimum threshold is reached. IFRIC 21 is effective for annual periods beginning on or after January 1,
2014. Management is currently evaluating the impact of IFRIC 21 on the consolidated financial statements.
IFRS 9, Financial Instruments (“IFRS 9”) was issued by the IASB on November 12, 2009 and will replace IAS 39, Financial
Instruments: Recognition and Measurement (“IAS 39”). IFRS 9 uses a single approach to determine whether a financial asset
is measured at amortized cost or fair value, replacing the multiple rules in IAS 39. The approach in IFRS 9 is based on how
an entity manages its financial instruments in the context of its business model and the contractual cash flow characteristics of
the financial assets. The new standard also requires a single impairment method to be used, replacing the multiple impairment
methods in IAS 39. IFRS 9 is tentatively effective for annual periods beginning on or after January 1, 2018. The company has
not yet determined the impact of IFRS 9 on its consolidated financial statements.
IAS 32, Financial Instruments: Presentation (“IAS 32”) was amended to clarify certain aspects as a result of the application
of offsetting requirements, namely focusing on the following four main areas: the interpretation of “currently has a legally
enforceable right of set-off,” the application of simultaneous realization and settlement, the offsetting of collateral amounts, and
the unit of account for applying the offsetting requirements. IAS 32 is effective for annual periods beginning on or after January
1, 2014. Management is currently evaluating the impact of IAS 32 on the consolidated financial statements.
3.
a)
SEGMENTED INFORMATION
Operating Segments
Our operations are organized into eight operating segments which are regularly reported regularly to our Chief Executive Officer
(our Chief Operating Decision Maker). We measure performance primarily using the funds from operations generated by each
operating segment and the amount of capital attributable to each segment.
Our operating segments are described below:
i.
Asset management operations consist of managing our listed entities, private funds and public securities on behalf of
ourselves and our clients. We generate contractual base management fees for these activities and we also are entitled
to earn performance fees, including incentive distributions, performance fees and carried interests. We also provide
transaction and advisory services.
2013 ANNUAL REPORT 97
ii.
iii.
iv.
v.
vi.
vii.
Property operations include the ownership and operation of predominantly office, retail, industrial, multifamily and other
property investments located primarily in major North American, Australian, Brazilian and European cities.
Renewable energy operations include the ownership and operation of primarily hydroelectric power generating facilities
on river systems in North America and Brazil and wind power generating facilities in North America.
Infrastructure operations include the ownership and operation of utilities, transport, energy and timberland and agricultural
operations located in Australia, North America, Europe and South America.
Private equity operations include the investments and activities overseen by our private equity group. These include direct
investments and investments in our private equity funds. Our private equity funds have a mandate to invest in a broad
range of industries.
Residential development operations consist predominantly of homebuilding and land development in North America, and
condominium development in Brazil.
Service activities include the provision of construction management and contracting, and property services operations
which include global corporate relocation, facilities management and residential brokerage services.
viii. Corporate activities include the investment of the company’s cash and financial assets, as well as the management of our
corporate capitalization, including corporate borrowings, capital securities and preferred equity which fund a portion of
the capital invested in our other operations. Certain corporate costs such as technology and operations are incurred on
behalf of all of our business segments and specifically allocated to each business segment based on an internal pricing
framework.
During the current year, we changed the internal organization and supervision of our operating businesses to align our structure
more closely with the nature of the operations of our investments, which gave rise to changes in how we report information for
management reporting and decision making purposes. We have restated the comparative information in this MD&A to conform
with the new presentation.
b)
i.
Basis of Measurement
Funds from Operations
Funds from Operations (“FFO”) is the key measure of our financial performance. We define FFO as net income prior to fair value
changes, depreciation and amortization, and deferred income taxes. FFO also includes gains or losses arising from transactions
during the reporting period adjusted to include fair value changes and revaluation surplus recorded in prior periods net of taxes
payable or receivable, as well as amounts that are recorded directly in equity, such as ownership changes, as opposed to net
income because they result from a change in ownership of a consolidated entity (“realized disposition gains”). We include
realized disposition gains in FFO because we consider the purchase and sale of assets to be a normal part of the company’s
business. When determining FFO, we include our proportionate share of the FFO of equity accounted investments and exclude
transaction costs incurred on business combinations.
We use FFO to assess operating results and our business. We do not use FFO as a measure of cash generated from our operations.
We derive funds from operations for each segment and reconcile total segmented FFO to net income in Note 3(c)(v) of the
consolidated financial statements.
Our definition of FFO 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. Generally Accepted Accounting Principles, as opposed
to IFRS. The key differences between our definition of FFO and the determination of funds from operations by REALPAC and/
or NAREIT, are that we include the following: realized 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.
ii.
Segment Balance Sheet Information
The company uses common equity by operating segment as its measure of segment assets, because it is utilized by the company’s
Chief Operating Decision Maker for capital allocation decisions.
iii.
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 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 in-place terms of the asset management contracts and loan agreements amongst the
consolidated entities. Inter-segment revenues are made under terms that approximate market value.
The company allocates the costs of shared functions, which would otherwise be included within its corporate activities segment
such as information technology and internal audit, pursuant to formal policies.
98 BROOKFIELD ASSET MANAGEMENT
c)
Reportable Segment Measures
YEAR ENDED
DECEMBER 31, 2013
(MILLIONS)
Asset
Management
Renewable
Property
Energy Infrastructure
Private
Equity
Residential
Development
Service
Activities
Corporate
Activities
Total
Segments Notes
External revenues
$
Inter-segment revenues
Segmented revenues
Equity accounted
income
Interest expense
Current income taxes
Funds from operations
Common equity
Equity accounted
investments
Additions to non-current
assets1
764
419
1,183
—
—
—
865
216
—
—
$
4,569
$
1,620
$
2,388
$
4,804
$
2,521
$
3,817
$
347
$ 20,830
—
4,569
429
(1,123)
(59)
554
—
1,620
21
(409)
(19)
447
—
2,388
333
(407)
(26)
472
—
4,804
7
(132)
(9)
612
—
2,521
15
(167)
(23)
46
13,339
4,428
2,171
1,105
1,435
9,732
290
2,615
8,711
1,614
2,061
21
591
273
93
—
3,817
27
—
—
157
1,286
211
110
—
347
12
419
i
21,249
844
(315)
(2,553)
(23)
223
(159)
3,376
(6,199)
17,781
135
13,277
8
13,188
ii
iii
iv
v
1. Includes equity accounted investments, investment properties, property, plant and equipment, sustainable resources, intangible assets and goodwill
YEAR ENDED
DECEMBER 31, 2012
(MILLIONS)
Asset
Management
Renewable
Property
Energy Infrastructure
Private
Equity
Residential
Development
Service
Activities
Corporate
Activities
Total
Segments Notes
External revenues
$
Inter-segment revenues
Segmented revenues
Equity accounted
income
Interest expense
Current income taxes
Funds from operations
Common equity
Equity accounted
investments
Additions to non-current
assets1
162
288
450
4
—
—
194
245
—
—
$
3,947
$
1,179
$
2,178
$
4,424
$
2,476
$
4,140
$
260
$ 18,766
35
3,982
386
(1,076)
(9)
537
—
1,179
13
(412)
(12)
313
—
2,178
216
(402)
(16)
224
12,958
4,976
2,571
8,143
344
2,535
7,654
1,534
6,119
—
4,424
8
(133)
(12)
227
957
26
372
—
2,476
7
(143)
(67)
34
1,617
210
16
—
4,140
—
—
—
229
1,325
67
449
—
260
25
(369)
(19)
(402)
323
i
19,089
659
(2,535)
(135)
1,356
ii
iii
iv
v
(6,499)
18,150
293
11,618
165
16,309
1. Includes equity accounted investments, investment properties, property, plant and equipment, sustainable resources, intangible assets and goodwill
i.
Inter-Segment Revenues
The adjustment to external revenues, when determining segmented revenues, consists of management fees earned from
consolidated entities totalling $419 million (2012 – $288 million) and interest income on loans between consolidated entities
totalling $nil (2012 – $35 million), which were eliminated on consolidation to arrive at the company’s consolidated revenues.
ii.
Equity Accounted Income
The company defines equity accounted profit or loss 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.
The following table reconciles equity accounted income on a segmented basis to the company’s Consolidated Statements of
Operations.
YEARS ENDED DECEMBER 31
(MILLIONS)
Segmented equity accounted income
Fair value changes and other non-FFO items
Equity accounted income
2013
844
(85)
759
$
$
2012
659
578
1,237
$
$
2013 ANNUAL REPORT 99
iii.
Interest Expense
The adjustment to interest expense consists of interest on loans between consolidated entities totalling $nil (2012 – $35 million)
that is eliminated on consolidation, along with the associated revenue. The following table reconciles segment interest expense
to consolidated interest expense:
YEARS ENDED DECEMBER 31
(MILLIONS)
Segment interest expense
Inter-company interest expense
Interest expense
iv.
Current Income Taxes
2013
(2,553)
$
—
2012
(2,535)
35
(2,553)
$
(2,500)
$
$
Current income taxes are included in segmented FFO, but are aggregated with deferred income taxes in income tax expense on the
company’s Consolidated Statements of Operations. The following table reconciles segment current tax expense to consolidated
income taxes:
YEARS ENDED DECEMBER 31
(MILLIONS)
Segment current tax expense
Deferred income tax
Income tax expense
2013
(159)
$
(686)
(845)
$
2012
(135)
(384)
(519)
$
$
v.
Reconciliation of FFO to Net Income
The following table reconciles total reportable segment FFO to net income:
YEARS ENDED DECEMBER 31
(MILLIONS)
Total operating segment FFO
Notes
2013
$
3,376
$
Realized disposition gains not recorded in net income
Non-controlling interests in FFO
Financial statement components not included in FFO
Equity accounted fair value changes and other non-FFO items
vi
ii
Fair value changes
Depreciation and amortization
Deferred income taxes
Net income
vi.
Realized Disposition Gains
(434)
2,465
(85)
663
(1,455)
(686)
$
3,844
$
2012
1,356
(183)
1,498
578
1,153
(1,263)
(384)
2,755
Realized 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. Realized 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 realized disposition gains consists of amounts that are included in the following components of the company’s
consolidated financial statements:
YEARS ENDED DECEMBER 31
(MILLIONS)
Ownership changes in common equity
Prior period fair value changes and revaluation surplus
2013
160
274
434
$
$
2012
29
154
183
$
$
100 BROOKFIELD ASSET MANAGEMENT
d)
Geographic Allocation
The company’s revenue by location of operations and consolidated assets by location of assets are as follows:
AS AT AND FOR THE YEARS ENDED DECEMBER 31
(MILLIONS)
United States
Canada
Australia
Brazil
Europe
Other
2013
2012
Revenue
Assets
Revenue
$
7,818
$
49,020
$
6,222
$
3,513
4,855
1,684
1,293
1,667
21,669
14,258
13,074
9,099
5,625
3,343
4,528
1,614
1,432
1,627
Assets
44,381
21,543
16,781
12,941
6,750
6,466
$
20,830
$
112,745
$
18,766
$
108,862
Intangible assets and goodwill by geographic segments are included in Note 13 and 14, respectively.
e)
Total Revenues and Other Gains Allocation
Total external revenues and other gains by product or service are as follows:
YEARS ENDED DECEMBER 31
(MILLIONS)
Asset management
Property
Office properties
Retail properties
Multifamily, industrial and other
Renewable energy
United States
Canada
Brazil
Infrastructure
Utilities
Transport
Energy
Sustainable resources and other
Private equity
Residential development
Service activities
Corporate activities
Total revenues and other gains
2013
$
764
$
2,579
207
1,783
761
563
296
962
690
221
515
4,804
2,521
3,817
347
2012
162
2,577
215
1,155
420
427
332
868
520
152
638
4,424
2,476
4,140
260
$
20,830
$
18,766
2013 ANNUAL REPORT 101
4.
SUBSIDIARIES
The following table presents the details of the company’s subsidiaries with significant non-controlling interests:
Brookfield Property Partners L.P. (“BPY”)2
Brookfield Office Properties Inc. (“BPO”) 2
Jurisdiction
of Formation
Bermuda
Canada
Brookfield Renewable Energy Partners L.P. (“BREP”)
Bermuda
Brookfield Infrastructure Partners L.P. (“BIP”)
Bermuda
Brookfield Residential Properties Inc. (“BRPI”)
Brookfield Incorporações S.A. (“BISA”)
Canada
Brazil
Voting Rights Held by
Non-Controlling Interests1
Ownership Interest Held by
Non-Controlling Interests
Dec. 31, 2013 Dec. 31, 2012 Dec. 31, 2013 Dec. 31, 2012
—
49.3%
—
—
31.5%
46.7%
—
49.3%
—
—
31.1%
48.0%
10.6%3
49.3%
35.0%4
71.5%
31.5%
55.0%6
—
49.3%
32.0%
71.5%
31.1%
56.3%
1.
2.
3.
4.
5.
Control of the limited partnerships (BPY, BREP and BIP) resides with their respective general partners which are wholly owned subsidiaries of the company. The company’s
general partner interest is entitled to earn base management fees and incentive distribution rights
BPY was formed during 2013 through a special dividend of approximately 36 million limited partnership (“LP”) units, equivalent to a 7.6% economic interest in BPY, to the
shareholders of the company’s Class A shares and Class B shares. On formation of BPY, the company’s ownership interest in BPO was transferred to BPY
During the fourth quarter of 2013, BPY completed an equity issuance which resulted in a decrease in the company’s economic ownership of BPY from 92.5% to 89.4%
During the first quarter of 2013, the company sold 8.1 million BREP units, decreasing its economic ownership interest by 3% to 65%
The company exercises control over BISA through its 45.0% ownership and influence over 8.3% of the shares held by previous members of management through voting
agreements
The table below presents the exchanges in which the company’s subsidiaries with significant non-controlling interests are
publicly listed:
BPY
BPO
BREP
BIP
BRPI
BISA
TSX
BPY.UN
BPO
BEP.UN
BIP.UN
BRP
—
NYSE
BVMF
BPY
BPO
BEP
BIP
BRP
—
—
—
—
—
—
BISA3
All publicly listed entities subject to independent governance. Accordingly, the company has no direct access to the assets of
these subsidiaries.
