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Annual Report
A Global Alternative Asset Management Company
Brookfield
OUR BUSINESS
Brookfield Asset Management Inc. is a global alternative asset manager with over
$200 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 listed on the New York, Toronto, and Euronext stock exchanges under the
symbols BAM, BAM.A, and BAMA respectively.
Canada
$23 billion AUM
3,300 employees
UK, Europe &
Middle East
$12 billion AUM
5,900 employees
United States
$134 billion AUM
5,800 employees
South America
$20 billion AUM
10,300 employees
Asia & Australia
$15 billion AUM
2,200 employees
AUM – Assets Under Management
Brookfield Asset MAnAgeMent PERfORMANCE RECORd
As AT ANd for ThE YEArs ENdEd dEcEmBEr 31
2014
2013
20121
20111
2010
PEr fullY diluTEd shArE
Net income
Funds from operations
market trading price – NYsE
ToTAl (millioNs)
Total assets under management
Consolidated results
Balance sheet assets
Equity
Revenues
Net income
Funds from operations
Diluted number of common shares
outstanding
Note: see “use of Non-ifrs measures” on page 16
1. reflects Adoption of 2013 Accounting standards
$
4.67 $
3.12 $
1.97 $
2.89 $
3.17
50.13
5.14
38.83
1.94
36.65
1.76
27.48
2.33
2.37
33.29
$ 203,840 $ 187,105 $ 181,400 $ 160,338 $ 121,558
129,480
112,745
108,862
53,247
18,364
5,209
2,160
655.5
47,526
20,830
3,844
3,376
651.1
44,338
18,766
2,755
1,356
658.0
91,236
37,489
15,988
3,682
1,211
657.2
78,131
29,192
13,623
3,195
1,463
616.1
CONtENtS
Letter to Shareholders
3
Consolidated Financial Statements 83
Corporate Social Responsibility
MD&A of Financial Results
Internal Control Over Financial
Reporting
10
79
Cautionary Statement Regarding
Forward-Looking Statements and
Information
150
Shareholder Information
Board of Directors and Officers
151
154
155
2014 ANNUAL REPORT 1
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
2 BROOKFIELD ASSET MANAGEMENT
LETTER TO SHAREHOLDERS
Overview
We reported strong funds from operations (FFO)
and net income in 2014. Consolidated net income
was $5.2 billion or $4.67 per share. FFO for
shareholders was $2.2 billion or $3.17 per share.
This was achieved through strong growth in fees
and excellent results from most of our businesses.
Our institutional and sovereign fund clients
continue to both grow their
funds under
management and allocate larger portions of their
funds to real asset strategies. We currently are
marketing ± $11 billion of funds with expectations
for another $10 billion to be launched by the
end of this year. These are on top of our listed
strategies which are always open and increased
by $4 billion in 2014, and our flagship listed
partnerships, which grew by $9 billion during the
year.
Investment Performance
The performance of most investment strategies
was positive in 2014. The exceptions were those
associated with oil, Russia, some emerging
markets, and commodities in general. Thankfully,
our direct exposure to these asset classes was
small or ancillary.
Our overall stock performance
inclusive of
dividends for 2014 was exceptional, with a
31% return on the NYSE. For our large base
of Canadian investors, our performance was
even greater on the TSX, as we are a U.S. dollar
denominated security, and provided additional
returns due to an increase in the value of the U.S.
dollar in 2014. This resulted in a 43% return on
the TSX.
While some of this return was merely a continued
recovery in the stock price following an unjustified
movement downward in sympathy of broad
market declines in 2008/09, no shareholder
should come to expect consistent returns at these
levels over the longer term.
Most importantly, the compound shareholder
return over the last 20 years is 19%, which
investment
compares well with most other
alternatives. This should instill some confidence
in our ability to execute on our plans and enable
us to achieve our goal of generating 12% to 15%
compound returns over the longer term.
Investment
Performance
Brookfield
NYSE
S&P 500
10 Year
Treasuries
1
5
10
20
31%
21%
15%
19%
14%
15%
8%
10%
9%
6%
6%
6%
Market Environment
The business news of the last three months of
2014 was dominated by the movement in the
price of oil and the dramatic shifts that have come
about with this change. Despite much drama over
potential negative consequences of this trend,
overall, it is important to realize a decline in oil
prices is a positive factor for many businesses
and many countries. Of course, this is not the
case for the large oil generating countries, many
of whom depend on oil for their budgets, or the
marginal shale and oil sands producers. But from
a global perspective, lower oil prices are good for
many economies.
The more important issue was the suddenness of
the move in energy prices. While everyone knew
that greater amounts of oil were being produced
from oil sands and shale, virtually nobody
predicted a 50% drop in the price of oil within
a six month period. Despite this radical shift,
markets always adjust, and while some countries
and companies will have issues, others will benefit
dramatically. In this context, we believe there
will be many opportunities for our businesses
to capitalize on investments in or around the oil
sector.
The U.S. economy continues to strengthen at a
slow but relatively steady pace. Virtually all of our
U.S. businesses are showing strong results, led
by excellent luxury retail sales at our shopping
malls, a greater number of office leases in the
New York City market than we have seen in years,
power price increases across almost all markets
and single family housing results that are far
better than anyone would expect if they merely
read the newspaper headlines. While this means
that we are not acquiring major assets in the U.S.
today due to relatively high valuations, it means
that our North American businesses are doing
well.
Interest rates look like they will be lower for
longer than most experts expected. A large part
2014 ANNUAL REPORT 3
is because central banks continue to be worried
about deflation and therefore do not want to
take their foot off the accelerator until they truly
know that growth is back to stay. Central banks
do not appear to be worried about inflation, as
the developed world shows no signs of it and the
banks possess time-tested methods to tame any
form of inflation that might come about. Their
worry continues to be deflation settling in after all
they have done to re-energize the global economy.
This situation is particularly acute in Europe. In
this environment, real assets and the cash flows
they generate continue to be valued by investors,
in particular when compared to the non-existent
returns offered by government bonds.
Over the next ten years, our view is that interest
rates will remain at levels that are supportive
of a continued shift away from traditional bond
investments towards higher yielding alternatives
such as real assets in the institutional investment
world. These types of assets generate predicable
cash, have equity like features with growing cash
flows and generally provide inflation protection,
should inflation eventually come about. As a
result, we continue to see institutional investors
shifting capital into real assets, particularly
towards platforms with the flexibility to capitalize
on relative valuations across the global landscape.
We continue to establish our company as one of
the world’s leading real asset managers in order
to generate superior returns for clients, while
preserving their capital.
Priorities for 2015
In a large business it is always difficult to list
the few major priorities. With the proviso that
these are overly simplistic and high level, our top
priorities for 2015 are as follows:
•
Investment Themes – While one of our
strengths is our ability to always be flexible
and respond to change, broadly speaking
our overall investment themes for 2015 are
related to commodities, Brazil and Europe.
With respect to commodities, we believe
there will be many opportunities to acquire
assets from, or provide capital to companies
involved in oil and other commodities. This
may generate opportunities for all of our
businesses, but in particular infrastructure
and private equity. With respect to Brazil,
4 BROOKFIELD ASSET MANAGEMENT
there is a lack of capital in this market and
given our broad platform, we think all of our
businesses will find opportunities in 2015. In
Europe, governments, companies and banks
continue with significant deleveraging. We
should be able to find further acquisitions for
all our operations in this environment.
• Fundraising for Private Funds – We have two
flagship funds in the market currently, and
should be in a position to launch another
major fund as we complete investing its
predecessor this year. As one of the go-to
global brands for real asset investing, we are
focused on strengthening our global franchise
and generating exceptional returns for our
clients to ensure they continue to invest with
us.
• Flagship Listed Partnerships – Over the past
five years we have consolidated virtually
all of our listed operations into Brookfield
Infrastructure (BIP), Brookfield Renewable
Energy
(BREP) and Brookfield Property
Partners (BPY). The continued investment
success of these partnerships is paramount to
our long-term success, and we are focused on
both generating strong returns and ensuring
that the full intrinsic value is reflected in their
trading values.
• Return on Capital – Our overall goal is to be
the leading global real asset manager and
in the process earn exceptional long-term
returns on a per share basis while never
taking undue risk. In this regard we continue
to generate cash from operations and non-
core asset sales. Over the past five years, these
proceeds have generally been deployed into
consolidating our operations and building our
businesses. In addition, while we target the
repurchase of our own shares, we have not
had the opportunity to repurchase significant
numbers of shares into the treasury as a
result of the stock price appreciating at
a compound 21% over the past five years. But
as we continue to accumulate cash on our
balance sheet, we intend to find opportunities
to repurchase shares in meaningful ways
when we believe we can do so for value.
Streamlining of the Business
We continue to streamline our operations and
work to both optimize our corporate structure
and refine our business strategy. This includes
building our three listed partnerships, and
investing capital within our three flagship private
funds.
Our three main listed partnerships and private
funds enable us to have access to significant
amounts of capital to grow our operations,
across the market cycle. We have streamlined
the business into its main component parts and
do not intend to change much of the structure
going forward. In this regard, BIP and BREP are
now well established and we intend to continue
growing these businesses organically and through
acquisitions as we find opportunity.
In BPY, we continue to transform this portfolio
into the leading global commercial property
company. In 2014, we successfully merged
our publicly traded office portfolio into BPY. To
achieve this, we issued $3.3 billion of BPY shares
and took on $1.7 billion of bridge financing. We
are selling mature assets at attractive valuations
to repay this debt. We sold two office buildings for
approximately $1 billion in Denver and Houston
last year, while retaining property management
responsibilities. In London, we sold an office
property for $500 million that we purchased and
fully let over the past few years. The 2015 addition
of Canary Wharf will further operationalize BPY
and add an incredible portfolio of assets to the
company.
In our private equity business, we consolidated
a number of our operations, sold mature assets
and moved forward with plans to privatize our
residential property companies. We sold Western
Forest Products and announced the merger of
our two oriented strand board (synthetic lumber)
producers.
We have conducted our private equity investing
on our balance sheet and through private funds
for the past 25 years. All of our “opportunistic”
private equity investing is done within in our
private equity funds, and funded with capital
from clients and our balance sheet.
Our other longer term private equity investments
were acquired on our balance sheet. These were
usually businesses which earn us excellent
returns but did not meet the performance targets
set by clients in our private equity strategies,
or investments made before our funds were
investments
established. Examples of these
are our real estate brokerage and relocation
businesses, our construction operations and
other longer term businesses we have owned.
Canary Wharf
Earlier this year we were successful in our bid with
the Qatar Investment Authority (QIA) to acquire
control of Canary Wharf. We made our initial
investment in 2002, increased our investment in
2009, and this most recent purchase will double
our investment once again. To date, the financial
return has been excellent and we expect the
future to be even better.
formation of our
With the
listed property
partnership last year, we decided that as we
relaunch BPY as the leading global property
investor, we should either sell our Canary Wharf
shares or make Canary Wharf into a signature
piece of BPY for the next 20 years. After discussions
with a number of the shareholders and in
particular with our partner, QIA, we decided to
launch a bid to acquire the other approximately
50% of Canary Wharf not owned by the two of us.
Subsequent to year end, we reached agreements
to acquire all of Canary Wharf.
In order to fund the transaction, we agreed to
sell convertible preferred shares of BPY to QIA for
US$1.8 billion and as a result, they have become
a strategic partner with us in BPY. QIA joins our
two other BPY strategic investors, the Australia
Future Fund and Investment Corporation Dubai.
We are thrilled to have all of them as partners.