Summarized financial information with respect to the company’s subsidiaries with non-controlling interest are set out below. The
summarized financial information represents amounts before intra-group eliminations:
AS AT DECEMBER 31, 2013
(MILLIONS)
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Non-controlling interests
BPY
BREP
BIP
$
3,011
$
604
$
1,268
$
49,435
(6,973)
(20,483)
(12,810)
16,373
(898)
(8,543)
(4,002)
14,414
(598)
(8,479)
(5,127)
$
BRPI
1,410
1,878
(333)
(1,480)
(515)
Common equity
$
12,180
$
3,534
$
1,478
$
960
$
BISA
2,261
2,337
(1,550)
(2,122)
(505)
421
102 BROOKFIELD ASSET MANAGEMENT
BISA
1,099
(106)
(88)
(194)
(96)
(80)
(176)
—
(18)
103
58
BISA
2,139
3,241
(1,471)
(2,612)
(727)
570
BISA
1,006
(85)
(66)
(151)
(61)
(48)
(109)
FOR THE YEAR ENDED DECEMBER 31, 2013
(MILLIONS)
Revenue
Net income (loss) attributable to:
Non-controlling interests
Shareholders
Other comprehensive income (loss)
attributable to:
Non-controlling interests
Shareholders
Distributions paid to
Non-controlling interests
Cashflows from (used in):
Operating activities
Investing activities
Financing activities
AS AT DECEMBER 31, 2012
(MILLIONS)
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Non-controlling interests
BPY
BREP
BIP
BRPI
4,287
$
1,717
$
1,826
$
1,356
$
$
928
835
1,763
$
126
89
215
$
$
82
$
(17)
$
51
98
65
$
149
$
(222)
$
(162)
$
(241)
(386)
(463)
$
(548)
$
155
46
201
$
$
(16)
(35)
(51)
$
$
(262)
$
(166)
$
(260)
$
— $
$
$
$
$
$
$
421
(1,622)
1,669
746
(408)
(263)
694
(162)
(232)
BPO
BREP
$
990
$
522
$
BIP
746
$
26,489
(2,860)
(11,655)
(7,850)
16,403
(961)
(8,156)
(3,538)
18,972
(1,291)
(10,619)
(6,376)
(52)
(66)
391
BRPI
1,089
1,725
(373)
(1,137)
(410)
$
Common equity
$
5,114
$
4,270
$
1,432
$
894
$
FOR THE YEAR ENDED DECEMBER 31, 2012
(MILLIONS)
Revenue
Net income (loss) attributable to:
Non-controlling interests
Shareholders
Other comprehensive income (loss)
attributable to:
Non-controlling interests
Shareholders
Distributions paid to
non-controlling interests
Cashflows from (used in):
Operating activities
Investing activities
Financing activities
$
$
$
$
$
$
BPO
BREP
BIP
2,282
$
1,325
$
1,524
$
$
(47)
$
261
$
815
653
1,468
$
41
26
67
$
$
(48)
(95)
151
276
427
$
$
$
30
291
$
$
437
148
585
$
BRPI
1,340
26
67
93
$
$
$
— $
2
2
$
(229)
$
(130)
$
(207)
$
— $
(26)
346
(715)
297
398
(813)
335
635
(1,764)
1,238
43
16
(9)
(362)
(1)
525
2013 ANNUAL REPORT 103
The following table outlines the composition of accumulated non-controlling interests presented within the company’s
consolidated financial statements:
(MILLIONS)
BPY
BPO
BREP
BIP
BRPI
BISA
Individually immaterial subsidiaries with non-controlling interests
Dec. 31, 2013
Dec. 31, 2012
$
12,810
$
—
4,002
5,127
515
505
3,688
$
26,647
$
—
7,850
3,538
6,376
410
727
4,386
23,287
5.
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 2013
The following table summarizes the balance sheet impact as a result of business combinations that occurred in 2013:
(MILLIONS)
Cash and cash equivalents
Accounts receivable and other
Investments
Investment properties
Property, plant and equipment
Intangible assets
Total Assets
Less:
Accounts payable and other
Non-recourse borrowings
Deferred income tax liabilities
Non-controlling interests1
Net assets acquired
Consideration2
Property
Renewable
Energy
Other
$
$
$
280
176
346
5,530
29
20
6,381
(391)
(2,940)
—
(163)
(3,494)
2,887
2,861
$
8
$
118
4
—
1,387
—
1,517
(79)
(1,075)
(65)
(68)
(1,287)
$
$
230
230
$
$
4
5
—
—
199
—
208
(4)
(40)
—
—
(44)
164
161
$
$
$
Total
292
299
350
5,530
1,615
20
8,106
(474)
(4,055)
(65)
(231)
(4,825)
3,281
3,252
1.
2.
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
Total consideration, including amounts paid by non-controlling interests
Brookfield recorded $163 million of revenue and $82 million in net income from the acquired operations as a result of the
acquisitions made during the year. Total revenue and net income that would have been recorded if the acquisitions had occurred
at the beginning of the year would have been $568 million and $112 million, respectively. Certain of the current year business
combinations were completed in close proximity to the year end date of December 31, 2013 and accordingly, the fair values of
the acquired assets and liabilities 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.
Significant business contributions completed during 2013 are as follows, all of which were in the company’s property operations:
In June 2013, a subsidiary of Brookfield acquired a 95% equity interest in EZW Gazeley Limited (“Gazeley”), a UK-based
industrial real estate company, for $370 million. Brookfield recorded $17 million of revenue and $16 million in net income
from the acquired operation during the year. Total revenue and net income that would have been recorded if the acquisition had
occurred at the beginning of the year would have been $55 million and $9 million, respectively.
In October 2013, a subsidiary of Brookfield acquired a 100% interest in Industrial Developments International Inc. (“IDI”), a
U.S.-based industrial real estate company which owns and operates a high-quality industrial portfolio, for total consideration of
104 BROOKFIELD ASSET MANAGEMENT
$595 million. Brookfield recorded $3 million of revenue and $3 million in net loss from the acquired operation during the year.
Total revenue and net loss that would have been recorded if the acquisition had occurred at the beginning of the year would have
been $13 million and $11 million, respectively.
In October 2013, a subsidiary of Brookfield completed the acquisition of MPG Office Trust, Inc. (“MPG”), an owner and
operator of office properties in Los Angeles for total consideration of $443 million. Brookfield recorded $36 million of revenue
and $7 million in net income from the acquired operation during the year. Total revenue and net income that would have been
recorded if the acquisition had occurred at the beginning of the year would have been $172 million and $13 million, respectively.
The following table summarizes the balance sheet impact as a result of significant business combinations that occurred in 2013:
(MILLIONS)
Cash and cash equivalents
Accounts receivable and other
Investments
Investment properties
Property, plant and equipment
Intangible assets
Total Assets
Less:
Accounts payable and other
Non-recourse borrowings
Non-controlling interests1
Net assets acquired
Consideration2
Gazeley
40
41
—
484
—
20
585
(45)
(119)
(21)
(185)
400
370
$
$
$
$
$
$
IDI
28
36
346
525
1
—
936
(46)
(261)
(34)
(341)
595
595
$
$
$
MPG
156
46
—
1,817
—
—
2,019
(45)
(1,531)
—
(1,576)
443
443
1.
2.
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
Total consideration, including amounts paid by non-controlling interests
b)
Completed During 2012
The following table summarizes the balance sheet impact as a result of the business combinations that occurred in 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 liabilities
Non-controlling interests1
Net assets acquired
Consideration2
Property
Renewable
Energy
$
$
$
142
418
393
11
2,793
2,446
376
15
6,594
(534)
(3,576)
—
(281)
(4,391)
2,203
2,203
$
50
13
—
—
—
1,374
—
—
1,437
(96)
(449)
—
(695)
(1,240)
Infrastructure
$
120
$
77
—
—
—
2,728
1,540
45
4,510
(529)
(1,693)
(488)
(854)
(3,564)
$
$
197
197
$
$
946
946
$
$
Total
312
508
393
11
2,793
6,548
1,916
60
12,541
(1,159)
(5,718)
(488)
(1,830)
(9,195)
3,346
3,346
1.
2.
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
Total consideration, including amounts paid by non-controlling interests
2013 ANNUAL REPORT 105
As a result of the acquisitions made during 2012, Brookfield recorded $1,144 million of revenue and $38 million in net losses
from the acquired operations in 2012. 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.
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 multifamily property portfolio and various industrial properties within Australia. Brookfield
recorded $68 million of revenue and $3 million in net income from the acquired operation during the year. Total revenue and net
income that would have been recorded if the acquisition had occurred at the beginning of the year would have been $283 million
and $8 million, respectively.
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 of 2012. Brookfield recorded
$544 million of revenue and $31 million in net losses from the acquired operation during the year. Total revenue and net losses
that would have been recorded if the acquisition had occurred at the beginning of the year would have been $867 million and
$80 million, respectively.
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 of 2012. Brookfield recorded $2 million of revenue and $1 million in net losses from the acquired
operation during the year. Total revenue and net losses that would have been recorded if the acquisition had occurred at the
beginning of the year would have been $80 million and $161 million, respectively.
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 of 2012. Brookfield recorded $20 million of revenue and $1 million in net losses from the acquired operation during the
year. Total revenue and net income that would have been recorded if the acquisition had occurred at the beginning of the year
would have been $121 million and $41 million, respectively.
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. Brookfield recorded $27 million of revenue and $12 million in net
income from the acquired operation during the year. Total revenue and net income that would have been recorded if the acquisition
had occurred at the beginning of the year would have been $13 million and $4 million, respectively.
In 2012, 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.
106 BROOKFIELD ASSET MANAGEMENT
The following table shows the balance sheet impact as a result of the significant business combinations that occurred during 2012:
(MILLIONS)
Thakral
Atlantis
Verde
Inexus
VNE
Property
Infrastructure
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
Net assets acquired
Consideration2
$
$
5
33
65
—
240
688
—
—
1,031
(52)
(472)
—
—
(524)
507
507
$
$
85
282
—
—
—
1,758
359
—
2,484
(170)
(2,139)
—
—
(2,309)
$
$
175
175
$
$
37
36
—
10
911
—
17
—
1,011
(48)
(571)
—
(117)
(736)
275
275
$
$
5
14
—
—
—
1,410
97
27
1,553
(393)
(545)
(147)
—
69
53
—
—
—
—
1,443
—
1,565
(32)
(772)
(108)
(320)
(1,085)
(1,232)
468
468
$
$
333
333
$
$
1.
2.
c)
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
Total consideration, including amounts paid by non-controlling interests
Business Combinations Achieved in Stages
The following table provides details of the business combinations achieved in stages:
YEARS 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 (loss) gain recorded in net income
Remeasurement gain recorded in retained earnings
1.
Included in the carrying value of the investment immediately before acquisition
2013
(256)
$
248
6
(2)
$
— $
2012
(234)
222
27
15
5
$
$
$
2013 ANNUAL REPORT 107
6.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following tables list the company’s financial instruments by their respective classification as at December 31, 2013 and
2012:
AS AT DECEMBER 31, 2013
(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
$
— $
— $
— $
3,663
$
3,663
Other financial assets
Government bonds
Corporate bonds
Fixed income securities
Common shares and warrants
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
$
$
75
36
68
2,493
31
2,703
1,163
104
283
144
265
—
796
—
—
—
—
—
—
—
—
—
—
—
—
1,448
1,448
4,013
179
319
212
2,758
1,479
4,947
5,176
3,866
$
796
$
— $
9,124
$
13,786
— $
— $
— $
3,975
$
—
—
1,305
—
1,086
—
—
—
—
—
—
—
—
—
—
35,495
7,392
9,011
791
—
$
2,391
$
— $
— $
56,664
$
3,975
35,495
7,392
10,316
791
1,086
59,055
1.
2.
Financial instruments classified as fair value through profit or loss
Includes derivative instruments which are elected for hedge accounting totalling $752 million included in accounts receivable and other and $792 million of derivative
instruments included in accounts payable and other, of which changes in fair value are recorded in other comprehensive income
108 BROOKFIELD ASSET MANAGEMENT
AS AT DECEMBER 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
$
— $
— $
— $
2,850
$
2,850
Other financial assets
Government bonds
Corporate bonds
Fixed income securities
Common shares and warrants
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
4,457
178
238
145
2,034
516
3,111
5,225
2,798
$
600
$
261
$
7,527
$
11,186
— $
— $
— $
3,526
$
—
—
1,287
—
425
—
—
—
—
—
—
—
—
—
—
33,720
7,585
10,365
1,191
—
$
1,712
$
— $
— $
56,387
$
3,526
33,720
7,585
11,652
1,191
425
58,099
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
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.
During the year ended December 31, 2013, $35 million of net deferred gains (2012 – $52 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, 2013, the net unrealized gain relating to the fair value of available-for-sale securities amounted to
$19 million (2012 – net unrealized gain of $49 million).
Financial assets and liabilities are offset with the net amount reported in the Consolidated Balance Sheet where the company
currently has a legally enforceable right to offset and there is an intention to settle on a net basis or realize the asset and settle
the liability simultaneously.
2013 ANNUAL REPORT 109
The following table provides the carrying values and fair values of financial instruments as at December 31, 2013 and
December 31, 2012:
(MILLIONS)
Financial assets
Dec. 31, 2013
Dec. 31, 2012
Carrying Value
Fair Value
Carrying Value
Fair Value
Cash and cash equivalents
$
3,663
$
3,663
$
2,850
$
2,850
Other financial assets
Government bonds
Corporate bonds
Fixed income securities
Common shares and warrants
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
$
$
179
319
212
2,758
1,479
4,947
5,176
179
319
212
2,758
1,479
4,947
5,176
178
238
145
2,034
516
3,111
5,225
178
238
145
2,034
516
3,111
5,225
13,786
$
13,786
$
11,186
$
11,186
3,975
$
4,323
$
3,526
$
35,495
7,392
10,316
791
1,086
36,389
7,225
10,316
812
1,086
33,720
7,585
11,652
1,191
425
3,793
35,053
7,781
11,652
1,232
425
59,936
The current and non-current balances of other financial assets are as follows:
$
59,055
$
60,151
$
58,099
$
(MILLIONS)
Current
Non-current
Total
Hedging Activities
Dec. 31, 2013
Dec. 31, 2012
$
$
942
$
4,005
4,947
$
380
2,731
3,111
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 may be applied, a hedge relationship may 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.
i.
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, 2013, pre-tax net unrealized gains of $29 million
(2012 – loss of $36 million) were recorded in other comprehensive income for the effective portion of the cash flow hedges. As at
December 31, 2013, there was a net unrealized derivative asset balance of $30 million relating to derivative contracts designated
as cash flow hedges (2012 – liability of $272 million). The unrealized losses on cash flow hedges are expected to be realized in
net income by 2024.
ii.
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, 2013, unrealized pre-tax net
gains of $1 million (2012 – losses of $207 million) were recorded in other comprehensive income for the effective portion of
hedges of net investments in foreign operations. As at December 31, 2013, there was a net unrealized derivative liability balance
of $70 million relating to derivative contracts designated as net investment hedges (2012 – $79 million).
110 BROOKFIELD ASSET MANAGEMENT
Fair Value Hierarchy Levels
Assets and liabilities measured at fair value on a recurring basis include $2,729 million (2012 – $2,334 million) of financial
assets and $1,089 million (2012 – $680 million) of financial liabilities which are measured at fair value using unobservable
valuation inputs or based on management’s best estimates. The following table categorizes financial assets and liabilities, which
are carried at fair value, based upon the fair value hierarchy levels:
(MILLIONS)
Financial assets
Other financial assets
Government bonds
Corporate bonds
Fixed income securities
Common shares and warrants
Loans and notes receivables
Accounts receivable and other
Financial liabilities
Accounts payable and other
Interests of others in consolidated funds
Dec. 31, 2013
Dec. 31, 2012
Level 1
Level 2
Level 3
Level 1
Level 2
Level 3
$
$
41
20
44
838
—
131
$
1,074
$
138
299
55
1
23
343
859
$
— $
—
113
1,919
8
689
$
52
59
88
423
—
—
$
2,729
$
622
$
$
$
117
—
117
$
1,046
$
139
$
142
947
$
1,185
$
1,089
$
262
—
262
$
$
126
179
—
—
25
112
442
697
73
770
$
—
—
57
1,611
10
656
$
2,334
$
$
328
352
680
There were no transfers between level 1 and level 2 in 2013 or 2012.
Fair values for financial instruments 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.
Level 2 financial assets and financial liabilities include foreign currency forward contracts, interest rate swap agreements, energy
derivatives, interests of others in consolidated funds and equity derivatives.
The following table summarizes the valuation techniques and key inputs used in the fair value measurement of level 2 financial
instruments:
Type of asset/liability
Foreign currency forward
contracts
Interest rate contracts
Energy derivatives
Interest of others in
consolidated funds
Valuation technique(s) and key input(s)
Discounted cash flow model – forward exchange rates (from observable forward exchange rates at
the end of the reporting period) and discounted at credit adjusted rate
Discounted cash flow model – forward interest rates (from observable yield curves) and applicable
credit spreads discounted at a credit adjusted rate
Quoted market prices, or in their absence internal valuation models corroborated with observable
market data
Adjusted public pricing
Fair values determined using valuation models (level 3 financial assets and liabilities) 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 readily observable external market inputs such as interest rate yield curves, currency rates, and price and rate
volatilities, as applicable.
2013 ANNUAL REPORT 111
The following table summarizes the valuation techniques and significant unobservable inputs used in the fair value measurement
level 3 financial instruments:
Type of asset/liability
Investment in common shares Net asset valuation
Valuation technique(s)
Significant
unobservable input(s)
• Forward exchange
Relationship of unobservable
input(s) to fair value
• Increases (decreases) in the
rates (from
observable forward
exchange rates
at the end of the
reporting period)
• Discount rate
Warrants
Black-Scholes model
• Volatility
Interest of others in
consolidated funds
Discounted cash flows
• Future cash flows
• Discount rate
• Terminal
capitalization rate
• Investment horizon
forward exchange rate would
increase (decrease) fair value
• Increases (decreases) in discount rate
will decrease (increase) the fair value
• Increases (decreases) in volatility
would increase (decrease) fair value
• Increases (decreases) in future cash
flows increase (decrease) fair value
• Increases (decreases) in discount rate
will decrease (increase) the fair value
• Increases (decreases) in terminal
capitalization rate will decrease
(increase) the fair value
• Increases (decreases) in the
investment horizon will increase
(decrease) the fair value
The following table presents the change in the balance of financial assets and liabilities classified as Level 3 as at December 31, 2013
and December 31, 2012:
(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
Financial Assets
Financial Liabilities
2013
2012
$
2,334
$
1,820
$
(24)
104
315
20
111
383
$
2013
680
(35)
36
408
$
2,729
$
2,334
$
1,089
$
2012
618
(17)
(21)
100
680
There were no transfers in or out of level 3 financial assets or liabilities in 2013 or 2012.
7.
ACCOUNTS RECEIVABLE AND OTHER
(MILLIONS)
Accounts receivable
Prepaid expenses and other assets
Restricted cash
Total
Note
(a)
(b)
The current and non-current balances of accounts receivable and other are as follows:
(MILLIONS)
Current
Non-current
Total
a)
Accounts Receivable
Dec. 31, 2013
Dec. 31, 2012
$
$
$
$
$
4,299
1,490
877
6,666
$
4,379
1,727
846
6,952
Dec. 31, 2013
Dec. 31, 2012
4,840
1,826
6,666
$
$
4,996
1,956
6,952
Accounts receivable includes $592 million (2012 – $647 million) of unrealized mark-to-market gains on energy sales contracts and
$764 million (2012 – $994 million) of completed contracts and work-in-progress related to contracted sales from the company’s
112 BROOKFIELD ASSET MANAGEMENT
residential development operations. Also included in this balance are loans receivable from employees of the company and its
consolidated subsidiaries of $4 million (2012 – $5 million).
b)
Restricted Cash
Restricted cash primarily relates to the company’s property, renewable energy, service activities and residential development
financing arrangements including defeasement of debt obligations, debt service accounts and deposits held by the company’s
insurance operations.
8.
INVENTORY
(MILLIONS)
Dec. 31, 2013
Dec. 31, 2012
Residential properties under development
$
Land held for development
Completed residential properties
Forest products and other
Total carrying value
The current and non-current balances of inventory are as follows:
(MILLIONS)
Current
Non-current
Total
$
2,785
2,541
443
522
$
6,291
$
2,700
2,676
477
728
6,581
Dec. 31, 2013
Dec. 31, 2012
$
$
2,839
3,452
6,291
$
$
2,708
3,873
6,581
During the year ended December 31, 2013, the company recognized as an expense $5,388 million (2012 – $5,449 million) of
inventory relating to cost of goods sold and $33 million (2012 – $4 million) relating to impairments of inventory. The carrying
amount of inventory pledged as security at December 31, 2013 was $930 million (2012 – $1,060 million).
9.
EQUITY ACCOUNTED INVESTMENTS
The following table presents the voting interests and carrying values of the company’s investments in associates and joint
ventures, all of which are accounted for using the equity method:
(MILLIONS)
Property
General Growth Properties1
245 Park Avenue2
Grace Building
Rouse Properties
Other property joint ventures2,3
Other property investments
Renewable energy
Other power investments
Infrastructure
South American transmission operations
Brazilian toll road
Australasian energy distribution
Other infrastructure investments4
Other joint ventures
Other investments
Total
Voting Interest
Carrying Value
Investment
Type
Dec. 31
2013
Dec. 31
2012
Dec. 31
2013
Dec. 31
2012
23% $
6,044
$
4,831
Associate
Joint Venture
Joint Venture
Associate
28%
51%
50%
39%
51%
50%
43%
Joint Venture
25 – 75%
25 – 75%
Associate
20 – 75%
20 – 75%
653
695
399
1,586
366
Associate
14 – 50%
14 – 50%
290
Associate
Associate
Associate
Associate
28%
49%
—
28%
49%
42%
26 – 50%
26 – 50%
Joint Venture
25 – 50%
25 – 50%
Associate
28 – 50%
25 – 50%
717
1,203
—
694
343
287
$ 13,277
$ 11,618
657
625
381
1,250
412
344
669
642
384
831
360
232
1.
2.
3.
4.
The company’s carrying value includes $303 million (2012 – $552 million) of goodwill recognized on acquisition
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 property joint ventures include Darling Park Trust, E&Y Centre Sydney and 450 West 33rd Street
Other infrastructure investments include a European port operation, a Texas electricity transmission project and other social infrastructure assets
2013 ANNUAL REPORT 113
The following table presents the change in the balance of investments in associates and joint ventures:
YEARS ENDED DECEMBER 31
(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
2013
$
11,618
$
1,099
350
759
239
(452)
(336)
2012
9,332
1,221
11
1,237
145
(369)
41
$
13,277
$
11,618
The following table presents current and non-current assets as well as current and non-current liabilities of the company’s
investments in associates and joint ventures:
Dec. 31, 2013
Dec. 31, 2012
Current
Assets
Non-
Current
Assets
Current
Liabilities
Non-
Current
Liabilities
Current
Assets
Non-
Current
Assets
Current
Liabilities
Non-
Current
Liabilities
(MILLIONS)
Property
General Growth Properties
$
1,132
$ 38,335
$
754
$ 16,224
$
1,085
$ 37,235
$
1,314
$ 17,574
245 Park Avenue
Grace Building
Rouse Properties
Other property investments1
Renewable energy
20
15
99
603
2,057
1,742
2,449
8,217
14
369
66
855
791
—
1,455
1,999
33
12
45
430
2,058
1,614
2,194
5,737
15
16
55
233
789
359
1,281
3,540
Other renewable energy investments
54
958
27
405
66
1,259
46
592
Infrastructure
South American transmission operation
1,254
Brazilian toll road
Australian energy distribution
Other infrastructure investments2
Other
805
—
542
1,579
4,543
4,758
—
8,087
1,024
1,189
532
—
383
459
2,055
2,578
—
6,229
654
233
603
30
608
1,424
5,404
4,612
2,283
10,203
570
1,185
609
141
1,462
390
2,054
2,248
1,261
7,603
534
$
6,103
$ 72,170
$
4,648
$ 32,390
$
4,569
$ 73,169
$
5,466
$ 37,835
1.
2.
Other property investments include Darling Park Trust, E&Y Centre Sydney and 450 West 33rd Street
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.
114 BROOKFIELD ASSET MANAGEMENT
The following table presents revenues, net income, other comprehensive income (“OCI”) and dividends received of the
company’s investments in associates and joint ventures:
YEARS ENDED DECEMBER 31
(MILLIONS)
Property
2013
2012
Revenue
Net
Income
Dividends
Received
OCI
Revenue
Net
Income
Dividends
Received
OCI
General Growth Properties
$
3,079
$
2,835
$
245 Park Avenue
Grace Building
Rouse Properties
Other property investments1
Renewable energy
145
100
263
921
Other renewable energy investments
110
55
154
146
448
20
Infrastructure
South American transmission operation
Brazilian toll road
Australian energy distribution
Other infrastructure investments2
Other
Total
446
1,125
308
1,459
488
113
(15)
206
(1,032)
178
64
—
—
—
—
—
264
(193)
(45)
204
(18)
$
107
$
3,102
$
4,330
$
(74) $
110
29
—
11
144
100
258
128
1,182
18
68
—
19
34
38
106
440
65
322
1,472
546
130
27
75
390
(12)
55
11
45
(95)
75
—
—
—
—
—
321
35
206
(39)
(2)
30
—
10
118
12
45
—
17
7
20
$
8,444
$
3,108
$
276
$
452
$
7,737
$
5,031
$
447
$
369
1.
2.
Other property investments include Darling Park Trust, E&Y Centre Sydney and 450 West 33rd Street
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, 2013
Dec. 31, 2012
Public Price
Carrying
Value
Public Price
$
$
5,125
$
6,044
$
4,207
$
430
31
399
23
304
38
5,586
$
6,466
$
4,549
$
Carrying
Value
4,831
381
24
5,236
The fair value gains at General Growth Properties, Inc. (“GGP”) during 2013 were based on the redevelopment of certain of
GGP’s investment properties progressing ahead of projections and increased operating budgets. Management reviewed the
carrying value of the embedded goodwill associated with its investment for impairment, which considered the variance between
the value of the investment as determined using the publicly-traded share price and the carrying value of the investment and
the estimated the recoverable amount of the value in use of the investment in GGP discounting the expected cash flows to be
received in the form of dividends plus the disposition value. As a result, the company recorded a $249 million impairment of
the goodwill associated with redevelopment options at GGP. This impairment loss is included within equity accounted income
within our property segment.
During 2013, the company’s infrastructure operations recorded an impairment charge through equity accounted income of
$275 million relating to its investment in a North American natural gas transmission operation based on weak market fundamentals
in the U.S. natural gas market. Throughout 2013, the U.S. natural gas market experienced compressed basis spreads (a primary
driver of revenue) due to the build out of pipeline infrastructure as well as a decrease in gas prices driven by a fundamental shift
in supply dynamics in the U.S. These factors, in conjunction with regulatory approvals occurring in the later part of the year
which approved the further build out or reversal of certain pipelines, triggered an impairment of the operations’ property, plant
and equipment.
2013 ANNUAL REPORT 115
10.
INVESTMENT PROPERTIES
The following table presents the change in the fair value of investment properties, all of which are considered level 3 within the
fair value hierarchy:
YEARS ENDED DECEMBER 31
(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
2013
$
33,161
$
1,835
5,530
(1,908)
1,031
(1,313)
2012
28,366
1,715
2,793
(1,136)
1,276
147
$
38,336
$
33,161
Investment properties include the company’s commercial, retail, multifamily and industrial properties as well as higher-and-
better use land within the company’s sustainable resource operations.
Significant unobservable inputs (level 3) are utilized when determining the fair value of investment properties. The significant
level 3 inputs include:
Valuation technique(s)
Discounted cash flow models
Significant unobservable input(s) Relationship of unobservable input(s) to fair value
• Future cash flows primarily
• Increases (decreases) in future cash flows will
driven by net operating income
increase (decrease) the fair value
• Discount rate
• Increases (decreases) in discount rate will decrease
(increase) the fair value
• Terminal capitalization rate
• Increases (decreases) in terminal capitalization rate
will decrease (increase) the fair value
• Investment horizon
• Increases (decreases) in the investment horizon will
increase (decrease) the fair value
Key valuation metrics of the company’s investment properties are presented in the following table on a weighted-average basis:
Office
Retail
Multifamily,
Industrial and Other
Weighted
Average
AS AT DECEMBER 31
Discount rate
Terminal capitalization rate
Investment horizon (years)
2013
7.4%
6.3%
11
2012
7.6%
6.5%
11
2013
9.2%
7.6%
10
2012
8.7%
7.5%
10
2013
8.6%
7.5%
10
2012
8.8%
8.1%
10
2013
7.7%
6.6%
11
2012
7.8%
6.8%
11
11. PROPERTY, PLANT AND EQUIPMENT
(MILLIONS)
Cost
Accumulated fair value changes
Accumulated depreciation
Total
Dec. 31, 2013
Dec. 31, 2012
$
$
23,466
$
11,599
(4,046)
31,019
$
22,858
11,398
(3,108)
31,148
Accumulated fair value changes include revaluations of property, plant and equipment using the revaluation method, which are
recorded in revaluation surplus, as well as unrealized impairment losses recorded in net income.
116 BROOKFIELD ASSET MANAGEMENT
The company’s property, plant and equipment relates to the operating segments as shown in the following table:
(MILLIONS)
Renewable energy
Infrastructure
Property
Private equity and other
Carried at Fair Value
Carried at Amortized Cost
Total
Note
Dec. 31, 2013 Dec. 31, 2012 Dec. 31, 2013 Dec. 31, 2012 Dec. 31, 2013 Dec. 31, 2012
(a)
(b)
(c)
(d)
$
16,611
$
16,532
$
— $
— $
16,611
$
16,532
8,564
3,042
—
8,736
2,968
—
—
—
—
—
2,802
2,912
8,564
3,042
2,802
8,736
2,968
2,912
$
28,217
$
28,236
$
2,802
$
2,912
$
31,019
$
31,148
The table above outlines property, plant and equipment measured at fair value, all of which are classified as level 3 in the fair
value hierarchy given the inclusion of unobservable inputs outlined below.
a)
Renewable Energy
(MILLIONS)
Cost
Accumulated fair value changes
Accumulated depreciation
Total
Dec. 31, 2013
Dec. 31, 2012
$
$
8,784
$
10,058
(2,231)
16,611
$
7,617
10,712
(1,797)
16,532
Renewable energy assets include the company’s hydroelectric generating stations, wind energy, pumped storage and natural
gas-fired co-generation facilities.