Canary Wharf is one of the finest pieces of real
estate in the world, with an incredible portfolio
of operating properties and a vast development
portfolio. In addition, the location only gets better
every year. The East End of London continues
to attract significant residential development,
especially given the cost of property in the West
End of the city. When the Crossrail subway
network opens in 2018, the additional access
will be a game changer for this part of London,
with a direct ride from Canary Wharf to Heathrow
Airport.
2014 ANNUAL REPORT 5
consists
of approximately
Canary Wharf
120 acres of land with 35 major properties on
the estate, as well as a retail mall and services
for 100,000 people. The tenant base includes
many of the world’s leading corporations. There
are approximately 11 million sq. ft. of commercial
development rights remaining, and approvals to
build approximately 3,500 residences. We intend
to work with QIA and management to realize on
Canary Wharf’s enormous potential.
Operations
Assets under management are over $200 billion
with fee bearing capital increasing 20% year over
year to $89 billion. The distribution is as follows:
US$ billions
Property
Renewable Energy
Infrastructure
Private Equity and listed strategies
Fee Bearing
Capital
$
$
37
13
18
21
89
Total carried interests accrued during the year
were $178 million and our cumulative carried
interests are now $488 million, with those
amounts to be booked as funds are wound up.
Our expected annualized target carried interests
on private funds are now $375 million based on
current private fund capital, which we believe
will increase meaningfully on completion of our
fundraising objectives. Fee related earnings
increased by 26%, due to the expansion of fee
bearing capital in our listed and private funds, as
well as our public securities mandates. Combined
with base fees and incentive distributions, the
estimated annual run-rate of fees and carried
interests for our franchise is over $1.2 billion and
growing rapidly as we continue to expand our
business.
Performance across our platforms was strong due
to both operational improvements and the sale of
assets for gains. This has resulted in attractive
returns for our private funds and continued FFO
growth and distribution increases in our listed
funds. In our public markets 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.
These excellent returns generated $21 million of
performance fees in 2014.
Brookfield Property Group
Our property group recorded solid performance,
with our portion of the FFO increasing 60% year
over year to $884 million. This reflected excellent
returns from our U.S. retail property portfolio,
improvements in office leasing, the acquisition
of the remainder of our office portfolio, growth
initiatives undertaken in the past five years, and
crystallization of gains on the sale of mature
assets. Total return of BPY in the stock market
was 20% inclusive of both dividends and stock
appreciation. More importantly, the shares still
trade at far less than intrinsic value and therefore
offer significant upside for all shareholders.
Early in the year we closed the merger of our
office property company into BPY which expanded
the shareholder float by $3.3 billion and further
consolidated our operations. We completed
investing our $4.4 billion global real estate
opportunity fund, which puts us in a position to
launch our next fund.
Retail sales, especially in premier luxury malls,
were strong. Our FFO from our U.S. retail business
grew again at double digit returns and we have
continued to dispose of non-core assets. Office
leasing was strong with major leases executed in
a number of our new developments. In addition,
we signed 2.5 million sq. ft. of new leases with
tenants at Brookfield Place in Lower Manhattan
in conjunction with our multi-phase renovation
and creation of a luxury retail and food themed
entertainment complex. We signed online retailer
Amazon to 500,000 sq. ft. at our new Principal
Place development in London, financial services
based Schroders to 310,000 sq. ft. at our London
Wall development and have signed a letter of intent
with an anchor tenant for in excess of 500,000 sq.
ft. at our first new office tower at Manhattan West
in New York.
We are expanding our multifamily residential
business across the U.S., and we launched
an 800 unit multifamily for-lease residential
project at Manhattan West. We also acquired
in Manhattan and
4,000 multifamily units
launched a 400 unit
for-sale
residential
condominium project adjacent to our Amazon
6 BROOKFIELD ASSET MANAGEMENT
tower in London. In total, we own and operate
approximately 22,000 multifamily units in North
America and Europe.
We signed new leases in our shopping malls at
18% above expiring leases, while new rents in
our office portfolio were 32% above expiring
leases. Our organic development pipeline is
approximately $7 billion and includes flagship
office buildings in Sydney, London, Toronto
and New York, in addition to many billions of
development opportunities at Canary Wharf.
Brookfield Renewable Energy Group
Our renewable energy business benefitted from
an expanded portfolio of hydroelectric assets
and higher prices on sales of un-contracted
the FFO
electricity, with our portion of
contributing $313 million. Inclusive of dividends,
the share price of BREP generated a 24% return
during 2014. This return is exceptional given
the company’s long-term returns, but as a result
of acquisitions in Europe and North and South
America, we should be able to generate strong
returns looking forward as well.
We acquired almost 1,000 megawatts of hydro
facilities in the U.S. following our theme of
using this point in time of low energy prices to
acquire plants on “good” returns if power prices
stay low, but adding substantial upside to the
portfolio when prices trend higher; which we
believe is inevitable. These acquisitions included
a 417 megawatt hydro facility in Pennsylvania
acquired for $900 million.
In Ireland, we closed the acquisition of a
700 megawatt operating and development
wind portfolio which to date has exceeded
our expectations. As important as the assets
themselves, we added a team in Europe to augment
our acquisition group in London and we expect to
find a number of investment opportunities in the
continued distress of the European renewables
market.
We continued our growth in Brazil, agreeing
to acquire 500 megawatts of plants which are
a combination of hydro, wind facilities and
biomass. The hydro facilities are tuck-ins to
our major Brazilian business. The wind assets,
our first in Brazil, will enable us to expand our
global wind portfolio. Biomass, while new to our
renewable group, is not new to Brookfield. We
operate a major agriculture business in Brazil.
With sugar cane as one of our main crops, these
biomass facilities burn the waste product after
the sugar is extracted from the sugar cane. We
have been observing these facilities for years at
our customers’ operations, and think this is an
excellent entry point for our renewable business
into a promising growth sector.
approximately
Looking
ahead, we have
2,000 megawatts of projects available
for
development. We also have a team that has
consistently delivered new hydro and wind
facilities on time and on budget. These organic
opportunities, along with potential acquisitions
should significantly increase our future FFO from
our renewable energy group.
Brookfield Infrastructure Group
initiatives and acquisitions
Organic growth
over the past three years are now contributing
to excellent performance in our infrastructure
group, with our portion of the FFO rising 11% on
a ‘same store’ basis to $222 million in 2014. We
increased the scale of this business over the last
year and are well positioned for future growth.
Our flagship listed issuer, BIP, generated a 12%
return inclusive of dividends in 2014, with a
compound return of 26% over the past five years.
During the year, we deployed approximately
$1.1 billion on expansion initiatives, which will
add to future FFO.
We continued to make add-on acquisitions for
our district energy business, which supplies
environmentally friendly heating and cooling
systems. We acquired a major facility in Chicago
and networks in Seattle, Las Vegas, Akron,
Houston and Tulsa. We can expand these
systems by building out the network and adding
customers. The synergies and cost of capital
benefits of financing have been significant and we
continue to pursue this roll-up strategy. We also
acquired U.S. natural gas storage businesses at
what we believe to be an attractive time in the
cycle. We expanded our South American toll road
and railroad portfolios, and there are significant
organic growth initiatives underway in these
businesses.
2014 ANNUAL REPORT 7
We added a telecom and broadcast tower
infrastructure business to our portfolio through
the acquisition of 50% of TDF telecom which owns
6,700 cellphone and telecom towers covering most
of the country of France, including the broadcast
facilities in the iconic Eiffel Tower. It is virtually
impossible to replicate this network and while the
broadcast and telecom industry changes fast, we
believe the continued ramp up of mobile internet
use is highly positive for this business. Further,
as we learn more about these operations, we hope
to both expand the platform and look for similar
opportunities elsewhere.
Iron ore, oil and most other commodity producers
have very substantial in-ground investments
in infrastructure. We have worked with many
companies over the years and have been successful
in acquisitions that see companies raise capital
by outsourcing their infrastructure. However,
many major facilities such as ports, railroads and
pipelines continue to be owned by users, in part
for historic reasons. We believe that the global sell
off in oil and other commodities presents the first
time in years when we will be able to make our
case with major users for significant outsourcing
of resource infrastructure. We hope to show great
progress in 2015.
Brookfield Private Equity Group
Results for 2014 generated FFO of $446 million.
This is our one business where financial results
are always irregular, as they are often driven by
transactional activity.
included
We are close to privatizing both of our ‘for-sale’
housing operations. This
investing
an incremental ±$875 million to acquire our
North American home building company, where
a shareholder vote is pending. This operation
has been one of our most successful long-term
investments for over 25 years but we believe that
it has always been misunderstood in the capital
markets. We intend to develop its land over the
next 25 years which should generate substantial
amounts of cash to us over time. This cash will be
utilized in our overall operations, and to expand
the business. We are confident shareholders will
enjoy this business being tucked away in our
private equity group for a long time.
In Brazil we also privatized the ‘for-sale’ high-rise
condominium business and we are in the midst
of reorganizing the business to be slimmer and
more focused on building high-end properties, in
line with what we build globally.
We sold our Western Forest Products private
equity investment after owning the assets for
over 12 years. Despite some brutal conditions
over the course of the housing cycle, we ended
up generating a 14% return and almost 3 times
multiple on the investment. While not our best
return, given the market we felt it was a great
accomplishment for our operational teams to pull
this off.
Our two oriented strand board producers were
merged together, subject to anti-trust approvals,
and investors in both companies appear to
be pleased with the leading housing products
company that resulted from this merger. With
clients, we will own approximately 53% of the
combined company which should benefit from
cost synergies, revenue opportunities, a larger
float, and the continued recovery of U.S. housing
markets.
We have built the leading North American coal bed
methane producer through a series of acquisitions,
and believe we have created significant value in this
company, which is consistently profitable even at
a time when natural gas prices are relatively low
by historic standards. We also continue to work
as a participant in the reorganization of Energy
Future Holdings, a Texas utility, and created a
separate private equity account to own upwards
of $2.5 billion of face value of debt with some of
our clients.
Strategy and Goals
Our strategy is to provide world-class alternative
asset management services on a global basis,
focused on real assets such as property, renewable
infrastructure, and private equity
energy,
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.
8 BROOKFIELD ASSET MANAGEMENT
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.
letter, I
And, while I personally sign this
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 13, 2015
Our primary long-term goal is to achieve 12% to
15% compound 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
low variable
investment, have relatively
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 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.
2014 ANNUAL REPORT 9
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, 2014. This MD&A should be read in conjunction with our 2014 annual consolidated
financial statements and related notes and is dated March 26, 2015. Unless the context indicates otherwise, references in this MD&A
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. The company’s financial statements 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.
Additional information about the company, including our 2014 Annual Information Form, is available 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. We are a “foreign private issuer” as such term is defined
in Rule 405 under the U.S. Securities Act of 1933, as amended, and Rule 3b-4 under the U.S. Securities Exchange Act of 1934, as
amended. As a result, among other things, we prepare our financial statements in accordance with applicable Canadian laws and do not
apply U.S. GAAP to our financial statements or reconcile our financial statements to U.S. GAAP. In addition, we are an eligible issuer
under the Multijurisdictional Disclosure System (“MJDS”). Pursuant to MJDS, we comply with U.S. continuous reporting requirements
by filing our Canadian disclosure documents with the SEC.