Renewable energy assets are accounted for under the revaluation model and the most recent date of revaluation was
December 31, 2013. Valuations utilize significant unobservable inputs (level 3) when determining the fair value of renewable
energy assets. The significant level 3 inputs include:
Valuation technique(s)
Discounted cash flow models
Significant unobservable input(s)
• Future cash flows – primarily
driven by future electricity
price assumptions
Relationship of unobservable input(s) to fair value
• Increases (decreases) in future cash flows will
increase (decrease) the fair value
• Discount rate
• Increases (decreases) in discount rate will decrease
(increase) the fair value
• Terminal capitalization rate
• Increases (decreases) in terminal capitalization rate
will decrease (increase) the fair value
The company’s estimate of future renewable power pricing is based on management’s estimate of the cost of securing new
energy from renewable sources to meet future demand by 2020, which will maintain system reliability and provide adequate
levels of reserve generations.
The key valuation metrics of the company’s hydro and wind generating facilities at the end of 2013 and 2012 are summarized
below.
United States
Canada
Brazil
Dec. 31, 2013 Dec. 31, 2012 Dec. 31, 2013 Dec. 31, 2012 Dec. 31, 2013 Dec. 31, 2012
Discount rate
Contracted
Uncontracted
Terminal capitalization rate
Exit date
5.8%
7.6%
7.1%
2033
5.2%
7.0%
7.0%
2032
5.1%
6.9%
6.4%
2033
4.7%
6.5%
6.5%
2032
9.1%
10.4%
n/a
2029
8.6%
9.9%
n/a
2029
Terminal values are included in the valuation of hydroelectric assets in the United States and Canada. For the hydroelectric
assets in Brazil, cash flows have been included based on the duration of the authorization or useful life of a concession asset
without consideration of potential renewal value. The weighted-average remaining duration at December 31, 2013 is 16 years
(2012 – 17 years). Consequently, there is no terminal value attributed to the hydroelectric assets in Brazil.
2013 ANNUAL REPORT 117
The following table presents the changes to the cost of the company’s renewable energy generation assets:
YEARS ENDED DECEMBER 31
(MILLIONS)
Balance at beginning of year
Additions, net of disposals
Acquisitions through business combinations
Foreign currency translation
Balance at end of year
2013
$
7,617
$
186
1,387
(406)
$
8,784
$
2012
6,149
136
1,374
(42)
7,617
As at December 31, 2013, the cost of generating facilities under development includes $9 million of capitalized costs
(2012 – $8 million).
The following table presents the changes to the accumulated fair value changes of the company’s power generation assets:
YEARS ENDED DECEMBER 31
(MILLIONS)
Balance at beginning of year
Fair value changes
Foreign currency translation
Balance at end of year
2013
10,712
$
(150)
(504)
2012
9,887
830
(5)
10,058
$
10,712
$
$
The following table presents the changes to the accumulated depreciation of the company’s power generation assets:
YEARS ENDED DECEMBER 31
(MILLIONS)
Balance at beginning of year
Depreciation expense
Foreign currency translation
Balance at end of year
b)
Infrastructure
Our infrastructure property, plant and equipment is comprised of the following:
Note
(i)
(ii)
(iii)
(iv)
(MILLIONS)
Utilities
Transportation
Energy
Sustainable resources
i.
Infrastructure – Utilities
(MILLIONS)
Cost
Accumulated fair value changes
Accumulated depreciation
Total
$
$
$
2013
(1,797)
$
(551)
117
2012
(1,309)
(489)
1
(2,231)
$
(1,797)
$
2013
3,624
3,110
1,029
801
$
8,564
$
2012
3,310
3,157
857
1,412
8,736
Dec. 31, 2013
Dec. 31, 2012
$
$
3,367
$
479
(222)
3,624
$
3,201
214
(105)
3,310
The company’s utilities assets are comprised of terminals, electricity transmission and distribution networks, which are operated
primarily under regulated rate base arrangements.
118 BROOKFIELD ASSET MANAGEMENT
Utilities assets are accounted for under the revaluation model, and the most recent date of revaluation was December 31, 2013.
The company determined fair value to be the current replacement cost. Valuations utilize significant unobservable inputs (level 3)
when determining the fair value of utility assets. The significant level 3 inputs include:
Valuation technique(s)
Discounted cash flow model
Significant unobservable input(s)
• Future cash flows – primarily driven
by a regulated return on asset base
Relationship of unobservable input(s) to fair value
• Increases (decreases) in future cash flows will
increase (decrease) the fair value
• Discount rate
• Increases (decreases) in discount rate will decrease
(increase) the fair value
• Terminal capitalization multiple
• Increases (decreases) in terminal capitalization
multiple will decrease (increase) the fair value
• Investment Horizon
• Increases (decreases) in the investment horizon will
decrease (increase) the fair value
Key assumptions used in the December 31, 2013 valuation process include: discount rates ranging from 8% to 13%
(2012 – 8% to 13%), terminal capitalization multiples ranging from 10x to 16x (2012 – 9x to 17x), and an investment horizon
between 10 to 20 years (2012 – 10 to 20 years).
The following table presents the changes to the cost of the company’s utilities assets:
YEARS ENDED DECEMBER 31
(MILLIONS)
Balance at beginning of year
Additions, net of disposals
Acquisitions through business combinations
Foreign currency translation
Balance at end of year
2013
$
3,201
$
165
—
1
$
3,367
$
The following table presents the changes to the accumulated fair value changes of the company’s utilities assets:
YEARS ENDED DECEMBER 31
(MILLIONS)
Balance at beginning of year
Fair value changes
Foreign currency translation
Balance at end of year
$
2013
214
271
(6)
479
$
$
$
The following table presents the changes to the accumulated depreciation of the company’s utilities assets:
2012
984
92
2,040
85
3,201
2012
49
165
—
214
2012
(40)
(63)
(2)
(105)
2013
(105)
$
(121)
4
(222)
$
$
$
Dec. 31, 2013
Dec. 31, 2012
$
$
2,561
$
840
(291)
3,110
$
2,729
615
(187)
3,157
YEARS ENDED DECEMBER 31
(MILLIONS)
Balance at beginning of year
Depreciation expense
Foreign currency translation
Balance at end of year
ii.
Infrastructure – Transport
(MILLIONS)
Cost
Accumulated fair value changes
Accumulated depreciation
Total
The company’s transport assets consists of railroads, toll roads, and ports.
Transport assets are accounted for under the revaluation model, and the most recent date of revaluation was December 31, 2013.
The company determined fair value to be the current replacement cost.
2013 ANNUAL REPORT 119
Valuations utilize significant unobservable inputs (level 3) when determining the fair value of transport assets. The significant
level 3 inputs include:
Valuation technique(s)
Discounted cash flow models
Significant unobservable input(s)
• Future cash flows – primarily
driven by traffic or freight
volumes and tariff rates
Relationship of unobservable input(s) to fair value
• Increases (decreases) in future cash flows will
increase (decrease) the fair value
• Discount rate
• Increases (decreases) in discount rate will decrease
(increase) the fair value
• Terminal capitalization multiple
• Increases (decreases) in terminal capitalization
multiple will decrease (increase) the fair value
• Investment Horizon
• Increases (decreases) in the investment horizon will
decrease (increase) the fair value
Key assumptions used in the December 31, 2013 valuation process include: discount rates ranging from 11% to 12%
(2012 – 11% to 12%), terminal capitalization multiples ranging from 7x to 11x (2012 – 8x to 11x), and an investment horizon of
10 years (2012 – 10 years).
The following table presents the changes to the cost of the company’s transport and energy assets:
YEARS ENDED DECEMBER 31
(MILLIONS)
Balance at beginning of year
Additions, net of disposals
Acquisitions through business combinations
Foreign currency translation
Balance at end of year
2013
$
2,729
$
160
—
(328)
2012
2,228
452
—
49
$
2,561
$
2,729
The following table presents the changes to the accumulated fair value changes of the company’s transport assets:
YEARS ENDED DECEMBER 31
(MILLIONS)
Balance at beginning of year
Fair value changes
Foreign currency translation
Balance at end of year
2013
615
317
(92)
840
$
$
$
$
The following table presents the changes to the accumulated depreciation of the company’s transport and energy assets:
2012
244
366
5
615
2012
(76)
(109)
(2)
(187)
2013
(187)
$
(127)
23
(291)
$
$
$
Dec. 31, 2013
Dec. 31, 2012
$
$
$
961
117
(49)
1,029
$
833
33
(9)
857
YEARS ENDED DECEMBER 31
(MILLIONS)
Balance at beginning of year
Depreciation expense
Foreign currency translation
Balance at end of year
iii.
Infrastructure – Energy
(MILLIONS)
Cost
Accumulated fair value changes
Accumulated depreciation
Total
The company’s energy assets consist of energy transmission and storage, distribution and storage and district energy assets.
Energy assets are accounted for under the revaluation model, and the most recent date of revaluation was December 31, 2013.
The company determined fair value to be the current replacement cost.
120 BROOKFIELD ASSET MANAGEMENT
Valuations utilize significant unobservable inputs (level 3) when determining the fair value of energy assets. The significant level
3 inputs include:
Valuation technique(s)
Discounted cash flow models
Significant unobservable input(s)
• Future cash flows – primarily
Relationship of unobservable input(s) to fair value
• Increases (decreases) in future cash flows will
driven by transmission, distribution
and storage volumes and pricing
increase (decrease) the fair value
• Discount rate
• Increases (decreases) in discount rate will decrease
(increase) the fair value
• Terminal capitalization multiple
• Increases (decreases) in terminal capitalization
multiple will decrease (increase) the fair value
• Investment Horizon
• Increases (decreases) in the investment horizon will
decrease (increase) the fair value
Key assumptions used in the December 31, 2013 valuation process include: discount rates ranging from 15% to 16%
(2012 – 12% to 15%), terminal capitalization multiples ranging from 8x to 12x (2012 – 7x to 8x), and an investment horizon of
10 years (2012 – 10 years).
The following table presents the changes to the cost of the company’s energy assets:
YEARS ENDED DECEMBER 31
(MILLIONS)
Balance at beginning of year
Additions, net of disposals
Acquisitions through business combinations
Foreign currency translation
Balance at end of year
2013
833
33
142
(47)
961
$
$
2012
118
17
685
13
833
$
$
The following table presents the changes to the accumulated fair value changes of the company’s transport and energy assets:
YEARS ENDED DECEMBER 31
(MILLIONS)
Balance at beginning of year
Fair value changes
Foreign currency translation
Balance at end of year
$
2013
33
83
1
117
$
$
$
The following table presents the changes to the accumulated depreciation of the company’s transport and energy assets:
YEARS ENDED DECEMBER 31
(MILLIONS)
Balance at beginning of year
Depreciation expense
Foreign currency translation
Balance at end of year
iv.
Infrastructure – Sustainable Resources
Sustainable resources assets represents timberlands and other agricultural land.
(MILLIONS)
Cost
Accumulated fair value changes
Accumulated depreciation
Total
2013
(9)
$
(37)
(3)
(49)
$
2013
666
165
(30)
801
$
$
$
$
$
$
2012
—
33
—
33
2012
—
(9)
—
(9)
2012
1,461
(18)
(31)
1,412
Property, plant and equipment within our sustainable resources operations are accounted for under the revaluation model and the
most recent date of revaluation was December 31, 2013.
2013 ANNUAL REPORT 121
Valuations utilize significant unobservable inputs (level 3) when determining the fair value of sustainable resource assets. The
significant level 3 inputs include:
Valuation technique(s)
Discounted cash flow models
Significant unobservable input(s)
• Future cash flows – primarily
driven by avoided cost or
future replacement value
Relationship of unobservable input(s) to fair value
• Increases (decreases) in future cash flows will
increase (decrease) the fair value
• Discount rate
• Increases (decreases) in discount rate will decrease
(increase) the fair value
• Terminal valuation date
• Increases (decreases) in terminal valuation date will
decrease (increase) the fair value
• Increases (decreases) in the exit date will decrease
(increase) the fair value
Key valuation assumptions included a weighted average discount rate of 7% (2012 – 6%), and a terminal valuation date of 3 to
35 years (2012 – 3 to 35 years).
The following table presents the changes to the cost of the company’s sustainable resources property, plant and equipment assets:
YEARS ENDED DECEMBER 31
(MILLIONS)
Balance at beginning of year
Disposals, net of additions
Foreign currency translation
Balance at end of year
2013
1,461
$
(784)
(11)
2012
1,339
139
(17)
666
$
1,461
$
$
The following table presents the changes to the accumulated fair value changes of the company’s sustainable resources assets:
YEARS ENDED DECEMBER 31
(MILLIONS)
Balance at beginning of year
Fair value changes
Dispositions
Foreign currency translation
Balance at end of year
2013
(18)
$
49
133
1
165
$
2012
(132)
142
—
(28)
(18)
$
$
The following table presents the changes to the accumulated depreciation of the property, plant and equipment within the
company’s sustainable resources business:
YEARS ENDED DECEMBER 31
(MILLIONS)
Balance at beginning of year
Depreciation expense
Dispositions
Foreign currency translation
Balance at end of year
c)
Property
(MILLIONS)
Cost
Accumulated fair value changes
Accumulated depreciation
Total
2013
(31)
$
(3)
3
1
(30)
$
2012
(12)
(20)
—
1
(31)
$
$
Dec. 31, 2013
Dec. 31, 2012
$
$
3,168
$
170
(296)
3,042
$
3,130
4
(166)
2,968
The company’s property assets include hospitality assets accounted for under the revaluation model and the most recent date of
revaluation was December 31, 2013. The company determines fair value for these assets by discounting the expected future cash
flows using internal valuations.
122 BROOKFIELD ASSET MANAGEMENT
Valuations utilize significant unobservable inputs (level 3) when determining the fair value of property assets. The significant
level 3 inputs include:
Valuation technique(s)
Discounted cash flow models
Significant unobservable input(s)
• Future cash flows – primarily
driven by pricing, volumes
and direct operating costs
Relationship of unobservable input(s) to fair value
• Increases (decreases) in future cash flows will
increase (decrease) the fair value
• Discount rate
• Increases (decreases) in discount rate will decrease
(increase) the fair value
• Terminal capitalization rate
• Increases (decreases) in terminal capitalization rate
will decrease (increase) the fair value
• Investment horizon
• Increases (decreases) in the investment horizon will
decrease (increase) the fair value
Key valuation assumptions included a weighted average discount rate of 10.5% (2012 – 9.9%), terminal capitalization rate of
7.6% (2012 – 7.5%), and investment horizon of 7 years (2012 – 5 years).
The following table presents the changes to the cost of the company’s property, plant and equipment assets included within its
property operations:
YEARS ENDED DECEMBER 31
(MILLIONS)
Balance at beginning of year
Additions, net of disposals
Acquisitions through business combinations
Foreign currency translation
Balance at end of year
2013
$
3,130
$
137
—
(99)
$
3,168
$
2012
640
44
2,446
—
3,130
The following table presents the changes to the accumulated fair value changes of the company’s property, plant and equipment
within its property operations:
YEARS ENDED DECEMBER 31
(MILLIONS)
Balance at beginning of year
Fair value changes
Foreign currency translation
Balance at end of year
2013
2012
$
$
4
$
166
—
170
$
—
4
—
4
The following table presents the changes to the accumulated depreciation of the company’s property, plant and equipment within
its property operations:
YEARS ENDED DECEMBER 31
(MILLIONS)
Balance at beginning of year
Depreciation expense
Balance at end of year
d)
Private Equity and Other
(MILLIONS)
Cost
Accumulated fair value changes
Accumulated depreciation
Total
2013
(166)
$
(130)
(296)
$
2012
—
(166)
(166)
$
$
Dec. 31, 2013
Dec. 31, 2012
$
$
3,984
$
(256)
(926)
2,802
$
3,887
(162)
(813)
2,912
Other property, plant and equipment includes asset owned by the company’s private equity, residential development and service
operations held directly or consolidated through funds.
2013 ANNUAL REPORT 123
These assets are accounted for under the cost model, which requires the assets to be carried at cost less accumulated depreciation
and any accumulated impairment losses. The following table presents the changes to the carrying value of the company’s
property, plant and equipment assets included in these operations:
YEARS ENDED DECEMBER 31
(MILLIONS)
Balance at beginning of year
Additions, net of disposals
Acquisitions through business combinations
Foreign currency translation
Balance at end of year
2013
$
3,887
$
124
86
(113)
2012
3,433
405
—
49
$
3,984
$
3,887
The following table presents the changes to the accumulated impairment losses of the company’s property, plant and equipment
within these operations:
YEARS ENDED DECEMBER 31
(MILLIONS)
Balance at beginning of year
Impairment charges
Balance at end of year
2013
(162)
$
(94)
(256)
$
2012
(104)
(58)
(162)
$
$
The following table presents the changes to the accumulated depreciation of the company’s other property, plant and equipment
within these operations:
YEARS ENDED DECEMBER 31
(MILLIONS)
Balance at beginning of year
Depreciation expense
Disposals
Foreign currency translation
Balance at end of year
12. SUSTAINABLE RESOURCES
(MILLIONS)
Timberlands
Other agricultural assets
Total
2013
$
(813)
$
(217)
110
(6)
2012
(533)
(283)
—
3
$
(926)
$
(813)
Dec. 31, 2013
Dec. 31, 2012
$
$
449
53
502
$
$
3,473
43
3,516
The company held 1,437 million acres of consumable freehold timberlands at December 31, 2013 (2012 – 2,512 million), of
which 203 million acres (2012 – 850 million) were classified as mature and available for harvest. Additionally, the company
provides management services to approximately 1.3 million acres (2012 – 1.3 million) of licensed timberlands.
The following table presents the change in the balance of timberlands and other agricultural assets:
YEARS ENDED DECEMBER 31
(MILLIONS)
Balance at beginning of year
Disposals of operations, net of additions
Fair value adjustments
Decrease due to harvest
Foreign currency changes
Balance at end of year
2013
$
3,516
$
(2,991)
205
(186)
(42)
502
$
$
2012
3,381
18
374
(239)
(18)
3,516
124 BROOKFIELD ASSET MANAGEMENT
The carrying values are based on external appraisals that are completed annually as of December 31. The appraisals utilize
a combination of the discounted cash flow and sales comparison approaches to arrive at the estimated value. The significant
unobservable inputs (level 3) included in the discounted cash flow models used when determining the fair value of standing
timber and agricultural assets include:
Valuation technique(s)
Discounted cash flow models
Significant unobservable input(s)
• Future cash flows
Relationship of unobservable input(s) to fair value
• Increases (decreases) in future cash flows will
• Growth assessments
• Increases (decreases) in growth assessments will
increase (decrease) the fair value
• Timber/Agricultural prices
• Discount rate
• Increases
increase (decrease) the fair value
(decreases)
(decrease) the fair value
in price will
increase
• Increases (decreases) in discount rate or terminal
cap rate will decrease (increase) the fair value
Key valuation assumptions include a weighted average discount and terminal capitalization rate of 6.9% (2012 – 6.2%),
and terminal valuation dates of 20 to 28 years (2012 – 20 to 90 years). Timber and agricultural asset prices were based on a
combination of forward prices available in the market and price forecasts.
13.
INTANGIBLE ASSETS
(MILLIONS)
Cost
Accumulated amortization and impairment losses
Total
Dec. 31, 2013
Dec. 31, 2012
$
$
5,441
$
(397)
5,044
$
6,115
(345)
5,770
Intangible assets are allocated to the following cash-generating units:
(MILLIONS)
Note
Dec. 31, 2013
Dec. 31, 2012
Property – Industrial, Multifamily and Other
$
327
$
Infrastructure – Utilities
Infrastructure – Transport
Private equity
Service Activities
Renewable energy
Other
Net intangible assets
a)
Infrastructure – Utilities
(a)
(b)
2,231
1,633
257
297
94
205
460
2,592
1,769
280
371
106
192
$
5,044
$
5,770
The company’s Australian regulated terminal operation has access agreements with the users of the terminal which entails 100%
take or pay contracts at a designated tariff rate based on the asset value. The concession arrangement has an expiration date of
2051 and with an option to extend the arrangement an additional 50 years. The aggregate duration of the arrangement and the
extension option represents the remaining useful life of the concession.
b)
Infrastructure – Transport
The company’s Chilean toll road concession provides the right to charge a tariff to users of the road over the term of the
concession. The concession arrangement has an expiration date of 2033, which is the basis for the company’s determination
of its remaining useful life. Also included within the company’s transport operations is $355 million (2012 – $348 million) of
indefinite life intangible assets which represent perpetual conservancy rights associated with the company’s UK port operation.
The following table presents the changes to the cost of the company’s intangible assets:
YEARS ENDED DECEMBER 31
(MILLIONS)
Cost at beginning of year
Disposals, net of additions
Acquisitions through business combinations
Foreign currency translation and other
Cost at end of year
2013
$
6,115
$
(13)
20
(681)
$
5,441
$
2012
4,216
(3)
1,916
(14)
6,115
2013 ANNUAL REPORT 125
The following table presents the changes in the accumulated amortization and accumulated impairment losses of the company’s
intangible assets:
YEARS ENDED DECEMBER 31
(MILLIONS)
Accumulated amortization and impairment losses at beginning of year
Amortization
Foreign currency translation and other
Accumulated amortization and impairment losses at end of year
The following table presents intangible assets by geography:
(MILLIONS)
United States
Canada
Australia
Brazil
Europe
Chile
2013
(345)
$
(105)
53
(397)
$
2012
(242)
(124)
21
(345)
$
$
Dec. 31, 2013
Dec. 31, 2012
$
$
481
266
2,535
28
456
1,278
5,044
$
$
614
292
2,963
32
448
1,421
5,770
Intangible assets, including trademarks, concession agreements and conservancy rights, are recorded at amortized cost and
are tested for impairment annually using a discounted cash flow valuation. This valuation utilizes the following significant
unobservable inputs assumptions:
Valuation technique
Discounted cash flow models
Significant unobservable input(s)
• Future cash flows
Relationship of unobservable input(s) to fair value
• Increases (decreases) in future cash flows will
• Discount rate
• Increases (decreases) in discount rate will decrease
increase (decrease) the recoverable amount
• Terminal capitalization rate
• Exit date
(increase) the recoverable amount
• Increases (decreases) in terminal capitalization rate
will decrease (increase) the recoverable amount
• Increases (decreases) in the exit date will decrease
(increase) the recoverable amount
14. GOODWILL
(MILLIONS)
Cost
Accumulated impairment losses
Total
Goodwill is allocated to the following cash-generating units:
(MILLIONS)
Services – Construction
Infrastructure – Sustainable resources
Residential development – Brazil
Property – Retail property
Services – Property services
Asset management
Other
Total
126 BROOKFIELD ASSET MANAGEMENT
Dec. 31, 2013
Dec. 31, 2012
$
$
1,638
$
(50)
1,588
$
2,540
(50)
2,490
Dec. 31, 2013
Dec. 31, 2012
$
$
720
—
277
120
54
216
201
840
591
373
138
102
205
241
$
1,588
$
2,490
The following table presents the change in the balance of goodwill:
YEARS ENDED DECEMBER 31
(MILLIONS)
Cost at beginning of year
Acquisitions through business combinations
Disposals
Foreign currency translation and other
Cost at end of year
The following table reconciles accumulated impairment losses:
YEARS ENDED DECEMBER 31
(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
2013
$
2,540
$
—
(645)
(257)
$
1,638
$
2013
(50)
$
—
(50)
$
$
$
2012
2,652
60
(101)
(71)
2,540
2012
(45)
(5)
(50)
Dec. 31, 2013
Dec. 31, 2012
$
$
230
56
861
397
27
17
819
57
1,052
518
28
16
$
1,588
$
2,490
The recoverable amounts used in goodwill impairment testing are calculated using discounted cash flow models based on the
following significant unobservable inputs:
Valuation technique
Discounted cash flow models
Significant unobservable input(s)
• Future cash flows
Relationship of unobservable input(s) to fair value
• Increases (decreases) in future cash flows will
• Discount rate
• Increases (decreases) in discount rate will decrease
increase (decrease) the recoverable amount
• Terminal capitalization rate
• Exit date
(increase) the recoverable amount
• Increases (decreases) in terminal capitalization rate
will decrease (increase) the recoverable amount
• Increases (decreases) in the exit date will decrease
(increase) the recoverable amount
15.
INCOME TAXES
The major components of income tax expense for the years ended December 31, 2013 and December 31, 2012 are set out below:
YEARS ENDED DECEMBER 31
(MILLIONS)
Current income taxes
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 taxes
Income taxes
2013
$
159
$
871
(130)
(55)
686
845
$
$
2012
135
479
(93)
(2)
384
519
2013 ANNUAL REPORT 127
The company’s Canadian domestic statutory income tax rate has remained consistent at 26% throughout 2013. The company’s
effective tax rate is different from the company’s domestic statutory income tax rate due to the following differences set out
below:
YEARS ENDED DECEMBER 31
Statutory income tax rate
Increase (reduction) in rate resulting from:
Portion of gains subject to different tax rates
International operations subject to different tax rates
Taxable income attribute to non-controlling interest
Recognition of deferred tax assets
Non-recognition of the benefit of current year’s tax losses
Other
Effective income tax rate
2013
26%
2012
26%
(1)
(3)
(7)
(2)
3
2
(1)
(9)
(1)
(1)
3
(1)
18%
16%
Deferred income tax assets and liabilities as at December 31, 2013 and 2012 relate to the following:
(MILLIONS)
Non-capital losses (Canada)
Capital losses (Canada)
Losses (U.S.)
Losses (International)
Difference in basis
Total net deferred tax liabilities
Dec. 31, 2013
Dec. 31, 2012
$
$
878
215
385
511
(6,741)
$
(4,752)
$
834
166
408
705
(6,873)
(4,760)
The aggregate amount of temporary differences associated with investments in subsidiaries for which deferred tax liabilities
have not been recognized as at December 31, 2013 is approximately $8 billion (2012 – approximately $7 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.
The following table details the expiry date, if applicable, of the unrecognized deferred tax assets:
(MILLIONS)
2014
2015
2016
After 2021
Do not expire
Total
Dec. 31, 2013
Dec. 31, 2012
$
$
2
2
1
327
1,491
1,823
$
$
1
2
2
311
589
905
The components of the income taxes in other comprehensive income for the years ended December 31, 2013 and 2012 are set
out below:
YEARS ENDED DECEMBER 31
(MILLIONS)
Revaluation of property, plant and equipment
Financial contracts and power sale agreements
Available-for-sale securities
Equity accounted investments
Foreign currency translation
Revaluation of pension obligation
$
$
2013
135
129
(10)
37
(10)
(1)
Total deferred tax in other comprehensive income
$
280
$
128 BROOKFIELD ASSET MANAGEMENT
2012
433
5
10
(10)
(4)
(2)
432
16. ACCOUNTS PAYABLE AND OTHER
(MILLIONS)
Accounts payable
Other liabilities
Total
Dec. 31, 2013
Dec. 31, 2012
$
$
$
6,344
3,972
10,316
$
7,203
4,449
11,652
The current and non-current balances of accounts payable and other liabilities are as follows:
(MILLIONS)
Current
Non-current
Total
Dec. 31, 2013
Dec. 31, 2012
$
$
5,994
$
4,322
10,316
$
6,212
5,440
11,652
Included in accounts payable and other liabilities are $2,308 million (2012 – $2,388 million) of accounts payable and other
liabilities related to the company’s residential development operations. Accounts payable and other liabilities also includes
$360 million (2012 – $418 million) of insurance deposits, claims and other liabilities incurred by the company’s insurance
subsidiaries.
17. CORPORATE BORROWINGS
Maturity
Annual Rate
Currency
Dec. 31, 2013
Dec. 31, 2012
US$
$
— $
(MILLIONS)
Term debt
Private – U.S.
Private – Canadian
Private – Canadian
Public – Canadian
Public – U.S.
Public – Canadian
Public – Canadian
Public – Canadian
Public – Canadian
Public – Canadian
Public – U.S.
Public – Canadian
Oct. 23, 2013
Apr. 30, 20141
Jun. 2, 20141
Sept. 8, 2016
Apr. 25, 2017
Apr. 25, 2017
Apr. 9, 2019
Mar. 1, 2021
Mar. 31, 2023
Mar. 8, 2024
Mar. 1, 2033
Jun. 14, 2035
6.65%
6.26%
8.95%
5.20%
5.80%
5.29%
3.95%
5.30%
4.54%
5.04%
7.38%
5.95%
C$
C$
C$
US$
C$
C$
C$
C$
C$
US$
C$
—
—
282
239
235
568
330
568
472
250
396
3,340
662
(27)
75
27
151
302
239
252
428
353
428
—
250
302
2,807
744
(25)
Commercial paper and bank borrowings
Deferred financing costs1
Total
1.24%
US$/C$/£
$
3,975
$
3,526
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 4.5% (2012 – 4.7%), and include $3,356 million
(2012 – $2,679 million) repayable in Canadian dollars of C$3,565 million (2012 – C$2,658 million) and $nil (2012 – $165 million)
repayable in British pounds of £nil (2012 – £102 million).