Organization of the MD&A
PART 1 – Overview and Outlook
Our Business
Strategy and Value Creation
Economic and Market Review
and Outlook
Basis of Presentation and Use of
Non-IFRS Measures
PART 2 – Financial Performance
Review
Selected Annual Financial
Information
Annual Financial Performance
Financial Profile
Quarterly Financial Performance
Corporate Dividends
PART 3 – Operating Segment Results
Basis of Presentation
Results by Operating Segment
Asset Management
Property
Renewable Energy
Infrastructure
Private Equity
Residential Development
Service Activities
Corporate Activities
33
35
37
40
43
45
47
48
49
49
PART 4 – Capitalization and Liquidity
51
51
56
Financing Strategy
Capitalization
Interest Rate Profile
11
12
13
15
17
18
25
30
32
Liquidity
Review of Consolidated Statements
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
Internal Controls
Related Party Transactions
56
58
59
60
61
61
62
75
78
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 and key financial measures
contained in the MD&A.
Part 2 discusses our annual and fourth quarter financial results utilizing key financial measures contained in our Consolidated Statements
of Operations, Consolidated Statements of Comprehensive Income and Consolidated Balance Sheets.
Part 3 discusses the results of our various operating segments based on segmented financial measures, including Funds from Operations
and Common Equity by Segment, certain of which are non-IFRS measures.
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 harbor” 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 150.
We disclose a number of financial measures in this Report that are calculated and presented using methodologies other than IFRS.
We utilize these measures in managing the business, including performance measurement, capital allocation and for 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 the 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.
10 BROOKFIELD ASSET MANAGEMENT
PART 1 – OVERVIEW AND OUTLOOK
OUR BUSINESS
Brookfield is a global alternative asset manager with over $200 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 in these
assets. We earn asset management income including fees, carried interests and other forms of performance income for doing
so. As at December 31, 2014, our managed funds and listed partnerships represented $89 billion of invested and committed fee
bearing capital. These products include publicly listed partnerships 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 portfolios of listed securities through a series of segregated accounts and mutual funds.
We align our interests with clients’ by investing alongside them and have $27 billion of capital invested in our listed partnerships
and private funds, based on IFRS carrying values.
Our business model is simple: (i) raise pools of capital from ourselves and clients that target attractive investment strategies,
(ii) utilize our global reach to identify and acquire high-quality assets at favourable valuations, (iii) finance them on a
long-term basis, (iv) enhance the cash flows and values of these assets through our operating platforms to earn reliable, attractive
long-term total returns, and (v) realize capital from asset sales or refinancings when opportunities arise.
Organization Structure
Our operations are organized into five principal groups (“operating platforms”). Our property, renewable energy, infrastructure
and private equity 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 partnerships and private funds which are managed by us
and are funded with capital from ourselves and our clients. A fifth group operates our public markets business, which manages
portfolios of listed securities on behalf of clients.
We have formed a large capitalization listed partnership entity in each of our property, renewable energy and infrastructure
groups, which serves as the primary vehicle through which we invest in each respective segment. As well as owning assets
directly, these partnerships serve as the cornerstone investors in our private funds, alongside capital committed by institutional
investors. 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.
Our balance sheet capital is invested primarily in our three flagship listed partnerships, Brookfield Property Partners L.P. (“BPY”
or “Brookfield Property Partners”); Brookfield Renewable Energy Partners L.P. (“BREP” or “Brookfield Renewable Energy
Partners”); and Brookfield Infrastructure Partners L.P. (“BIP” or “Brookfield Infrastructure Partners”), 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
Listed
Partnerships
62%2
Brookfield
Property Partners
(BPY)
63%2
28%2
100%
Brookfield Renewable
Energy Partners
(BREP)
Brookfield
Infrastructure Partners
(BIP)
Brookfield
Capital Partners3
Private
Funds
Brookfield
Property
Funds
Brookfield
Infrastructure
Funds
Brookfield
Private Equity
Funds
Directly Held
Investments
1.
2.
3.
Includes asset management and corporate activities
Economic ownership interest, see page 34 for further details
Privately held, includes private equity, residential development and service activities
2014 ANNUAL REPORT 11
STRATEGY AND VALUE CREATION
Our business is centred around the ownership and operation of real assets, which we define as long-life, physical 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 to continuously
increase returns. Our operating platforms include approximately 30,000 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, productivity and returns.
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 strive to finance our operations on a long-term, investment-grade basis, and most of our capital consists of equity and
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 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 own our businesses in a manner that maximizes 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.
12 BROOKFIELD ASSET MANAGEMENT
ECONOMIC AND MARKET REVIEW AND OUTLOOK
(As at January 31, 2015)
The predictions and forecasts within our Economic and Market Review and Outlook are based on information and assumptions
from sources we consider reliable. If this information or these assumptions are not accurate, actual economic outcomes may
differ materially from the outlook presented in this section. For details on risk factors from general business and economic
conditions that may affect our business and financial results, refer to Part 5 – Operating Capabilities, Environment and Risks.
Overview and Outlook
Despite a weak start to the year, the recovery in the U.S. now seems firmly entrenched and could deliver 3.0% growth over
the next couple of years as lower oil prices drive consumer activity and residential construction picks up to match household
formation and other positive trends. In contrast, lower oil prices will be negative for real GDP growth in Canada, which will
see growth slow to 2.0% and economic activity rotate from Western commodity-oriented provinces to Eastern manufacturing-
oriented ones. The recovery in the United Kingdom continues and it should achieve growth of about 2.5% in 2015. The Eurozone
struggles to generate growth and will likely only expand by about 1.0% in 2015. Inflation remains extremely weak and is trending
lower, and while a more aggressive European Central Bank should offset the risks of a deflationary spiral, lower oil prices will
keep inflation measures subdued for most of 2015. Brazil is also struggling to grow as a number of near-term challenges are
weighing on economic activity. Forecasters are rightly pessimistic that Brazil will see weak real GDP growth in 2015 below
1% but they have become overly pessimistic about Brazil’s long-term prospects. Real GDP growth in China slowed to 7.4% in
2014 and will slow further in 2015 as the economy transitions away from an investment-led, export-driven economic model to
a more balanced model where domestic demand and consumption play an increasingly important role. Australia is being caught
up in this transition and it too will have to adjust to a slowdown in mining investment that had been supporting China’s rapidly
increasing demand for commodities. Lower oil prices and a weaker Australian dollar will ease the adjustment somewhat, but
growth will still likely slow to 2.5% this year.
United States
While the contraction in U.S. real GDP at the start of 2014 caused some to question the robustness of the U.S. recovery, a strong
back half of the year suggests the U.S. is now growing at about 3.0%, a solid rate for the world’s largest economy. This is in spite
of the fact that U.S. housing starts remain stuck around 1 million units, about 500,000 units below levels consistent with long-
term support for population growth and household formation. In addition, the sharp decline in oil prices at the end of the year
will be a net positive for U.S. growth, even if lower oil prices takes some momentum out of investment in the U.S. energy sector.
These factors reinforce our view that the U.S. is on track to achieve 3.0% or higher growth in 2015. The strength of the U.S.
economy has correlated to a much stronger U.S. dollar, which has appreciated more than 10-15% on a trade-weighted basis since
mid-2014. Most of the appreciation is supported by interest rate spreads favouring the U.S. dollar at the front end of relative rates
curves, with many global central banks cutting rates in response to weaker commodity prices and sluggish domestic growth. The
global divergence in monetary policy will continue into 2015 and should be supportive of further gains in the U.S. dollar. Given
the structure of the U.S. current account, we do not see this as a major risk to the U.S. recovery.
Canada
Canada recorded 2.4% real GDP growth in 2014 but this will likely slow to about 2.0% in 2015 as the sharp fall in oil prices
and the nearly 20% decline of the Canadian dollar will see the drivers of GDP growth in Canada shift from western commodity-
oriented provinces to eastern manufacturing-oriented provinces. This adjustment will take some time, as investment in the oil
and gas sector – representing about 30% of total business investment – is reduced. The negative impact of these cuts will initially
only be partly offset by an improvement in non-energy export sector, which will benefit from stronger U.S. growth and a weaker
Canadian dollar. Encouragingly, non-energy exports were already picking up in the second half of 2014 but a fuller transition is a
multi-year process. As would be expected, the weaker growth outlook in Canada is driving a further wedge between expectations
for Canadian and U.S. interest rates, particularly following the surprise rate cut by the Bank of Canada in January, and this will
continue to put downward pressures on the Canadian dollar in 2015.
United Kingdom
Real GDP in the UK grew by 2.7% in 2014, its fastest pace of growth since 2007 and capping a year that saw growth and
employment surprise on the upside. Despite stronger economic activity, wage growth and inflationary pressures remain muted.
Both headline and core inflation are below the Bank of England’s 2% target and the fall in oil prices will see headline inflation
fall well below 1% in 2015. Longer term, lower oil prices will be positive for growth in the UK due to the benefit for consumers,
but renewed volatility in the Eurozone and a general election in May could mean that the Bank of England maintains its short-
term interest rate at 0.5% for the rest of 2015, as markets are currently pricing. While we expect real GDP growth in the UK
to be a steady 2.5% in 2015, we are conscious of the risks created by large fiscal and current account deficits. The United
Kingdom’s fiscal deficit-to-GDP stood at 5.2% in 2014 and the current account balance was approximately 5.1% of GDP. At the
moment, it is difficult to foresee a scenario where London financial markets and UK assets lose their attractiveness as a haven
for global capital flows. However, lower reserve accumulation in energy exporting nations (mainly Middle East and Russia) as
2014 ANNUAL REPORT 13
well as potential headline political risks surrounding the May election raise our level of concern about the durability of external
financing of the twin deficits at current exchange rates.
Eurozone
The Eurozone continued to see sluggish growth of only 0.8% in 2014 and the sharp decline in oil prices pushed inflation to
-0.6% on a year-over-year basis at the start of 2015. As was widely expected, the European Central Bank officially launched its
quantitative easing program – committing to monthly purchases of €60 billion of government bonds and asset-backed securities
until September 2016. The timing of the European Central Bank’s program comes at a time when the Eurozone continues to
struggle to generate growth. While low interest rates, a weakening of the Euro and lower oil prices will help boost Eurozone
growth, member states still need to address high debt levels and more has to be done to address the fundamental structural
constraints of the currency union. Greece’s debt-to-GDP ratio is still 175% and Portugal and Italy have debt-to-GDP ratios above
130%. The current confrontation between Greece and its creditors is the latest, and probably most extreme, manifestation of
this underlying problem but we believe the economic and political fallout from these high debts will continue to be a prominent
theme in the Eurozone for many years to come. We are patiently watching private sector credit measures for signs that monetary
policy measures are inducing credit expansion within the Eurozone. While the deleveraging continues, its pace has slowed and
points to an expansion in early to mid-2015. This will be a necessary condition for Eurozone inflation and growth to resume.
Brazil
Brazil’s real GDP slowed to just 0.2% in 2014 as manufacturing and investment contracted, causing forecasters to become
even more pessimistic about Brazil’s outlook. Measures of confidence in the Brazilian economy have fallen below levels seen
during the global financial crisis. Many near-term challenges remain, including the extremely dry conditions which have sent
spot electricity prices to historic highs given the hydro-dominated nature of Brazil’s electricity supply. High power prices have
caused certain electricity-intensive industrials to shut down production and sell power back to the grid. Another factor behind
the pessimism is the uncertain impact that the decline in commodity prices will have on Brazil’s economy, whose exports have
increasingly become dominated by commodities. The price of iron ore, Brazil’s largest commodity export, has fallen over 60%
over the past three years and soybean prices are down 25%. Despite stagnant GDP growth, inflationary pressures have remained
high, regularly exceeding the upper limit of the Brazilian Central Bank’s inflation target and reflecting a structural deficit in
investment. This has not only prevented the central bank from being more accommodative, but actually forced it to raise its
interest rate (SELIC) by 175 bps in 2014 and by a further 50 bps in early 2015, which has slowed domestic credit growth and
weighed on consumption. Public finances have also deteriorated in 2014, with Brazil recording its first primary deficit since
2001. Longer term, we are still confident that growth will return to Brazil’s 3-4% potential. It will take time to work through
current challenges but the weakening of exchange rates should increase the competitiveness of domestic industries and improve
Brazil’s trade balance. The currency has already fallen approximately 40% since 2011 and we are beginning to see a positive
contribution to GDP from net exports.