On January 28, 2014, the company issued C$500 million of 4.82% term debt due January 28, 2026.
2013 ANNUAL REPORT 129
18. NON-RECOURSE BORROWINGS
a)
Property-Specific Mortgages
Principal repayments on property-specific mortgages due over the next five calendar years and thereafter are as follows:
(MILLIONS)
2014
2015
2016
2017
2018
Thereafter
Property
Renewable
Energy
Infrastructure
Private
Equity
Residential
Development
Service
Activities
Corporate
Activities
$
4,391
$
517
$
76
$
162
$
765
$
271
$
106
$
1,402
3,702
3,857
2,900
5,325
501
258
576
278
132
913
109
297
2,777
4,907
4,347
$
$
4,551
6,078
7,093
$
$
1
51
66
35
27
877
417
122
22
11
—
—
—
—
—
—
—
—
—
—
342
641
$
$
2,214
2,569
$
$
271
351
$
$
106
10
$
$
Total
6,288
2,913
5,341
4,730
3,532
12,691
35,495
33,720
Total – Dec. 31, 2013
Total – Dec. 31, 2012
$
$
21,577
18,709
$
$
The current and non-current balances of property-specific mortgages are as follows:
(MILLIONS)
Current
Non-current
Total
Property-specific mortgages by currency include the following:
Dec. 31, 2013
Dec. 31, 2012
$
$
6,288
$
29,207
35,495
$
4,419
29,301
33,720
(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, 2013
Local Currency
Dec. 31, 2012
$
20,205
US$
20,205
$
17,855
Local Currency
US$
17,855
3,708
5,217
2,988
2,447
689
207
32
2
A$
C$
R$
£
UF$
4,157
5,542
5,542
1,478
16
COP$
400,155
N$
€$
39
1
4,939
4,552
3,232
2,093
754
179
109
7
A$
C$
R$
£
CLF$
4,751
4,517
6,604
1,288
16
COP$
316,127
N$
€$
131
4
$
35,495
$
33,720
Principal repayments on subsidiary borrowings due over the next five calendar years and thereafter are as follows:
(MILLIONS)
2014
2015
2016
2017
2018
Thereafter
Property
Renewable
Energy
Infrastructure
Private
Equity
Residential
Development
Corporate
Activities
$
1,606 $
— $
10 $
50 $
188 $
— $
507
338
198
235
191
—
594
—
188
935
10
10
387
13
5
66
—
500
38
245
—
—
—
—
1,078
—
—
—
—
—
Total – Dec. 31, 2013
Total – Dec. 31, 2012
$
$
3,075 $
1,717 $
1,896 $
1,772 $
435 $
967 $
899 $
1,266 $
— $
1,041 $
779 $
1,130 $
Total
1,854
583
942
1,085
474
2,454
7,392
7,585
130 BROOKFIELD ASSET MANAGEMENT
The current and non-current balances of subsidiary borrowings are as follows:
(MILLIONS)
Current
Non-current
Total
Subsidiary borrowings by currency include:
Dec. 31, 2013
Dec. 31, 2012
$
$
1,854
5,538
7,392
$
$
1,039
6,546
7,585
(MILLIONS)
U.S. dollars
Canadian dollars
Australian dollars
Brazilian reais
British pounds
Total
Dec. 31, 2013
Local Currency
Dec. 31, 2012
Local Currency
$
4,346
2,283
696
59
8
US$
4,346
$
C$
A$
R$
£
2,421
780
139
5
4,113
2,569
882
21
—
US$
C$
A$
R$
£
4,113
2,549
849
43
—
$
7,392
$
7,585
19. 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
a)
Corporate Preferred Shares
Note
Dec. 31, 2013
Dec. 31, 2012
(a)
(b)
$
$
163
628
791
$
$
325
866
1,191
Corporate preferred shares consist of the company’s Class A preferred shares as follows:
(MILLIONS, EXCEPT SHARE INFORMATION)
Class A preferred shares
Series 12
Series 21
Deferred financing costs
Total
Shares
Outstanding
Cumulative
Dividend Rate
7,000,000
—
5.40%
5.00%
Currency
Dec. 31, 2013
Dec. 31, 2012
C$
C$
$
$
165
$
—
(2)
163
$
176
151
(2)
325
On March 6, 2014, the company notified holders that it will redeem all of its outstanding Class A Series 12 preferred
shares for cash on April 6, 2014. The redemption price for each preferred share will be C$26.00 plus accrued and unpaid
dividends.
b)
Subsidiary Preferred Shares
Subsidiary preferred shares are composed of Brookfield Office Properties Class AAA preferred shares and capital securities of
fund subsidiaries as follows:
(MILLIONS, EXCEPT SHARE INFORMATION)
Class AAA preferred shares
Series F
Series G
Series H
Series J
Series K
Deferred financing costs
Total
Shares
Outstanding
Cumulative
Dividend Rate
Currency
Dec. 31, 2013
Dec. 31, 2012
—
4,400,000
8,000,000
8,000,000
6,000,000
—
5.25%
5.75%
5.00%
5.20%
C$
$
— $
US$
C$
C$
C$
$
110
188
188
142
—
628
$
202
110
202
202
151
(1)
866
2013 ANNUAL REPORT 131
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 G
Series H
Series J
Series K
Earliest Permitted
Redemption Date
Company’s
Conversion Option
Holder’s
Conversion Option
Jun. 30, 2011
Dec. 31, 2011
Jun. 30, 2010
Dec. 31, 2012
Jun. 30, 2011
Dec. 31, 2011
Jun. 30, 2010
Dec. 31, 2012
Sept. 30, 2015
Dec. 31, 2015
Dec. 31, 2014
Dec. 31, 2016
20.
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
21. EQUITY
Equity is comprised of the following:
(MILLIONS)
Preferred equity
Non-controlling interests
Common equity
a)
Preferred Equity
Dec. 31, 2013
Dec. 31, 2012
$
$
$
947
139
1,086
$
352
73
425
Dec. 31, 2013
Dec. 31, 2012
$
$
3,098
$
26,647
17,781
47,526
$
2,901
23,287
18,150
44,338
Preferred equity represents perpetual preferred shares and consists of the following:
(MILLIONS, EXCEPT SHARE INFORMATION)
Class A preferred shares
Issued and Outstanding
Rate
Dec. 31, 2013
Dec. 31, 2012
Dec. 31, 2013
Dec. 31, 2012
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
Series 37
Total
70% P
10,465,100
10,465,100
$
169
$
70% P/8.5%
Variable up to P
3.80%
70% P
B.A. + 40 b.p.1
4.75%
4.75%
7.00%2
5.40%2
4.50%2
4.60%2
4.80%2
4.50%2
4.20%2
4.85%
4.90%
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
8,000,000
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
—
45
29
35
195
42
174
181
274
269
245
235
247
304
256
201
197
169
45
29
35
195
42
174
181
274
269
245
235
247
304
256
201
—
$
3,098
$
2,901
Rate determined in a quarterly auction
1.
2. Dividend rates are fixed for five years from the quarter end dates after issuance, September 30, 2009, June 30, 2011, March 31, 2012, June 30, 2012, December 31, 2012,
March 31, 2013 and September 30, 2013, respectively, and reset after five years to the 5-year Government of Canada bond rate plus between 180 and 445 basis points.
P – Prime Rate, B.A. – Bankers’ Acceptance Rate, b.p. – Basis Points
132 BROOKFIELD ASSET MANAGEMENT
The company is authorized to issue an unlimited number of Class A preferred shares and an unlimited number of Class AA preferred
shares, issuable in series. No Class AA preferred shares have been issued.
The Class A preferred shares have preference over the Class AA preferred shares, which in turn are entitled to preference over
the Class A and Class B common shares on the declaration of dividends and other distributions to shareholders. All series of
the outstanding preferred shares have a par value of C$25 per share.
On March 13, 2014, the company issued 8.0 million Series 38 preferred shares with an initial dividend rate of 4.4% for total
gross proceeds of C$200 million.
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
Further information on non-controlling interest is provided in Note 4, Subsidiaries.
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, 2013
Dec. 31, 2012
$
$
23,828
$
2,819
26,647
$
20,933
2,354
23,287
Dec. 31, 2013
Dec. 31, 2012
$
2,899
$
159
7,159
2,354
5,210
2,855
149
6,813
2,088
6,245
$
17,781
$
18,150
The company is authorized to issue an unlimited number of Class A shares and 85,120 Class B shares, together referred to as
common shares. The company’s common shares have no stated par value. The holders of Class A shares and Class B 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 shares are entitled to elect one-half of the Board of Directors of the company
and holders of the Class B shares are entitled to elect the other one-half of the Board of Directors. With respect to the Class A
and Class B 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 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 shares are diluted.
The holders of the company’s common shares received cash dividends of $0.64 per share during 2013 (2012 – $0.55 per share).
In addition, the company distributed a 7.6% interest in BPY to the holders of its common shares on April 15, 2013 valued at
$1.47 per common share.
The number of issued and outstanding common shares and unexercised options at December 31, 2013 and 2012 are as follows:
Class A shares1
Class B shares
Shares outstanding1
Unexercised options2
Total diluted shares
1.
2.
Net of 9,550,000 (2012 – 5,450,000) Class A shares held by the company to satisfy long-term compensation agreements
Includes management share option plan and escrowed stock plan
Dec. 31, 2013
Dec. 31, 2012
615,386,476
619,514,229
85,120
85,120
615,471,596
619,599,349
35,603,974
38,402,078
651,075,570
658,001,427
2013 ANNUAL REPORT 133
The authorized common share capital consists of an unlimited number of shares. Shares issued and outstanding changed as
follows:
Outstanding at beginning of year1
Issued (repurchased)
Repurchases
Long-term share ownership plans2
Dividend reinvestment plan
Outstanding at end of year1
Dec. 31, 2013
Dec. 31, 2012
619,599,349
619,288,769
(8,772,646)
(2,569,272)
4,442,362
202,531
2,648,936
230,916
615,471,596
619,599,349
1.
2.
i.
Net of 9,550,000 (2012 – 5,450,000) Class A shares held by the company to satisfy long-term compensation agreements
Includes management share option plan and restricted stock plan
Earnings Per Share
The components of basic and diluted earnings per share are summarized in the following table:
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
2013
$
2,120
$
(145)
1,975
13
$
1,988
$
2012
1,380
(129)
1,251
25
1,276
1.
Subject to the approval of the Toronto Stock Exchange, the Series 12 preferred shares, unless redeemed by the company for cash, are convertible into Class A 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 21 preferred shares
were redeemed by the company during 2013
(MILLIONS)
Weighted average – common shares
Dilutive effect of the conversion of options and escrowed shares using treasury stock method
Dilutive effect of the conversion of capital securities1,2
Common shares and common share equivalents
Dec. 31, 2013 Dec. 31, 2012
616.1
12.8
7.9
636.8
618.9
12.1
18.0
649.0
1.
2.
Subject to the approval of the Toronto Stock Exchange, the Series 12 preferred shares, unless redeemed by the company for cash, are convertible into Class A 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 21 preferred shares
were redeemed by the company during 2013
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:
YEARS ENDED DECEMBER 31
(MILLIONS)
Expense arising from equity-settled share-based payment transactions
Expense arising from cash-settled share-based payment transactions
Total expense arising from share-based payment transactions
Effect of hedging program
Total expense included in consolidated income
$
2013
66
96
162
(77)
85
$
2012
59
144
203
(136)
67
$
$
The share-based payment plans are described below. There have been no cancellations or modifications to any of the plans
during 2013 or 2012.
1)
a)
Equity – Settled Share-Based Awards
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 shares. The exercise price is equal to the market price
at the grant date.
134 BROOKFIELD ASSET MANAGEMENT
The changes in the number of options during 2013 and 2012 were as follows:
Number of
Options (000’s)1
Weighted
Average
Exercise Price
Number of
Options (000’s)2
Weighted
Average
Exercise Price
Outstanding at January 1, 2013
23,575
C$
Granted
Exercised
Cancelled
Converted3
—
(3,534)
(214)
(2,014)
Outstanding at December 31, 2013
17,813 C$
1.
2.
3.
Options to acquire TSX listed Class A shares
Options to acquire NYSE listed Class A shares
Options converted into restricted shares at maturity
22.40
—
17.79
20.85
11.47
24.56
14,128 US$
3,586
(722)
(183)
—
26.90
37.82
24.96
30.78
—
16,809 US$
29.27
Number of
Options (000’s)1
Weighted
Average
Exercise Price
Number of
Options (000’s)2
Weighted
Average
Exercise Price
Outstanding at January 1, 2012
26,995
C$
Granted
Exercised
Cancelled
Converted3
—
(2,380)
(96)
(944)
Outstanding at December 31, 2012
23,575
C$
1.
2.
3.
Options to acquire TSX listed Class A shares
Options to acquire NYSE listed Class A shares
Options converted to restricted shares of maturity
21.31
—
14.97
30.28
9.37
22.40
10,879
US$
3,615
(128)
(238)
—
25.45
31.35
24.80
29.24
—
14,128
US$
26.90
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:
YEARS ENDED DECEMBER 31
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
%
%
%
%
2013
37.82
7.87
7.5
31.2
25.0
1.5
1.3
1.
Share price volatility was determined based on historical share prices over a similar period to the average term to exercise
At December 31, 2013, the following options to purchase Class A shares were outstanding:
Exercise Price
C$13.37 – C$19.03
C$20.21 – C$30.22
C$31.62 – C$46.59
US$23.18 – US$35.06
US$37.82
Weighted Average
Remaining Life
5.1 years
1.8 years
3.7 years
6.9 years
9.2 years
Options Outstanding (000’s)
Vested
5,727
5,028
5,215
6,125
110
22,205
Unvested
1,763
80
—
7,133
3,441
12,417
2012
31.35
6.54
7.5
32.6
25.0
1.8
1.4
Total
7,490
5,108
5,215
13,258
3,551
34,622
2013 ANNUAL REPORT 135
At December 31, 2012, the following options to purchase Class A 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
$23.18 – $35.06
b)
Escrowed Stock Plan
Weighted Average
Remaining Life
Vested
Unvested
Options Outstanding (000’s)
0.1 years
5.2 years
2.7 years
4.7 years
7.9 years
1,071
7,043
6,252
4,771
3,713
22,850
—
3,768
129
541
10,415
14,853
Total
1,071
10,811
6,381
5,312
14,128
37,703
The Escrowed Stock Plan (the “ES Plan”) provides executives with increased indirect ownership of Class A 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 shares. The Class A 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 over one to five years and must be held until the fifth anniversary of
the grant date. At a date no less than five years, and no more than 10 years, from the grant date, all outstanding ES Shares will be
exchanged for Class A shares issued by the company, based on the market value of Class A shares at the time of the exchange.