China
China’s real GDP growth slowed to 7.4% in 2014 and is expected to slow further in 2015, with many suggesting growth could
come in below 7.0% in 2015 and continue to slow as the economy rebalances away from a model that has become overly
dependent on investment. While slowing investment by China in heavy industrials, infrastructure and real estate will contribute
to lower GDP growth numbers over coming years, we believe this to be a necessary adjustment that will ultimately put the
Chinese market on a more sustainable path even if the transition is not entirely smooth. Still, we believe the Chinese market
presents significant opportunities over the long term. China’s GDP of $10.4 trillion in 2014 is second only to the United States’
GDP of $17.4 trillion and while still far below average wealth and income levels seen in more developed economies, China’s
GDP per capita has risen from just US$950 in 2000 to almost US$7,500 in 2014, with some provinces such as Shanghai more
than double that.
Australia
Australian GDP growth ended the year on a weaker note, at 1.9% in the fourth quarter as the decline in commodity prices started
to affect consumer sentiment and government and business planning. Concerns over the economy and job security mean that
consumer sentiment is already low and may be dragged down further by the need for tougher measures aimed at plugging the
budget gap. The government recently revealed a significant widening of the budget deficit gap, brought about predominantly
by a drop in iron ore related royalties and taxes. The Australian dollar has weakened to US$0.78 against the U.S. dollar and we
believe it will weaken further. The benign inflation outlook and cooling house prices has allowed the Reserve Bank of Australia
to provide additional support to the economy with a lower interest rate and the depreciation of the Australian dollar is already
providing significant stimulus. The weaker Australian dollar and lower oil prices will ease the transition of the Australian
economy away from mining and heavy construction, toward home building, retail, tourism, education and manufacturing.
14 BROOKFIELD ASSET MANAGEMENT
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.
Election of Fair Value Accounting
We account for a number of our consolidated 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 and residential development operations are typically 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 at amortized cost or cost, depending on the nature of the underlying assets.
We classify the vast majority of our property assets within our office, retail, industrial and multifamily portfolios as investment
properties. We have elected to record our investment properties at fair value, and accordingly our 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, certain of our infrastructure assets and our hotel assets within our property portfolio 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 determined 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.
A significant portion of our infrastructure operation’s assets are classified as intangible assets and reflect the fair value of the
regulatory rate base or other characteristics at acquisition. Intangible assets are carried at amortized 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, classified as 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.
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 interests.
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 net income on a “one-line” basis as equity accounted income
within net income and “two-lines” within other comprehensive income as equity accounted income that will be reclassified to
net income and equity accounted income that will not be reclassified to net income. As a result, our share of items such as fair
value changes, that would be included within fair value changes if the entity was consolidated, are instead included within equity
accounted income.
2014 ANNUAL REPORT 15
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 for these entities 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, as described above, whereas other accounting principles
such as U.S. GAAP may not. Accordingly, their 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(e) of our consolidated financial statements (Significant Accounting Policies – Foreign Currency Translation).
The most significant exchange rates that impact our business are shown in the following table:
Year-end Spot Rate
Change
Average Annual Rate
Change
2014
0.8172
2.6504
1.5577
0.8608
2013
0.8918
2.3635
1.6556
2012
1.0395
2.0435
1.6248
0.9414
1.0079
2014
vs 2013
2013
vs 2012
2014
(8)%
(12)%
(6)%
(9)%
(14)% 0.9023
(16)% 2.3469
2%
1.6478
(7)% 0.9057
2013
0.9682
2.1505
1.5647
0.9713
2012
1.0357
1.9546
1.5852
1.0004
2014
vs 2013
2013
vs 2012
(7)%
(9)%
5%
(7)%
(7)%
(10)%
(1)%
(3)%
Australian dollar
Brazilian real
British pound
Canadian dollar
The average foreign currency exchange rate relative to the U.S dollar during 2014 was lower than in 2013 and lower than
2012, in several of our major regions, mostly Australia, Brazil and Canada. As a result of these rate variations, the U.S. dollar
equivalent of the contributions from our subsidiaries and investments in these regions were lower in 2014 than 2013 and 2012,
all other things being equal.
We provide further details on our foreign currency profile within Part 2 of this MD&A on page 25.
Use of Non-IFRS Measures
We disclose a number of financial measures in this Report that are calculated and presented using methodologies other than
in accordance with IFRS. These measures are used primarily in Part 3 of the MD&A. We utilize these non-IFRS measures in
managing the business, including performance measurement, capital allocation and valuation 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.
16 BROOKFIELD ASSET MANAGEMENT
PART 2 – FINANCIAL PERFORMANCE REVIEW
SELECTED ANNUAL FINANCIAL INFORMATION
FOR THE YEARS ENDED DECEMBER 31
(MILLIONS, EXCEPT PER SHARE AMOUNTS)
CONDENSED STATEMENT
OF OPERATIONS
Revenues
Direct costs
Other income and gains
Equity accounted income
Expenses
Interest
Corporate costs
Fair value changes
Depreciation and amortization
Income taxes
Net income
Non-controlling interests
Net income attributable to shareholders
Net income per share
$
$
CONDENSED STATEMENT OF OTHER
COMPREHENSIVE INCOME
Revaluation of property, plant and equipment
$
2,998
$
Financial contracts and power sales agreements
Foreign currency translation
Equity accounted investments and other
Taxes on above items
Other comprehensive income
Non-controlling interests
Other comprehensive income
attributable to shareholders
Comprehensive income attributable
2014
2013
2012
2014 vs 2013 2013 vs 2012
Change
$
18,364
$
20,093
$
18,696
$
(1,729)
$
1,397
(13,118)
(13,928)
(13,961)
190
1,594
(2,579)
(123)
3,674
(1,470)
(1,323)
5,209
(2,099)
3,110
4.67
$
$
(301)
(1,717)
41
(610)
411
(110)
1,262
759
(2,553)
(152)
663
(1,455)
(845)
3,844
(1,724)
2,120
3.12
825
442
(2,429)
241
(280)
(1,201)
406
70
1,237
(2,500)
(158)
1,153
(1,263)
(519)
2,755
(1,375)
810
(1,072)
835
(26)
29
3,011
(15)
(478)
1,365
(375)
$
$
1,380
$
990
$
1.97
$
1,491
$
2,173
$
(17)
(110)
144
(432)
1,076
(563)
(743)
712
(200)
(330)
1,612
(516)
33
1,192
(478)
(53)
6
(490)
(192)
(326)
1,089
(349)
740
(666)
459
(2,319)
97
152
(2,277)
969
301
(795)
513
1,096
(1,308)
to shareholders
$
3,411
$
1,325
$
1,893
$
2,086
$
(568)
SELECT BALANCE SHEET INFORMATION
AS AT DECEMBER 31
(MILLIONS)
Consolidated assets
Borrowings and other non-current
financial liabilities
Equity
$ 129,480
$ 112,745
$ 108,862
$
16,735
$
3,883
60,663
53,247
53,061
47,526
51,887
44,338
7,602
5,721
1,174
3,188
Dividends declared for each class of issued securities for the three most recently completed years are presented on page 32.
2014 ANNUAL REPORT 17
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.
Overview
2014 vs. 2013
Consolidated net income was $5.2 billion for the year ended December 31, 2014, representing a $1.4 billion increase from the
$3.8 billion recorded in 2013. The largest variance was the significant increase in fair value gains recognized on investment
properties held within consolidated subsidiaries and equity accounted investments as valuations for many of our office and retail
properties benefitted from lower discount rates and increasing cash flows reflecting strengthening leasing environments. We
recorded a lower amount of other income and gains, which in 2013 included $1,189 million of gains on the sale of an investment
and the settlement of a long dated interest rate swap. Revenues less direct costs decreased by $919 million in aggregate, as 2013
included $558 million of additional realized carried interests on the wind up of a private fund consortium and we sold two private
equity investments and non-core timberlands, which contributed revenues less direct costs of $348 million in the prior year.
Interest expense was relatively unchanged, notwithstanding additional debt associated with acquisitions because the interest
expense on new debt was offset by the impact of lower rates on debt refinancings. Income taxes increased by $478 million due
to a $320 million non-recurring deferred tax expense related to a change in tax laws in one of our core property operations, as
well as deferred taxes associated within a higher level of investment property fair value gains.
Net income on a per share basis increased by $1.55 to $4.67 in the current year. Net income attributable to shareholders increased
by a greater proportion than on a consolidated basis primarily due to our increased ownership interest in our office property
portfolio in 2014, which meant that shareholders participated to a greater extent in the significant fair value gains recognized
during the year.
2013 vs. 2012
The $1.1 billion increase in net income in 2013 compared to 2012 was primarily due to an increase in revenue less direct costs
of $1,430 million and two large gains totalling $1,189 million recorded within other income and gains. Revenue increased due
to the realization of $565 million of carried interests, higher generation levels within our renewable energy operations and the
contribution from assets acquired. Other income and gains included a $664 million gain on the sale of an investment within
our private equity operations ($261 million attributable to shareholders) and we recorded $525 million of other income on the
settlement of a long-dated interest rate swap. We recorded a lower level of fair value gains on consolidated investment properties
as well as those held through equity accounted investments, resulting in a decrease of $490 million in fair value changes
and a decrease of $478 million in equity accounted income compared to 2012. Our provision for income taxes increased by
$326 million due primarily to the recognition of deferred income tax expenses attributed to the formation of BPY and a higher
amount of disposition gains.
Net income per share was $3.12 for 2013 and $1.97 in 2012. Net income attributable to shareholders increased by $740 million
primarily due to the recognition of carried interest, which was entirely attributable to shareholders.
18 BROOKFIELD ASSET MANAGEMENT
Statements of Operations
Revenues and Direct Costs
The following tables present consolidated revenues and direct costs, which we have disaggregated into our operating segments
in order to facilitate a review of year-over-year variances.
FOR THE YEARS ENDED DECEMBER 31
(MILLIONS)
Revenues
2014
2013
2012
2014 vs 2013
2013 vs 2012
Change
Asset management
$
771
$
1,183
$
450
$
(412)
$
Property
Renewable energy
Infrastructure
Private equity
Residential development
Service activities
Corporate activities
Eliminations and adjustments1
5,010
1,679
2,193
2,559
2,912
3,599
199
(558)
4,569
1,620
2,326
4,124
2,521
3,817
352
(419)
3,982
1,179
2,178
4,424
2,476
4,070
260
(323)
441
59
(133)
(1,565)
391
(218)
(153)
(139)
Total consolidated revenues
$
18,364
$
20,093
$
18,696
$
(1,729)
$
1.