During 2013, 4.1 million Class A shares were purchased in respect of ES Shares of which 2.35 million were granted to executives
under the ES Plan (2012 – 2.25 million Class A shares) during the year. For the year ended December 31, 2013, the total expense
incurred with respect to the ES Plan totalled $14.0 million (2012 – $6.3 million).
The cost of the escrowed shares granted during the year was determined using the Black-Scholes model of valuation with inputs
to the model as follows:
YEARS ENDED DECEMBER 31
Weighted average share price
Weighted average fair value per share
Average term to exercise
Share price volatility1
Liquidity discount
Weighted average annual dividend yield
Risk-free rate
Unit
US$
US$
Years
%
%
%
%
2013
37.82
7.34
7.5
31.2
30.0
1.5
1.3
2012
31.35
6.05
7.5
32.6
30.0
1.8
1.4
1.
Share price volatility was determined based on historical share prices over a similar period to the term exercise
c)
Restricted Stock Plan
The Restricted Stock Plan awards executives with Class A 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 2013, Brookfield granted 386,273 Class A shares pursuant to the terms and conditions of the Restricted Stock Plan,
resulting in the recognition of $10.6 million (2012 – $8.5 million) within compensation expense. In addition, Brookfield
exchanged 2,014,265 fully vested, in-the-money options of certain executives for 1,416,142 Class A shares under the Restricted
Stock Plan.
2)
a)
Cash – Settled Share Based Awards
Restricted Share Unit Plan
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
136 BROOKFIELD ASSET MANAGEMENT
the conversion takes place. The value of the RSUs, when converted into cash, will be equivalent to the difference between
the market price of equivalent number of common shares at the time the conversion takes place and the market price on the date
the RSUs are granted. The company uses equity derivative contracts to offset its exposure to the change in share prices in respect
of vested and unvested DSUs and RSUs. The fair value of the vested DSUs and RSUs as at December 31, 2013 was $508 million
(2012 – $436 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, 2013, including those of operating
subsidiaries, totalled $19 million (2012 – $8 million), net of the impact of hedging arrangements.
The change in the number of DSUs and RSUs during 2013 and 2012 was as follows:
Outstanding at January 1, 2013
Granted and reinvested
Exercised and cancelled
Outstanding at December 31, 2013
Outstanding at January 1, 2012
Granted and reinvested
Exercised and cancelled
Outstanding at December 31, 2012
DSUs
RSUs
Number of Units
(000’s)
Number of Units
(000’s)
Weighted
Average
Exercise Price
7,447
1,830
(206)
9,071
8,030
C$
—
(750)
7,280
C$
13.56
—
12.76
13.64
DSUs
RSUs
Number of Units
(000’s)
Number of Units
(000’s)
Weighted
Average
Exercise Price
7,255
430
(238)
7,447
8,030
C$
13.56
—
—
—
—
8,030
C$
13.56
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
22. REVENUES AND OTHER GAINS
The following table summarizes revenue and other gains for 2013 and 2012:
YEARS ENDED DECEMBER 31
(MILLIONS)
Revenues
Other gains
Unit
Dec. 31, 2013
Dec. 31, 2012
C$
C$
Years
%
%
%
C$
41.22
13.64
8.2
23.35
2.4
3.0
24.18
36.44
13.56
9.2
24.11
1.4
2.2
21.47
2013
20,093 $
737
20,830 $
2012
18,696
70
18,766
$
$
Revenues include $12,834 million (2012 – $12,511 million) from the sale of goods, $6,448 million (2012 – $5,764 million) from
the rendering of services, of which $558 million (2012 – $nil) was earned in our asset management segment and received in kind,
and $811 million (2012 – $421 million) from other activities.
2013 ANNUAL REPORT 137
23. 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 sales and compensation. The following table lists direct costs for 2013 and 2012 by nature:
YEARS ENDED DECEMBER 31
(MILLIONS)
Cost of sales
Compensation
Selling, general and administrative expenses
Property taxes, sales taxes and other
24. OTHER INCOME
2013
$
10,416 $
1,125
975
1,412
2012
10,846
1,018
534
1,563
$
13,928 $
13,961
Other income includes a $525 million gain on the settlement of a long-dated interest rate swap contract. In August 2013,
the company paid $905 million to terminate the contract, which had accrued to $1,440 million in our Consolidated Financial
Statements at the time of settlement. The gain was determined based on the difference between the accrued liability immediately
prior to termination and the termination payment amount, adjusted for associated transaction costs and recorded in our corporate
activities segment.
25. FAIR VALUE CHANGES
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:
YEARS ENDED DECEMBER 31
(MILLIONS)
Investment properties
Power contracts
Interest rate and inflation contracts
Private equity and residential development
Sustainable resources
Redeemable units
Other
2013
$
1,031
$
(134)
10
(127)
19
(20)
(116)
2012
1,276
9
(81)
(119)
135
(11)
(56)
$
663
$
1,153
26. DERIVATIVE FINANCIAL INSTRUMENTS
The company’s activities expose it to a variety of financial risks, including market risk (i.e., currency risk, interest rate risk, and
other price risk), credit risk and liquidity risk. The company and its subsidiaries selectively use derivative financial instruments
principally to manage these risks.
The aggregate notional amount of the company’s derivative positions at December 31, 2013 and 2012 is as follows:
Note
Dec. 31, 2013
Dec. 31, 2012
(a)
(b)
(c)
(d)
(e)
$
11,194
$
16,757
800
1,633
6,159
18,671
865
1,112
Dec. 31, 2013
Dec. 31, 2012
102,331
12,764
73,902
41,922
(MILLIONS)
Foreign exchange
Interest rates
Credit default swaps
Equity derivatives
Commodity instruments
Energy (GWh)
Natural gas (MMBtu – 000’s)
138 BROOKFIELD ASSET MANAGEMENT
a)
Foreign Exchange
The company held the following foreign exchange contracts with notional amounts at December 31, 2013 and December 31, 2012:
(MILLIONS)
Foreign exchange contracts
British pounds
Australian dollars
Canadian dollars
European Union euros
Brazilian reais
Japanese yen
New Zealand dollars
Cross currency interest rate swaps
Australian dollars
Canadian dollars
British pounds
Japanese yen
Brazilian reais
Foreign exchange options
Japanese yen
European Union euros
British pounds
Australian dollars
Brazilian reais
Notional Amount
(U.S. Dollars)
Average Exchange Rate
Dec. 31, 2013
Dec. 31, 2012
Dec. 31, 2013
Dec. 31, 2012
$
2,782
1,932
1,387
922
702
1
—
1,333
654
300
98
—
548
413
123
—
—
$
$
752
894
1,089
$
199
2
5
321
895
655
—
98
66
548
—
—
416
219
$
$
1.60
0.94
0.95
1.37
2.34
101.0
—
1.01
0.91
1.49
75.47
—
105.0
1.28
1.86
—
—
1.60
1.03
0.99
1.28
2.08
86.8
0.77
1.00
0.89
—
75.47
1.81
105.0
—
—
1.05
1.50
Included in net income are unrealized net gains on foreign currency derivative contracts amounting to $48 million (2012 – net
loss of $2 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 $71 million (2012 – net losses of
$45 million).
b)
Interest Rates
At December 31, 2013, the company held interest rate swap contracts having an aggregate notional amount of $600 million
(2012 – $1,351 million), and interest rate swaptions with an aggregate notional amount of $1,704 million (2012 – $263 million).
The company’s subsidiaries held interest rate swap contracts with an aggregate notional amount of $8,654 million
(2012 – $11,636 million), interest rate cap contracts with an aggregate notional amount of $5,799 million (2012 – $4,951 million),
and bond forwards with an aggregate notional value of $nil (2012 – $471 million).
c)
Credit Default Swaps
As at December 31, 2013, the company held credit default swap contracts with an aggregate notional amount of $800 million
(2012 – $865 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 pre-determined
credit events. The company is entitled to receive payments in the event of a pre-determined credit event for up to $800 million
(2012 – $815 million) of the notional amount and could be required to make payments in respect of $nil (2012 – $50 million)
of the notional amount.
d)
Equity Derivatives
At December 31, 2013, the company and its subsidiaries held equity derivatives with a notional amount of $1,633 million
(2012 – $1,112 million) which includes $765 million (2012 – $600 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.
2013 ANNUAL REPORT 139
Other Information Regarding Derivative Financial Instruments
The following table classifies derivatives elected for hedge accounting during the years ended December 31, 2013 and 2012 as
either: cash flow hedges or net investment 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
2013
2012
Notional
Effective
Portion
Ineffective
Portion
Notional
Effective
Portion
Ineffective
Portion
$
10,452
$
37
$
(141)
$
14,872
$
6,146
$
16,598
$
(58)
(21)
—
1,787
$
(141)
$
16,659
$
(36)
(45)
(81)
$
$
(80)
—
(80)
1.
Notional amount does not include 42,199 GWh and 41,731 GWh of commodity derivatives at December 31, 2013 and December 31, 2012, respectively
The following table presents the change in fair values of the company’s derivative positions during the years ended
December 31, 2013 and 2012, for derivatives that are fair valued through profit or loss, and derivatives that qualify for hedge
accounting:
(MILLIONS)
Foreign exchange derivatives
Interest rate derivatives
Interest rate swaps
Bond forwards
Interest rate caps
Interest rate swaptions
Credit default swaps
Equity derivatives
Commodity derivatives
Unrealized
Gains
During 2013
Unrealized
Losses
During 2013
Net Change
During 2013
Net Change
During 2012
$
200
$
(226)
$
(26)
$
(46)
144
—
—
25
169
–
38
126
533
$
(63)
—
(1)
—
(64)
(2)
—
(280)
81
—
(1)
25
105
(2)
38
(154)
$
(572)
$
(39)
$
(187)
1
(1)
(5)
(192)
(16)
223
(18)
(49)
140 BROOKFIELD ASSET MANAGEMENT
The following table presents the notional amounts underlying the company’s derivative instruments by term to maturity as at
December 31, 2013 and the comparative notional amounts at December 31, 2012, 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
Dec. 31, 2013
Dec. 31, 2012
< 1 year
1 to 5 years
> 5 years
Total Notional
Amount
Total Notional
Amount
Foreign exchange derivatives
$
2,275
$
721
$
— $
2,996
$
2,794
Interest rate derivatives
Interest rate swaps
Interest rate swaptions
Interest rate caps
Credit default swaps
Equity derivatives
Commodity instruments
Energy (GWh)
Natural gas (MMBtu – 000’s)
Elected for hedge accounting
387
161
3,836
4,384
—
249
23,209
11,702
410
1,543
1,963
3,916
800
1,366
35,613
1,063
75
—
—
75
—
—
1,310
—
872
1,704
5,799
8,375
800
1,615
60,132
12,765
1,319
263
3,811
5,393
865
1,096
32,171
41,922
Foreign exchange derivatives
$
5,871
$
652
$
1,675
$
8,198
$
3,365
Interest rate derivatives
Interest rate swaps
Bond forwards
Interest rate caps
Equity derivatives
Commodity instruments
Energy (GWh)
2,166
—
—
2,166
10
4,844
—
—
4,844
8
1,372
—
—
1,372
—
8,382
—
—
8,382
18
11,667
471
1,140
13,278
16
4,496
11,718
25,986
42,199
41,731
27. 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 value 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.
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
2013 ANNUAL REPORT 141
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 $41 million (2012 – $50 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 $2 million
(2012 – $12 million) and an increase in other comprehensive income of $37 million (2012 – $57 million), before tax for the year
ended December 31, 2013.
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 $14 million (2012 – $10 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 limit its exposure to the
impact of foreign currencies on its net investments 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 $82 million
(2012 – $55 million) as at December 31, 2013, 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 compensation arrangements, would have decreased net income by $126 million (2012 – $90 million) and
decreased other comprehensive income by $13 million (2012 – $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 $36 million (2012 – $30 million). This increase would be offset by a $37 million (2012 – $30 million) change in value of
the associated equity derivatives of which $36 million (2012 – $29 million) would offset the above mentioned increase in
compensation expense and the remaining $1 million (2012 – $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, 2013 by approximately $49 million
(2012 – decrease of $70 million) and decreased other comprehensive income by $27 million (2012 – $21 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 $1,000 million (2012 – $865 million) at
December 31, 2013. 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 $2 million
(2012 – $3 million) for the year ended December 31, 2013, prior to taxes.
b)
Credit Risk
Credit risk is the risk of loss due to the failure of a borrower or counterparty to fulfill its contractual obligations. The company’s
exposure to credit risk in respect of financial instruments relates primarily to counterparty obligations regarding derivative
contracts, loans receivable and credit investments such as bonds and preferred shares.
The company assesses the credit worthiness of each counterparty before entering into contracts and ensures that counterparties
meet minimum credit quality requirements. Management evaluates and monitors counterparty credit risk for derivative financial
instruments and endeavours to minimize counterparty credit risk through diversification, collateral arrangements, and other
credit risk mitigation techniques. The credit risk of derivative financial instruments is generally limited to the positive fair value
of the instruments, which, in general, tends to be a relatively small proportion of the notional value. Substantially all of the
142 BROOKFIELD ASSET MANAGEMENT
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.
28. 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 include corporate preferred shares that are convertible into
common shares at the option of either the holder or the company. As at December 31, 2013, the recorded values of these items
in the company’s consolidated financial statements totalled $21.0 billion (2012 – $21.4 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 $4.0 billion based on carrying values at December 31, 2013 (2012 – $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, 2013
was 15% (2012 – 17%).
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, 2013 and 2012. 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.
29. 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’ in year valuation change was $26 million (2012 – $23 million). The discount rate used was 5% (2012 – 5%)
with an increase in the rate of compensation of 3% (2012 – 3%) and an investment rate of 5% (2012 – 5%).
(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, 2013
Dec. 31, 2012
$
662
$
1,141
(796)
(36)
(170)
3
$
(167)
$
(1,324)
(51)
(234)
39
(195)
2013 ANNUAL REPORT 143
30. 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, 2013
and 2012 was as follows:
YEARS ENDED DECEMBER 31
(MILLIONS)
Salaries, incentives and short-term benefits
Share-based payments
2013
21
41
62
$
$
2012
21
29
50
$
$
The remuneration of Directors and key executives is determined by the Compensation Committee of the Board of Directors
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.
The following table lists the related party balances included within the Consolidated Financial Statements as at and for the years
ended December 31, 2013 and 2012:
(MILLIONS)
Financial assets
Investment and other income, net of interest expense
Management fees received
Dec. 31, 2013
Dec. 31, 2012
$
868
$
25
43
406
111
20
In November 2013, we entered into a $500 million subordinated credit facility with wholly owned subsidiaries of BPY. The
terms of the facility, including the interest rate charged by the Corporation, are consistent with market practice given BPY’s
credit worthiness and the subordination of this facility. This transaction was approved by the independent directors of BPY.