Adjustment to eliminate base management fees and interest income earned from entities that we consolidate. See Note 3 to our Consolidated Financial Statements
733
587
441
148
(300)
45
(253)
92
(96)
1,397
FOR THE YEARS ENDED DECEMBER 31
(MILLIONS)
Direct costs
2014
2013
2012
2014 vs 2013
2013 vs 2012
Change
Asset management
$
390
$
318
$
260
$
72
$
Property
Renewable energy
Infrastructure
Private equity
Residential development
Service activities
Corporate activities
Eliminations and adjustments1
2,628
530
991
2,244
2,519
3,472
108
236
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
295
(20)
(134)
(1,147)
222
(215)
42
75
$
13,118
$
13,928
$
13,961
$
(810)
$
58
521
75
(65)
(435)
18
(224)
(48)
67
(33)
1.
Adjustment to reallocate unallocated segment costs
2014 vs. 2013
Asset management: Revenues decreased by $412 million in 2014 due to the recognition of $558 million of carried interest in
the prior year, upon crystallizing a large client investment gain. Fee bearing capital increased by 20%, which contributed to a
$123 million increase in base management fees to $625 million. Direct costs increased by $72 million to $390 million due to the
expansion of our asset management operations.
Property: Commercial property revenue increased by $441 million (10%) reflecting the addition of revenues from recent
acquisitions in our multifamily and industrial businesses and a portfolio of triple net lease assets. These increases were partially
offset by lower revenues in our office business due to a significant lease expiry in downtown New York City in October 2013
and the elimination of revenues on mature assets that had been sold. Direct costs increased by $295 million (13%) due to the
inclusion of costs associated with newly acquired assets.
Renewable energy: Revenues increased by $59 million (4%). Newly acquired or commissioned assets, along with a full year’s
contribution from facilities acquired in 2013, contributed $151 million of additional revenue. This more than offset the reduction
in revenue from facilities owned throughout both years due to a contractual price decrease in a previously high priced contract,
limited operations of a gas-fired plant in 2014 and the impact of lower exchange rates on facilities in Canada and Brazil. Direct
costs are largely fixed and the impact of lower exchange rates on non-U.S. operations was partially offset by additional operating
costs from recently acquired facilities.
2014 ANNUAL REPORT 19
Infrastructure: Revenues decreased by $133 million (6%) due to the elimination of $304 million of revenues from Pacific
Northwest timberlands that were sold in July 2013. This decrease was partially offset by revenues generated from recently
completed development projects and acquisitions as well as higher volumes across our transport businesses. Direct operating
costs decreased by $134 million (12%). The sale of our Pacific Northwest timberlands decreased costs by $173 million. This
was partially offset by acquisitions and capital expansions completed in the last year which increased operating costs by
approximately $50 million.
Private equity: Revenues decreased by $1,565 million (38%) and direct costs decreased by $1,147 million (34%) as a result
of the elimination of revenues and costs following sale of two forest products investments which contributed $1,439 million
of revenues and $1,222 million of direct costs in 2013. In addition, a 31% decline in panelboard prices compared to the prior year
decreased revenues by a further $250 million. These decreases were partially offset by higher sales volumes at our energy-related
investments due to higher natural gas production compared to the prior year.
Residential development: Revenues and direct costs increased by $391 million (16%) and $222 million (10%), respectively,
reflecting the completion and delivery of a larger number of projects in our Brazilian operations. Our North American operations
revenues increased by $120 million due to increased U.S. housing sales and stronger pricing. We also sold two commercial
properties within our North American operations in the first quarter of 2014, which generated revenues of $83 million.
Service activities: Revenues and direct costs decreased in our service activities by $218 million (6%) and $215 million (6%),
respectively. Construction revenues and direct costs decreased by $551 million and $541 million, respectively. These operations
recognize revenue using the percentage-of-completion methodology and project delays experienced in the first three quarters of
2014 across several geographies reduced construction progress and the associated revenue recognition. In addition, the majority
of these revenues and costs are earned and incurred in Australia and were impacted by the 7% decline in that currency.
Corporate activities: Revenues declined in our corporate activities due to reduced investment gains in our portfolio of financial
assets during 2014 compared to 2013.
2013 vs. 2012
Asset management: Revenues increased by $733 million with carried interests contributing $549 million of the increase. Base
management fees increased by $150 million to $502 million. Fee bearing capital increased by 32% 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 and the reallocation of 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.
Property: Revenues and direct costs increased by $587 million (15%) and $521 million (29%), respectively, 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 (37%) higher. 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 increased by $75 million (16%) reflecting the costs
associated with new assets.
Infrastructure: Revenues increased by $148 million (7%) 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 (5%), following the sale of Pacific Northwest timberlands
which was partially offset by costs incurred within recently acquired or expanded businesses.
Private equity: Revenues decreased by $300 million (7%) and direct costs by $435 million (11%), primarily as a result of the
elimination of revenue following the sale of a paper and packaging business midway through 2013. This decrease was partially
offset by the impact of higher prices and increased volumes within our wood-based panel production and forestry operations.
Residential development: The increase in residential revenues of $45 million (2%) is due to an increase in home closings
combined with an increase in average home selling prices resulting in higher housing margins. The increase in revenues from
home closings was offset by decreased land sales revenue. We completed a larger volume of lots and multifamily acre parcel
sales in 2012. Direct costs increased by $18 million (1%) reflecting the costs incurred in respect of increased home sales.
Service activities: Revenues decreased by $253 million (6%), 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.
Other Income and Gains
Other income and gains were $190 million in 2014 compared to $1,262 million in the prior year. Other income and gains in the
current year include a $143 million gain on the repayment of a distressed debt investment in a European office portfolio. The prior
year included a $525 million gain on the termination of a long-dated interest rate swap contract as well as a $664 million gain on
the sale of a pulp and paper investment. Other income and gains in 2012 represent a gain on the partial sale and deconsolidation
of a property services operation.
Equity Accounted Income
Equity accounted income represents our share of the 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. The following table disaggregates
consolidated equity accounted income to facilitate analysis:
FOR THE YEARS ENDED DECEMBER 31
(MILLIONS)
General Growth Properties
Other property operations
Infrastructure operations
Other
2014
$
1,006
$
387
81
120
$
2013
426
447
(193)
79
$
2012
979
198
9
51
$
1,594
$
759
$
1,237
$
Change
2014 vs 2013
2013 vs 2012
580
(60)
274
41
835
$
$
(553)
249
(202)
28
(478)
Our share of General Growth Properties Inc.’s (“General Growth Properties” or “GGP”) equity accounted income increased
from 2013 to 2014 due to a 6% increase in our weighted average ownership interest in GGP from 23% to 29% in December 2013.
GGP’s net income increased year-over-year as a result of higher amount of appraisal gains continued strength in its leasing
activity and improving market conditions for Class A malls, which led to lower discount rates and terminal capitalization rates
compared to the prior year. This was partially offset by our share of the mark-to-market loss recorded by GGP in respect
of outstanding warrants. Our share of GGP’s appraisal gains in 2014, 2013 and 2012 were $417 million, $127 million and
$707 million, respectively. In addition, current year equity accounted income includes the reversal of a $249 million impairment
loss recognized in 2013. This reversal followed a 40% increase in GGP’s share price from $20.07 to $28.13 at December 31, 2014,
compared to our carrying value of approximately $27 per share.
Equity accounted income from other property operations decreased by $60 million in 2014 compared to an increase of
$249 million in 2013. The decrease in 2014 was due primarily to a $34 million decrease in our share of net income at Rouse
Properties Inc. (“Rouse Properties”), as a result of a higher level of appraisal gains being recorded in 2013 than in 2014. The
$249 million increase in other property operations over 2012 was primarily due to a larger number of property operations being
equity accounted in 2013.
Infrastructure equity accounted income increased by $274 million compared to 2013. In 2013 we recorded a valuation charge
of $275 million against the carrying value of our North American natural gas pipeline investment reflecting weaker market
fundamentals. These conditions persisted through 2014 impacting our equity accounted earnings from this investment. This
decrease was partially offset by equity accounted earnings associated with our higher ownership percentage at our Brazilian toll
road investment and the acquisition of an equity accounted Brazilian integrated logistics business during the year.
Other equity accounted income in 2014 of $120 million includes $66 million of equity accounted income within our North
American and Brazilian residential operations, due to increased sales and deliveries compared to the prior years.
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
Subsidiary equity obligations
2014
2013
2012
2014 vs 2013
2013 vs 2012
Change
$
228
$
204
$
209
$
24
$
2,047
272
32
1,837
464
48
1,808
408
75
210
(192)
(16)
$
2,579
$
2,553
$
2,500
$
26
$
(5)
29
56
(27)
53
2014 ANNUAL REPORT 21
We refinanced high cost subsidiary borrowings in the third quarter of 2013 with lower coupon corporate debt, which decreased
subsidiary borrowings interest expense by $87 million in the current year and consolidated interest expense by $60 million in
aggregate. subsidiary borrowings also decreased between 2014 and 2013 as we replaced unsecured debt at subsidiaries with
asset-secured non-recourse financings.
interest expense on property-specific mortgages increased by $210 million over the prior year reflecting additional borrowings
associated with acquisitions and capital projects in our property, renewable energy and infrastructure operations as well as
increased borrowing levels on property specific mortgage refinancings albeit at reduced rates. Property-specific borrowing costs
remained stable between 2013 and 2012 as increased borrowings to finance acquisitions was largely offset by lower borrowing
costs on recent refinancings.
Fair Value Changes
the following table disaggregates fair value changes into major components to facilitate analysis:
for the YeArs ended deCeMBer 31
(Millions)
2014
2013
2012
2014 vs 2013
2013 vs 2012
Change
investment properties
$
3,266
$
1,031
$
1,276
$
2,235
$
general growth Properties warrants
investment in Canary Wharf
forest products investment
Power contracts
other private equity investments
redeemable fund units
impairments of goodwill,
inventory and other
Investment Properties
526
319
230
(13)
(31)
(283)
(340)
53
89
—
(134)
(94)
(20)
(262)
(47)
20
—
9
(119)
(11)
25
473
230
230
121
63
(263)
(78)
$
3,674
$
663
$
1,153
$
3,011
$
(245)
100
69
—
(143)
25
(9)
(287)
(490)
investment properties contributed appraisal gains totalling $3.3 billion in 2014 compared to $1.0 billion in 2013 and $1.3 billion in
2012. in each year the gains related primarily to our office properties. Asset values benefitted from continued declines in discount
rates and terminal capitalization rates, each of which declined by approximately 30 basis points on average in 2014, reflecting
a continued favourable 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 55% of the
gains, while improvements in projected cash flows contributed approximately 45% of the gains.
fair value gains were lower in 2013 compared to 2012 due to relatively smaller declines in discount rates and terminal
capitalization rates which declined in each of our principal regions by approximately 10 basis points, on average. the changes in
rates during 2013 contributed approximately half of the gains, while increases in projected cash flows contributed the remainder.
in 2012 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.
We discuss the key valuation inputs of our investment properties on page 26.
General Growth Properties Warrants
the fair value of our ggP warrants increased by $526 million during 2014 primarily due to a 40% increase in the ggP’s share
price during 2014. this gain was partially offset by our share of ggP’s mark-to-market loss on the warrants, which is included
within equity accounted income. these warrants are convertible into 70 million common shares of ggP.
Investment in Canary Wharf
development activities, improved net operating income, and the impact of lower discount rates on projected cash flows gave
rise to an increase in the value of our investment in Canary Wharf group plc (“Canary Wharf”) of $319 million during the year,
higher than the $89 million and $20 million in 2013 and 2012, respectively.
Forest Products Investment
during the first quarter of 2014 we disposed of a partial interest in a private equity investee company, resulting in us
deconsolidating the business from our results and revaluing our retained interest based on its quoted market price at the time of
our loss of control. this gave rise to a $230 million revaluation gain relating to the excess of fair value over our ifrs book value
of our retained interest.
22 Brookfield Asset MAnAgeMent
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 an aggregate mark-to-market loss of $13 million in the current year on these contracts due
to increased projections for future electricity prices, compared to $134 million of losses and $9 million of gains in 2013 and
2012, respectively.
Other Private Equity Investments
Private equity fair value changes reflect impairments from lower oil and gas reserves and valuations at investee companies in the
energy sector, due to reductions in well performance and pricing.
Redeemable Funds Units
fair value changes on redeemable fund units contributed a valuation charge of $283 million in 2014 that related primarily to
increases in the value of units held by others in these funds where these units are classified as liabilities, rather than equity. A
large portion of these units relate to our partners’ interests in our los Angeles office portfolio, and accordingly this mark-to-
market loss reflects unitholders’ interests in the investment property appraisal gains.
Impairments of Goodwill and Other
We recognized an $87 million impairment of the goodwill associated with our Brazilian residential operations, which are
experiencing weaker market fundamentals. this has resulted in a decrease in margins relating to cost overruns and a slowing
consumer demand. We also recognized a $121 million impairment of these operations’ inventory, as certain projects are no
longer profitable.
Depreciation and Amortization
depreciation and amortization includes the depreciation of property, plant and equipment as well as the amortization of intangible
assets. the two largest contributions to depreciation and amortization come from our renewable energy and infrastructure
facilities, many of which are revalued annually in other comprehensive income (“oCi”); but which are depreciated in net income.
depreciation on many of these assets is based on their fair value at the beginning of each year to the extent they are revalued. 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
$
$
2014
566
395
225
261
23
$
2013
553
346
275
256
25
Change
2012
2014 vs 2013
2013 vs 2012
$
499
248
282
225
9
13
49
(50)
5
(2)
15
$
54
98
(7)
31
16
$
192
$
1,470
$
1,455
$
1,263
$
infrastructure depreciation and amortization increased by $49 million between 2014 and 2013, following a $98 million increase
between 2013 and 2012. the increase in 2014 was due to increased asset valuations and depreciation on acquired property, plant
and equipment while the increase in 2013 relates to depreciation on completed developments including those at our Australian
rail operations.
our private equity operations sold a forest products business in 2014, eliminating the depreciation on the asset, and our property
operations recorded less amortization of intangibles associated with hotel assets following the sale of a resort operation.
Income Taxes
income tax expense increased by $478 million to $1,323 million in 2014. We recorded deferred income taxes associated with
the $3.3 billion investment property valuation increases in 2014, which were significantly higher than in 2013. the current year
also includes a $320 million non-recurring deferred income tax expense that resulted from a change in tax laws that affected
our north American office property operations in the first quarter of 2014. income tax expense in the current year includes the
recognition of previously unrecognized tax losses within our north American residential operations, offset by the derecognition
of deferred tax assets within our Brazil residential operations. the prior year included $178 million of deferred income taxes
related to the formation of Brookfield Property Partners.
2014 AnnuAl rePort 23
our effective tax rate in 2014 was 20% (2013 – 18%; 2012 – 16%), while our Canadian domestic statutory income tax
rate remained constant at 26% (2013 – 26%; 2012 – 26%). 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 5% (2013 – 7%) reduction in
our effective tax rate.
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 5% (2013 – 3%) reduction in our effective tax rate. 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 relates 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.
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 $2.1 billion in 2014 compared to $1.7 billion in 2013 and $1.4 billion in 2012, representing 40%,
45% and 50% of consolidated net income, respectively, in each of these years. the variances between these three years reflect
the overall change in consolidated net income with income attributable to shareholders increasing more than on a consolidated
basis in 2014 primarily due to the privatization of our office property portfolio which increased our ownership percentage and
our share of the fair value gains recognized during the year, and in 2013 due to the recognition of a large gain and carried interests
which were recorded in wholly owned operations.
Other Comprehensive Income (“OCI”)
Revaluation of Property, Plant and Equipment
the following table summarizes revaluations of property, plant and equipment:
for the YeArs ended deCeMBer 31
(Millions)
renewable energy
infrastructure
Property and other
$
$
2014
2013
2012
2014 vs 2013
2013 vs 2012
Change
1,966
$
(151)
$
708
324
2,998
$
781
195
825
825
611
55
$
2,117
$
(73)
129
$
1,491
$
2,173
$
(976)
170
140
(666)
revaluations of property, plant and equipment totalled $3.0 billion in 2014, representing an increase from the $825 million
recorded in 2013 and $1.5 billion in 2012. these revaluations are primarily influenced by estimated future cash flows and
discount rates. estimated future power prices are the primary determining factor of future cash flows in our renewable energy
operations. in our infrastructure operations cash flows are driven by regulated rates of return on rate base in our utility assets and
tariffs or capacity charges in our transport and energy assets, while expected hotel stays and room rates increase or decrease cash
flows in our hotel assets within our property operations. in 2014 and 2012 decreases in long-term interest rates and increases in
comparable assets gave rise to increased valuations of these assets. in 2013, expected future cash flows increased, however this
was partially offset by increasing fixed-income yields which lowered asset values.
We discuss the key valuation inputs on page 27.
24 Brookfield Asset MAnAgeMent
Financial Contracts and Power Sales Agreements
We recorded $301 million of losses on our financial contracts and power sales agreements in 2014 compared to a gain of
$442 million in 2013 and a loss of $17 million in 2012. We recorded $247 million of mark-to-market and realized losses on
interest rate contracts that “lock-in” the benchmark interest rate on new financings, due to an overall decline in risk-free rates. In
2013, we recorded $185 million of gains on similar contracts as rates increased during the year.
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, 2014, our IFRS net equity of $20.2 billion was invested in the following currencies,
principally in the form of net investments which are revalued through other comprehensive income: United States – 52%;
Brazil – 15%; Australia – 14%; United Kingdom – 10%; Canada – 5%; and other – 4%. 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 2014, the value of our principal non-U.S. currencies (Australia, Brazil and Canada) all declined
against the U.S. dollar (see table on page 16), giving rise to a total decrease of $1.7 billion after the mitigating impact of hedges,
or $0.7 billion after non-controlling interests.
FINANCIAL PROFILE
Consolidated Assets
The following table presents our consolidated assets at December 31, 2014, compared to the two previous years:
AS AT DECEMBER 31
(MILLIONS)
Investment properties
Property, plant and equipment
Sustainable resources
Equity accounted investments
Cash and cash equivalents
Financial assets
Accounts receivable and other
Inventory
Intangible assets
Goodwill
Deferred income tax asset
Assets held for sale
2014
2013
$
46,083
$
38,336
$
34,617
446
14,916
3,160
6,285
8,399
5,620
4,327
1,406
1,414
2,807
31,019
502
13,277
3,663
4,947
6,666
6,291
5,044
1,588
1,412
—
2012
33,161
31,148
3,516
11,618
2,850
3,111
6,952
6,581
5,770
2,490
1,665
—
$
129,480
$
112,745
$
108,862
Consolidated assets increased to $129.5 billion at December 31, 2014, representing an increase of $16.7 billion over 2013,
which followed a $3.9 billion increase between 2013 and 2012. Acquisitions and development initiatives increased the carrying
value of our investment properties, property, plant and equipment and equity accounted investments by $15.2 billion. Increases
in the appraised value of our investment properties and property, plant and equipment contributed an additional $6.3 billion to
consolidated assets in the current year. These positive variances were partially offset by the disposition of $4.8 billion of assets,
including $2.6 billion of property assets and a forest products investment with consolidated assets of $0.6 billion, as well as a
higher U.S. dollar, which resulted in a decrease in the translated value of assets denominated in non-U.S. dollar currencies. The
increase in consolidated assets in 2013 was due to acquisition and development initiatives 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,
a pulp and paper company within our private equity operations and numerous non-core investment properties with our property
operations. The U.S. dollar value of our non-U.S. assets also decreased in 2013, due to a decline in the value of these currencies
relative to the U.S. dollar.
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.
2014 ANNUAL REPORT 25
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
Dispositions1
Fair value changes
Foreign currency translation
Net increase
Balance, end of year
2014
$
38,336
$
10,601
(4,800)
3,266
(1,320)
7,747
$
46,083
$
2013
33,161
7,365
(1,908)
1,031
(1,313)
5,175
38,336
1.
Includes reclassification of investment properties that are held-for-sale
Acquisitions and development activity increased our investment properties by approximately $10.6 billion in 2014 and
$7.4 billion in 2013. Significant acquisitions in 2014 include a portfolio of triple net leases of car dealerships in the U.S.; office
parks in India; a 4,000-unit multifamily portfolio located in New York City; office properties in São Paulo and London, and
additional interests in office assets in Sydney and Midtown Manhattan. In 2013, we acquired logistics and distribution properties
in the UK and the southwestern U.S., as well as a large portfolio of office properties in Los Angeles.
We disposed of 57 properties during 2014 with an aggregate carrying value of $2.9 billion including the partial sale and
deconsolidation of a Denver office property in the U.S. and the sale of an office property in London.
Fair value changes increased the carrying values of our investment properties by $3,266 million as discussed on page 22.
The fair value of investment properties is generally determined by discounting the expected future cash flows of the properties,
typically 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 cash flows, 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
Industrial, Multifamily
and Other
Weighted
Average
AS AT DECEMBER 31
Discount rate
Terminal capitalization rate
Investment horizon (years)
2014
7.1%
6.0%
10
2013
7.4%
6.3%
11
2014
9.2%
7.2%
10
2013
9.2%
7.6%
10
2014
6.7%
7.3%
10
2013
8.6%
7.5%
10
2014
7.1%
6.1%
10
2013
7.7%
6.6%
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
Private Equity
and Other
Total
AS AT AND FOR THE YEARS ENDED DECEMBER 31
(MILLIONS)
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
Balance, beginning of year
$ 16,611 $ 16,532 $ 8,564 $ 8,736 $ 3,042 $ 2,968 $ 2,802 $ 2,912 $ 31,019 $ 31,148
Acquisitions and additions
2,876
1,606
1,004
533
33
Dispositions1
Fair value changes
Depreciation
Foreign currency translation
Net increase (decrease)
(16)
1,990
(560)
(931)
3,359
(28)
(150)
(551)
(798)
79
(243)
(654)
(259)
757
(332)
(689)
497
691
(286)
(456)
(172)
324
(149)
(119)
(170)
153
(16)
166
(130)
(99)
74
676
(294)
(41)
(224)
(205)
(88)
656
4,589
2,948
(336)
(812)
(1,034)
(94)
3,030
613
(217)
(1,265)
(1,184)
(119)
(1,944)
(1,472)
(110)
3,598
(129)
Balance, end of year
$ 19,970 $ 16,611 $ 9,061 $ 8,564 $ 2,872 $ 3,042 $ 2,714 $ 2,802 $ 34,617 $ 31,019
1.
Includes reclassifications for property, plant and equipment that are held-for-sale
26 BROOKFIELD ASSET MANAGEMENT
We record PP&E in our renewable energy, infrastructure, and hotel properties within our property operations using the revaluation
method, which results in these assets being revalued at the end of each fiscal year. PP&E within our private equity and other
operations are carried at amortized cost.
Acquisitions and additions increased PP&E by $4.6 billion, of which $2.9 billion related to purchases of wind and hydroelectric
facilities within our renewable energy operations. Increases in the value of the U.S. dollar relative to the foreign currencies
in which certain of our assets are held resulted in a $1.9 billion decrease in the consolidated value of our property, plant and
equipment.