In December 2012, BRPI, our 69% owned North American land developer and homebuilder, repaid its C$480 million loan to
BPO, using the proceeds from the completion of a senior unsecured debt offering. BRPI paid $35 million of interest to BPO
during the year ended December 31, 2012.
In October 2012, we agreed to sell the economic interest in our directly held 10% investment in a South American transmission
operation to BIP for proceeds of $235 million, subject to satisfaction of customary conditions. The transaction, which closed
in 2012, 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.
31. OTHER INFORMATION
a)
Commitments, Guarantees and Contingencies
In the normal course of business, the company and its subsidiaries enter into contractual obligations which include commitments
to provide bridge financing, letters of credit and guarantees provided in respect of power sales contracts and reinsurance
obligations. At the end of 2013, the company and its subsidiaries had $1,755 million (2012 – $2,222 million) of such commitments
outstanding of which $269 million (2012 – $297 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
144 BROOKFIELD ASSET MANAGEMENT
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. It is not reasonably possible that any of the ongoing litigation as at December 31, 2013 could result in a material
settlement liability.
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 pre-determined joint
venture arrangements.
b)
Insurance
The company conducts insurance operations as part of its corporate activities. As at December 31, 2013, the company held
insurance assets of $158 million (2012 – $206 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 2013, net underwriting losses
on reinsurance operations were $27 million (2012 – $59 million) representing $nil (2012 – $5 million) of premium and other
revenues offset by $27 million (2012 – $64 million) of reserves and other expenses.
c)
Supplemental Cash Flow Information
Cash flow from operating activities includes cash taxes paid of $293 million (2012 – $273 million) and cash interest paid of
$2,699 million (2012 – $2,235 million). Sustaining capital expenditures in the company’s renewable energy operations were
$79 million (2012 – $55 million), in its property operations were $215 million (2012 – $97 million) and in its infrastructure
operations were $66 million (2012 – $79 million).
During the year, the company has capitalized $197 million (2012 – $238 million) of interest primarily to investment properties
and residential inventory under development.
Included in cash and cash equivalents is $3,128 million (2012 – $2,102 million) of cash and $535 million of short-term deposits
at December 31, 2013 (2012 – $748 million).
32. SUBSEQUENT EVENT
On February 12, 2014, BPY announced the commencement of its exchange offer to acquire any or all of the common shares
of BPO that it does not currently own (the “Offer”). Under the terms of the Offer, each BPO shareholder can elect to receive
consideration per BPO common share of either 1.0 limited partnership unit of BPY or $20.34 in cash, subject in each case to
pro-ration based on a maximum number of BPY’s limited partnership units and maximum cash consideration equating to 67%
and 33%, respectively, of the total number of BPO common shares subject to the Offer. On March 20, 2014, BPY announced that
BPO shareholders tendered 195.9 million common shares pursuant to the Offer and extended the Offer until March 31, 2014.
BPY now owns, directly or indirectly, 84.4% of the issued and outstanding common shares of BPO on a fully-diluted basis.
2013 ANNUAL REPORT 145
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 harbour” 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.
146 BROOKFIELD ASSET MANAGEMENT
BROOKFIELD’S COMMITMENT TO CORPORATE SOCIAL RESPONSIBILITY
As owners of long-life assets, we recognize Brookfield’s future success depends on the long-term health of the communities in
which we do business and the environment in which we operate. That view drives the company’s commitment to corporate social
responsibility. At Brookfield, we believe that sustainable business practices are linked to the creation of long-term wealth for
our shareholders, and we strive for excellence in environmental sustainability, workplace safety and corporate governance in all
our operations. The Board of Directors and management consider corporate social responsibility to be a high priority, shaping
the company’s strategy and decisions. We are committing the resources needed to make a positive, lasting social impact in all
we do. As the company grows and becomes more global in scope, we see increased opportunities to improve our commitment
to building a better world. Across Brookfield, our corporate social responsibility initiatives are broadly focused on two themes:
•
•
Sustainable Growth
Community Engagement
Sustainable Growth
Brookfield has more than 100 years of experience as an operator of real assets – property, renewable energy, infrastructure and
private equity – and has built an expertise in sustainable investing. This includes an ongoing commitment to reduce greenhouse
gas emission and improve our efforts on energy and water conversation, recycling, wildlife preservation, reforestation and
erosion control. We participate in global benchmarking of our sustainability initiatives. As our portfolio expands, we are finding
new ways to incorporate sustainability into our operations. For example, our newly acquired warehouse properties use energy-
saving, sustainable building practices that include skylights to reduce artificial lighting and storm water systems that store rain
for use in irrigation. This approach is good for the environment and good for business, as it translates into lower utility bills,
better worker productivity and higher occupancy rates.
Property
In our global property operations, we provide responsible environmental solutions and energy-saving strategies to our tenants
and our communities. We achieve this goal through an approach that is based on three principals which guide our actions on
sustainability:
•
•
•
Develop, operate and renovate properties to reduce carbon emissions and achieve optimum energy efficiency and occupant
satisfaction.
Incorporate innovative environmental strategies to achieve best-in-industry sustainability performance in new developments
and in retrofitting and redesign of existing properties.
Support industry initiatives that foster energy- and resource-efficient property operations, and seek the highest standard of
environmental certification.
For our clients, sustainability is a priority and we strive to exceed their expectations by constantly improving our properties.
In North America, the standard environmental excellence is the Leadership in Energy & Environmental Design or LEED
designation. We received this certification on four buildings over the course of the year, with 41 Brookfield properties now
LEED certified. Moving forward, we have pledged to build all future office developments to a minimum of LEED Gold or its
local equivalent. Our newest development project in Toronto, Bay Adelaide East, will achieve LEED Platinum status, signifying
the highest level of sustainable design. Our properties also meet or exceed recognized environmental standards in Australia,
South America and Europe.
Within our buildings, Brookfield is working with tenants to increase awareness of sustainability and incorporate best practices
in environmental management. Our employees take part in ongoing education programs focused on the latest initiatives in
sustainable development and many have been certified with sustainable building management designations. This knowledge has
enabled Brookfield to launch property programs that include energy efficient transportation, such as car pools and biking, and
tenant energy reporting portals, which allow our clients to better understand and control their electricity use. We have launched
water reduction programs in our office properties, resulting in a 15% decline in water use at our Canadian portfolio over the
past five years. We installed electric vehicle charging stations in 10 office buildings last year, and 45 Brookfield properties now
feature these facilities.
Renewable Energy
With approximately 200 hydro stations and 11 wind farms on three continents, Brookfield is one of the world’s largest suppliers
of renewable energy. In 2013, we added to our expertise with our first solar power project, located in Puerto Rico, and by making
our first investments in European wind farms, an entry into the most sophisticated renewable energy market in the world. In an
average year, our $19 billion portfolio provides enough clean electricity to supply approximately two million homes, offsetting
power generation that may otherwise increase greenhouse gas emissions. The ability of our hydro assets to produce energy
at peak periods and conserve water during off-peak periods meets an important social need, as we deliver clean power when
demand is at its highest.
2013 ANNUAL REPORT 147
Brookfield’s renewable energy operations meet or exceed sustainability standards set by industry groups such as the U.S. Low
Impact Hydropower Institute and the Canadian Electricity Association. In 2013, the London-based Climate Bond Institute
designated a $440 million wind farm debt offering from one of our subsidiaries as a “green bond” issue in the Canadian fixed
income market, and called this a “significant breakthrough” in climate mitigation.
Infrastructure
Our $29 billion infrastructure portfolio includes 3.8 million acres of timberlands under management in North and South America
and 580,000 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 agriculture assets, we incorporate sustainable harvesting
practices, along with our own internal standards and regulations set down in government statutes in 14 states and provinces
located in three countries. Our timber operations meet or exceed measures set under the U.S. Sustainable Forestry Initiative®
(SFI 2010-2014 Standard).
Community Engagement
We encourage and support a culture of philanthropy and volunteerism among our employees and around the world. Brookfield
and its people contribute to their communities. The commitment shows in everyday activities in support of charities, and in
exceptional contributions during times of need, such as donations to the recovery efforts following the typhoon in the Philippines
in 2013.
All of our employees are encouraged to participate in community activities and fund raising, and our executives hold leadership
positions on the boards and capital campaigns at major charities and public institutions, such as hospitals and universities. Our
Brookfield Partners Foundation supports health care, education and cultural initiatives. In many cases, the company matches
charitable donations by employees.
Our arts and events program, Arts Brookfield, has been in operation for 25 years and staged more than 400 events in 2013,
including concerts, exhibitions and public art installations. These programs are offered free to the public and staged in public
spaces at our flagship properties in North and South America, Australia and Europe.
An Ongoing Commitment
We are proud of our track record for leadership in corporate social responsibility, but we recognize that can always do more.
Looking ahead, we will strive to improve our approach to sustainable growth and community engagement. We look forward to
reporting on our performance in years to come.
Brookfield’s Commitment to Corporate Governance
On behalf of all shareholders, the Board of Directors and management of the Corporation are committed to excellence in
corporate governance at all levels of the organization. We believe the Corporation’s directors are well equipped to represent
the interests of the Corporation and its shareholders, with an independent chair leading a board that features global business
experience and proven governance skills. We continually strive to ensure that we have sound governance practices to maintain
investor confidence. We constantly review our approach to governance in relation to evolving legislation, guidelines and best
practices. Our Board of Directors is of the view that our corporate governance policies and practices and our disclosure in this
regard are appropriate, effective and consistent with the guidelines established by Canadian and U.S. securities regulators.
Our Board of Directors believes that communication with shareholders is a critical element of good governance and the board
encourages all shareholders to express their views, including by way of an advisory shareholder resolution on executive
compensation which is voted on annually by holders of Class A shares.
The Corporation outlines its commitment to good governance in the Statement of Corporate Governance Practices (the Statement)
that is published each year in the Corporation’s Management Information Circular and mailed to shareholders who request it.
The Statement is also available on our website, www.brookfield.com, at “About Brookfield/Corporate Governance.”
Shareholders can also access the following documents that outline our approach to governance on our website: the 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.
148 BROOKFIELD ASSET MANAGEMENT
SHAREHOLDER INFORMATION
Shareholder Inquiries
Shareholder inquiries 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 inquiries relating to dividends, address changes and share
certificates should be directed to our Transfer Agent:
CST 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
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 2013 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 2014 Annual Meeting of Shareholders will be held at 10:30 a.m.
on Wednesday, May 7, 2014 in Design Exchange, 234 Bay Street,
Toronto, Ontario, Canada.
Stock Exchange Listings
Dividend Reinvestment Plan
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 22
Series 24
Series 26
Series 28
Series 30
Series 32
Series 34
Series 36
Series 37
Series 38
BAM.PR.B Toronto
BAM.PR.C Toronto
BAM.PR.E
Toronto
BAM.PR.G Toronto
BAM.PR.J
Toronto
BAM.PR.K Toronto
BAM.PR.L
Toronto
BAM.PR.M Toronto
BAM.PR.N Toronto
Toronto
BAM.PR.P
BAM.PR.R Toronto
BAM.PR.T
Toronto
BAM.PR.X Toronto
Toronto
BAM.PR.Z
Toronto
BAM.PF.A
Toronto
BAM.PF.B
Toronto
BAM.PF.C
Toronto
BAM.PF.D
Toronto
BAM.PF.E
The Corporation has a Dividend Reinvestment Plan which enables
registered holders of Class A Limited Voting Shares (“Class A
Shares”) who are resident in Canada and the United States to receive
their dividends in the form of newly issued Class A shares.
Registered shareholders of our Class A shares who are resident in
the United States may elect to receive their dividends in the form of
newly issued Class A 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 shares who are resident
in Canada may also elect to receive their dividends in the form of
newly issued Class A 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 and Class B Shares 1
Last day of February, May, August and November2
Last day of March, June, September and December3
Record Date
Payment Date
Class A Preference Shares 1
Series 2, 4, 12, 13, 17, 18
22, 24, 26, 28, 30, 32, 34, 36, 37 and 38
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
2. Beginning May 31, 2014
3. Beginning June 30, 2014
2013 ANNUAL REPORT 149
BOARD OF DIRECTORS AND OFFICERS
BOARD OF DIRECTORS
Jeffrey M. Blidner
Senior Managing Partner,
Brookfield Asset Management Inc.
Jack L. Cockwell
Group Chair,
Brookfield Asset Management Inc.
Marcel R. Coutu
Former President and Chief
Executive Officer,
Canadian Oil Sands Limited
J. Bruce Flatt
Chief Executive Officer,
Brookfield Asset Management Inc.
Robert J. Harding, o.c., f.c.a.
Past Chairman,
Brookfield Asset Management Inc.
Maureen Kempston Darkes, o.c., o.ont.
Former President, Latin America, Africa and
Middle East, General Motors Corporation
Lord O’Donnell
Former Cabinet Secretary and
Head of the British Civil Service
David W. Kerr
Chairman, Halmont Properties Corp.
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
Youssef A. Nasr
Former Chairman and CEO of HSBC
Middle East Ltd. and former
President of HSBC Bank Brazil
James A. Pattison, o.c., o.b.c.
Chief Executive Officer,
The Jim Pattison Group
Seek Ngee Huat
Former Chairman of the Latin
American Business Group,
Government of Singapore
Investment Corporation
Diana L. Taylor
Managing Director,
Wolfensohn Fund Management
George S. Taylor
Corporate Director
Details on Brookfield’s directors are provided in the Management Information Circular and on Brookfield’s website at www.brookfield.com.
SENIOR MANAGING PARTNERS
Jon Haick
Brian Kingston
Brian D. Lawson
Richard Legault
Luiz Lopes
Cyrus Madon
George Myhal
Lori Pearson
Samuel Pollock
William Powell
Sachin Shah
Benjamin Vaughan
Barry Blattman
Jeffrey Blidner
Ric Clark
J. Bruce Flatt
Joseph Freedman
Harry Goldgut
CORPORATE OFFICERS
J. Bruce Flatt
Chief Executive Officer
Brian D. Lawson
Chief Financial Officer
A.J. Silber
Corporate Secretary
150 BROOKFIELD ASSET MANAGEMENT
Brookfield incorporates sustainable development practices within our corporation.
This document was printed in Canada using vegetable-based inks on FSC certified stock.
www.brookfield.com NYSE: BAM TSX: BAM.A EURONEXT: BAMA
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
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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
99 Bishopsgate, 2nd Floor
London EC2M 3XD
United Kingdom
T 44 (0) 20.7659.3500
F 44 (0) 20.7659.3501
Hong Kong
Suite 2302, Prosperity Tower
39 Queens Road Central
Central, Hong Kong
T 852.2143.3003
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Dubai – UAE
Level 1, Al Manara Building
Sheikh Zayed Road
Dubai, UAE
T 971.4.3158.500
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Rio de Janeiro – Brazil
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CEP: 71.635.250
T 55 (21) 3527.7800
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Mumbai
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