Renewable Energy
The fair value of renewable energy PP&E increased to $20.0 billion compared to $16.6 billion in the prior year. During 2014
we acquired 502 megawatts (“MW”) of hydroelectric facilities, a 326 MW wind portfolio and developed renewable power
generating assets totalling $2.9 billion in aggregate. The revaluation of property, plant and equipment resulted in an increase in
fair value of $2.0 billion. Property, plant and equipment were impacted by foreign currency changes related to a stronger U.S.
dollar in the amount of $0.9 billion. We also recognized depreciation expense of $0.6 billion.
The key valuation metrics of our hydro and wind generating facilities at the end of 2014 and 2013 are summarized below. The
valuations are impacted primarily by discount rates 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 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
50 basis point increase or decrease in the discount and terminal capitalization rates will impact the value of our common equity
by $1.6 billion and $1.9 billion, respectively. A 5% change in long-term power prices will impact the value of our common equity
by $0.5 billion.
United States
Canada
Brazil
Dec. 31, 2014
Dec. 31, 2013
Dec. 31, 2014
Dec. 31, 2013
Dec. 31, 2014
Dec. 31, 2013
Discount rate
Contracted
Uncontracted
Terminal capitalization rate
Exit date
5.2%
7.1%
7.1%
2034
5.8%
7.6%
7.1%
2033
4.8%
6.7%
6.5%
2034
5.1%
6.9%
6.4%
2033
8.4%
9.7%
n/a
2029
9.1%
10.4%
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
We acquired $1.0 billion of infrastructure PP&E in 2014, including district energy businesses and a North American gas storage
operation. Revaluation gains totalled $0.8 billion and primarily relate to our UK regulated distribution operation. This was
partially offset by $0.7 billion of foreign currency translation losses.
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, 2014 Dec. 31, 2013 Dec. 31, 2014 Dec. 31, 2013 Dec. 31, 2014 Dec. 31, 2013
Discount rate
8% – 12%
8% – 13% 11% – 15% 11% – 12% 10% – 13% 15% – 16%
Terminal capitalization multiples
8x – 16x
10x – 16x
10x – 12x
7x – 11x
8x – 12x
8x – 12x
Investment horizon (years)
10 – 20
10 – 20
10 – 20
10
10
10
Property
Property PP&E primarily consists of hotel and resort operations, which decreased by $170 million due to the sale of a resort
property with a book value of $259 million. The appraised value of our resort operations increased based on higher expected cash
flows. This was partially offset by depreciation expense and downward currency revaluation.
Key valuation assumptions for our hotel operations included a weighted average discount rate of 10.0% (2013 – 10.5%), terminal
capitalization rate of 7.0% (2013 – 7.6%) and investment horizon of 6 years (2013 – 7 years).
2014 ANNUAL REPORT 27
Sustainable Resources
We disposed of our Pacific Northwest timberlands and our Western Canadian timber operations in 2013, which resulted in a
$3.0 billion decrease in our sustainable resources. 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 2014 and 2013.
Key valuation assumptions for our sustainable resources include a weighted average discount and terminal capitalization rate of
5.9% (2013 – 6.9%), and terminal valuation dates of 30 years (2013 – 20 to 28 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.
Equity Accounted Investments
The following table presents the major components of the period-over-period variances for our equity accounted investments,
disaggregated by operating platform for analysis purposes:
AS AT AND FOR THE
YEARS ENDED DEC. 31
(MILLIONS)
Balance, beginning
of year
Additions
Dispositions1
Share of net income2
Share of other comprehensive
income
Distributions received
Foreign currency
translation and other
Net change
Property
GGP
Other
Renewable
Energy
Infrastructure
Private Equity
and Other
2014
Total
2013
Total
$
6,044
$
3,699
$
290
$
2,614
$
630
$
13,277
$
11,618
—
—
1,006
(5)
(158)
—
843
376
(357)
387
16
(362)
(59)
1
3
(42)
3
58
(27)
(12)
(17)
1,461
(311)
81
164
(64)
(401)
930
72
(191)
117
(10)
(63)
(43)
(118)
1,912
(901)
1,594
223
(674)
(515)
1,639
2,676
(1,227)
759
239
(452)
(336)
1,659
Balance, end of year
$
6,887
$
3,700
$
273
$
3,544
$
512
$
14,916
$
13,277
1.
2.
Includes reclassifications for property, plant and equipment that is held-for-sale
GGP equity accounted income in 2014 includes a $249 million impairment reversal. Equity accounted income in 2013 includes $524 million of impairments to the carrying values
of two equity accounted investments
Our largest equity accounted investment is a 29% interest in GGP with a carrying value at December 31, 2014 of $6.9 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 $1.6 billion during 2014 reflecting acquisitions during the year in our infrastructure operations and
our share of GGP’s net income. These increases were partially offset by $674 million of distributions, the reclassification of our
natural gas pipeline investment to assets held for sale and other dispositions, as well as lower foreign currency valuation.
Investments increased by $1.7 billion in 2013, reflecting the acquisition of several equity accounted investments within our
infrastructure. We also increased our investment in GGP, as well as recorded our share of equity accounted earnings.
GGP owns a large U.S. retail mall portfolio which at year end was valued on a discounted cash flow basis using, on average, a
discount rate of 7.4% (2013 – 7.6%), a terminal capitalization rate of 5.8% (2013 – 5.8%), and an investment horizon of 10 years
(2013 – 10 years).
Inventory
(MILLIONS)
Residential properties under development
$
Dec. 31, 2014
Dec. 31, 2013
$
2,468
2,176
519
457
$
5,620
$
2,785
2,541
443
522
6,291
Land held for development
Completed residential properties
Forest products and other
Total carrying value
28 BROOKFIELD ASSET MANAGEMENT
Our inventory of residential properties and land held for development is 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 of the inventory in the ordinary course of business in its completed state, less estimated expenses, including holding costs to
complete and costs to sell. During 2014 the company’s Brazilian residential operations recorded an impairment of $121 million
relating to its inventory of properties under development.
Financial Assets
Financial assets increased by $1.3 billion compared to prior year due to a $500 million investment in a retail property company
in Shanghai, China and the purchase of distressed debt investments in our private equity operations. The increase also reflects
increases in fair value of our financial assets, particularly $319 million of gains on our investment in Canary Wharf, which is
classified as a financial asset and $526 million of valuation gains on our investment in General Growth Properties warrants.
Accounts Receivable and Other
Accounts receivable and other assets increased by $1.7 billion in 2014 due to $1.8 billion of restricted cash reserved for the
acquisition of an additional 28% interest in Canary Wharf.
Intangible Assets
Intangible assets relate primarily to concession arrangements within our infrastructure operations, in particular our Australian
coal terminal ($2.0 billion) and Chilean toll roads ($1.1 billion). Intangible assets declined by $717 million during 2014
(2013 – $726 million) due to amortization and the impact of lower exchange rates on intangible assets within non-U.S. operations.
Our private equity operations sold a forest products business in 2014, eliminating $123 million of intangible assets.
Goodwill
Goodwill decreased by $182 million from December 31, 2013 to $1,406 million. The decrease was primarily due to foreign
currency revaluation of non-U.S. dollar goodwill and an $87 million impairment of goodwill recorded at our Brazilian residential
operations. These operations experienced a decrease in margins in 2014 relating to cost overruns and slowing consumer demand,
both of which led to an impairment in goodwill. The decrease in goodwill in 2013 primarily related to the elimination of
$591 million of goodwill on disposition of our Pacific Northwest timberlands.
Assets Held for Sale
Assets held for sale include approximately $2.2 billion of property assets, including office properties in Washington D.C.
and multifamily holdings Maryland and Virginia, and $566 million of infrastructure assets including our North American gas
transmission investment.
Borrowings and Other Non-Current Financial Liabilities
Assets and 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
Subsidiary equity obligations
2014
2013
2012
2014 vs 2013
2013 vs 2012
$
4,075
$
3,975
$
3,526
$
100
$
449
40,364
8,329
4,354
3,541
35,495
7,392
4,322
1,877
33,720
7,585
5,440
1,616
$
60,663
$
53,061
$
51,887
$
4,869
937
32
1,664
7,602
$
1,775
(193)
(1,118)
261
1,174
1.
Excludes accounts payable and other liabilities that are due within one year. See Note 17 to our Consolidated Financial Statements for 2014 and 2013 balances
The increase in property-specific borrowings of $4.9 billion during 2014 is due primarily to borrowings incurred or assumed in
respect of acquisitions within our property and renewable energy operations. Borrowings are generally denominated in the same
currencies as the assets they finance and therefore the overall increase in the value of the U.S. dollar during the period resulted
in our non-U.S. dollar denominated borrowings decreasing in value.
Subsidiary borrowings increased by $0.9 billion during 2014 due to the partial debt funding of the privatization of our office
subsidiary. Offsetting this was the deconsolidation of debt associated with a private equity investment sold during the year and
the repayment of subsidiary unsecured facilities.
2014 ANNUAL REPORT 29
Subsidiary equity obligations increased by $1.7 billion. Our property subsidiary, BPY, issued $1.8 billion of preferred equity
units which are exchangeable at the option of the holder into BPY limited partnership units of which $1.5 billion was recorded
as a liability and the remaining $0.3 billion equity conversion option was recognized within equity. The proceeds of the issuance
were reserved to fund an increase in BPY’s investment in Canary Wharf.
We provide further information on our borrowings and financial obligations in Part 4 – Capitalization and Liquidity.
Equity
Equity consists of the following components:
AS AT DEC. 31
(MILLIONS)
Preferred equity
Non-controlling interests
Common equity
2014
2013
Change
$
$
3,549
$
3,098
$
29,545
20,153
53,247
26,647
17,781
$
47,526
$
451
2,898
2,372
5,721
Common equity increased from 2013 by $2.4 billion to $20.2 billion at December 31, 2014. Net income and other comprehensive
income attributable to shareholders for the year of 2014 totalled $3.4 billion, of which $542 million was distributed to
shareholders as common and preferred share dividends resulting in a net increase of $2.9 billion. This was offset by a $579 million
decrease in common equity due to changes in the ownership of consolidated subsidiaries, of which $558 million arose on the
privatization of our office subsidiary in exchange for cash and units of BPY. The consideration paid represented a discount to
the book value of the acquired subsidiary, resulting in a gain; however we also issued units of BPY at a discount to its book value
resulting in a net overall charge to common equity and a corresponding increase in non-controlling interests.
Non-controlling interests increased by $2.9 billion. Comprehensive income attributable to non-controlling interests totalled
$2.2 billion. In addition, net issuances of equity to non-controlling interest totalled $2.5 billion due to capital calls within
our private funds and a $285 million equity issuance by BREP. This increase was offset by $1.7 billion in cash consideration
paid to non-Brookfield shareholders of our office property subsidiary as part of its merger with BPY and distributions to
non-controlling interests totalling $2.4 billion, which included distributions of capital to private fund partners and co-investors
in our listed partnerships.
We issued C$800 million and redeemed C$300 million of preferred equity during 2014, which resulted in a net $451 million
increase in preferred equity.
We provide a more detailed discussion of our capitalization in Part 4 of the MD&A.
QUARTERLY FINANCIAL PERFORMANCE
Our financial performance for the eight most recent quarters is summarized as follows:
FOR THE THREE MONTHS ENDED
(MILLIONS EXCEPT PER SHARE AMOUNTS)
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
Revenue
$ 4,694
$ 4,659
$ 4,673
$ 4,338
$ 5,493
$ 4,501
$ 5,148
$ 4,951
Net income for shareholders
1,050
734
785
541
717
813
230
360
2014
2013
Per share
- diluted
- basic
$ 1.59
$ 1.09
$ 1.19
$ 0.80
$ 1.08
$ 1.23
$ 0.31
$ 0.51
$ 1.64
$ 1.12
$ 1.21
$ 0.82
$ 1.11
$ 1.26
$ 0.31
$ 0.52
Our property operations typically generate consistent results on a quarterly basis due to the long-term nature of contractual lease
arrangements subject to the intermittent recognition of disposition and lease termination gains. Our office property results tend
to exhibit the least amount of seasonality whereas our retail properties are typically strongest in the fourth quarter as retail sales
are seasonally high during this period, and our resort hotels tend to see higher revenues and costs as a result of increased visits
during the first quarter.
Renewable energy operations are seasonal in nature as the fall rainy season and spring thaw lead to higher generation; however
this is mitigated to an extent by prices, which tend not to be as strong as they are in the summer and winter seasons due to the
more moderate weather conditions and reductions in demand for electricity.
Our infrastructure operations are generally stable in nature as a result of long-term sales contracts with our clients, certain of
which guarantee minimum volumes. Over the last two years we have been deploying more capital within these portfolios into
businesses that benefit from increasing volumes, to complement our investments in rate-regulated assets.
30 BROOKFIELD ASSET MANAGEMENT
Our private equity, residential development and service activities operations are seasonal in nature and a large portion are
exposed to the ongoing U.S. housing recovery. Results in these businesses 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 which tends to
increase construction activity levels.
Over the last eight completed quarters, the following factors caused variations in revenues and net income to shareholders on a
quarterly basis:
Net income in the fourth quarter of 2014 included $1.3 billion in fair value gains, primarily from increased appraised values of
our investment properties, of which $762 million was attributable to shareholders.
Net income in the first quarter of 2014 included $320 million of deferred income taxes due to a change in tax legislation which
increased the tax rate utilized in one of our key property markets.
Revenue and net income in the fourth quarter of 2013 included $558 million of carried interest earned on the wind up of our
consortium investment in General Growth Properties, all of which was attributable to shareholders.
Beginning in the third quarter of 2013, revenue decreased compared to the first and second quarters of 2013 following the sale
of a pulp and paper investment, along with several timber investments, and the elimination of the respective revenues. Also the
third quarter of 2013, we recognized a $664 million gain on the disposition of the aforementioned pulp and paper investment,
and $525 million of other income on the settlement of a long-dated interest rate swap contract, for net gains of $983 million after
taxes of which $620 million was attributable to shareholders.
Net income for shareholders was lower in the first and second quarter of 2013 as we recorded higher amounts of deferred income
tax on the formation of BPY and lower amounts of fair value gains on our investment properties due to an increase in discount
rates.
Fourth Quarter Results
We recognized $1.7 billion of net income in the fourth quarter of 2014, $1.1 billion or $1.59 per share of which was attributable to
shareholders. Consolidated net income in the comparative period in 2013 was $850 million, of which $717 million or $1.08 per
share attributable to shareholders. Net income to shareholders in the fourth quarter of 2014 included $1.3 billion in fair value
gains, primarily from increased appraisals at our investment properties, whereas the prior year included $263 million. In addition,
we reversed a $250 million impairment, which was recorded on our equity accounted investment in GGP during the fourth
quarter of 2013, representing a $498 million difference in net income between the two periods due to this one item.
The 2013 quarter also included $558 million of carried interest earned on the wind up of a private fund which was offset by the
aforementioned impairment of our investment in GGP and a $275 million impairment recorded on our North American natural
gas transmission investment.
2014 ANNUAL REPORT 31
CORPORATE DIVIDENDS
The dividends paid by Brookfield on outstanding securities during the past three years are as follows:
Class A and B1 Shares
Special distribution to Class A and B Shares3
Class A Preferred Shares
Distribution per Security
2014
0.632
—
$
2013
0.642
1.47
$
$
Series 2
Series 4 + Series 7
Series 8
Series 9
Series 104
Series 115
Series 126
Series 13
Series 14
Series 15
Series 17
Series 18
Series 217
Series 228
Series 24
Series 26
Series 28
Series 30
Series 329
Series 3410
Series 3611
Series 3712
Series 3813
Series 4014
Series 4215
0.48
0.48
0.68
0.86
—
—
0.33
0.47
1.71
0.38
1.08
1.08
—
1.20
1.22
1.02
1.04
1.09
1.02
0.95
1.10
1.11
0.80
0.58
0.23
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
—
—
—
2012
0.55
—
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
—
—
—
—
—
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
Class B Limited Voting Shares (“Class B Shares”)
Actual dividend per Class A and B Share paid in Q1 2014 was $0.20 for the period from November to February, equivalent to $0.15 on a three-month basis
Distribution of a 7.6% interest in Brookfield Property Partners, paid April 15, 2013. Amount is based in IFRS values
Redeemed April 5, 2012
Redeemed October 1, 2012
Redeemed April 7, 2014
Redeemed July 2, 2013
Redeemed September 30, 2014
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
Issued June 13, 2013
Issued March 13, 2014
Issued June 5, 2014
Issued October 8, 2014
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.
32 BROOKFIELD ASSET MANAGEMENT
PART 3 – OPERATING SEGMENT RESULTS
BASIS OF PRESENTATION
How We Measure and Report Our Operating Segments
Our operations are organized into five operating platforms in addition to our corporate and asset management activities, which
collectively represent eight operating segments. We measure performance primarily using funds from operations generated by
each operating segment and the amount of capital invested by the Corporation in each segment using common equity by segment.
Our operating segments are as follows:
i.
ii.
iii.
iv.
v.
vi.
vii.
Asset management operations consist of managing our listed partnerships, private funds and public markets on behalf of
our clients and ourselves. We earn base management fees for these activities as well as performance income, including
incentive distributions, performance fees and carried interests. We also provide transaction and advisory services.
Property operations include the ownership, operation and development of office, retail, industrial, multifamily, hotel and
other properties.
Renewable energy operations include the ownership, operation and development of hydroelectric, wind power and other
generating facilities.
Infrastructure operations include the ownership, operation and development of utilities, transport, energy, timberland and
agricultural assets.
Private equity operations include the investments and operations overseen by our private equity group which include both
direct investments and investments made by 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, condominium development and land
development.
Service activities include construction management and contracting services, and property services operations which
include global corporate relocation, facilities management and residential brokerage services.
viii. Corporate activities include the investment of cash and financial assets, as well as the management of our corporate
capitalization, including corporate borrowings 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.
Segment Financial Measures
Funds from Operations (“FFO”) is a key measure of our financial performance and we use FFO to assess operating results and
the performance of our businesses on a segmented basis. We define FFO as net income prior to fair value changes, depreciation
and amortization and deferred income taxes. When determining FFO, we include our proportionate share of the FFO of equity
accounted investments on a fully diluted basis.
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 (“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.
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 and cash taxes payable
or receivable on those gains or losses, if any; foreign exchange gains or losses on monetary items not forming part of our net
investment in foreign operations; and foreign exchange gains or losses on the sale of an investment in a foreign operation.
We illustrate how 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 36. We do not use FFO as a measure of cash generated
from our operations.
We measure segment assets based on Common Equity by Segment, which we consider to be the amount of common equity
allocated to each segment. We utilize Common Equity by Segment to review our deconsolidated balance sheet and to assist in
capital allocation decisions.
In assessing results, we identify the portion of FFO that represents realized disposition gains or losses, as well as the FFO and
Common Equity by Segment that relates to our primary listed partnerships: Brookfield Property Partners, Brookfield Renewable
2014 ANNUAL REPORT 33
Energy Partners and Brookfield Infrastructure Partners. We believe that identifying the segment FFO and Common Equity
by Segment attributable to our listed partnerships 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.
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.
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, but not
always, earned on both called and uncalled amounts.
Carried Interests are contractual arrangements whereby we receive a fixed percentage of investment returns 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.
Economic Ownership Interest represents the company’s proportionate interest in BPY, BREP and BIP, which includes holding
a combination of redemption-exchange units (REUs), Class A limited partnership units, special limited partnership units and
general partnership units in each subsidiary, where applicable. Each of BPY, BREP and BIP’s partnership capital includes their
Class A limited partnership units, however REUs and general partnership units are considered non-controlling interests for the
respective partnerships. REUs share the same economic attributes with the Class A limited partnership units in all respects except
for the redemption right described above. The REUs and general partnership units participate in earnings and distributions on a
per unit basis equivalent to the per unit participation of the Class A limited partnership units of the subsidiary. The company’s
economic ownership interest in BPY is determined after considering the conversion of BPY’s preferred equity units into limited
partnership units.
Fee Bearing Capital represents the capital committed, pledged or invested in our listed partnerships, private funds and public
markets 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, as well as amounts invested directly by clients (“co-investments”)
for which we earn fees. 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 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.
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.
Incentive Distributions are determined by contractual arrangements and are paid to us by our three primary listed partnerships
and represent a portion of distributions paid by a listed partnerships above a pre-determined threshold. Incentive distributions
are accrued when the associated distributions are declared by the board of directors of the entity.
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.
Performance Fees are paid to us when we exceed pre-determined investment returns on certain portfolios managed in our public
markets activities. Performance fees are typically determined on an annual basis and are not subject to “clawback.”
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 presented net of cash 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
34 BROOKFIELD ASSET MANAGEMENT
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 to better understand variances between reporting periods.
Uninvested Capital 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.”
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.
SUMMARY OF RESULTS BY OPERATING SEGMENT
The following table presents segment measures on a year-over-year basis for comparison purposes:
Funds from
Operations
Common Equity
by Segment
2014
2013
Variance
2014
2013
Variance
$
(478)
$
323
$
216
$
AS AT AND FOR THE YEARS ENDED DECEMBER 31
(MILLIONS)
Asset management
$
Property
Renewable energy
Infrastructure
Private equity
Residential development
Service activities
Corporate activities
$
387
884
313
222
369
164
152
(331)
865
554
447
472
612
46
157
223
330
(134)
(250)
(243)
118
(5)
(554)
14,877
13,339
4,882
2,097
1,050
2,080
1,220
4,428
2,171
1,105
1,435
1,286
(6,376)
(6,199)
(177)
107
1,538
454
(74)
(55)
645
(66)
$
2,160
$
3,376
$
(1,216)
$
20,153
$
17,781
$
2,372
Asset management: Fee related earnings increased by $78 million to $378 million whereas carried interests declined from
$565 million to $3 million. We added $16.2 billion of fee bearing capital, which contributed to a 25% increase in base
management fees to $625 million. Operating costs increased by $68 million as we continued to expand our operations both
geographically and broadening our capabilities. Operating costs in 2013 exclude $10 million of costs related to managing our
property operations for the period up to the formation of BPY in April 2013, which were allocated to our corporate activities
segment. Asset management FFO in 2013 included $565 million of realized carried interest, of which $558 million was realized
on the wind up of our U.S. shopping mall business.
Property: We recorded $884 million of FFO from our property operations, representing a $330 million increase over the
$554 million in 2013. Realized disposition gains increased by $302 million, representing much of the variance. Excluding
realized disposition gains, FFO increased by $28 million to $554 million. Positive variances arose from our increased ownership
interest in our office portfolio and through positive leasing spreads, as well as from the contribution of capital deployed over the
past year in our opportunistic private funds. Bridge debt incurred on the privatization transaction of our largest office subsidiary
during 2014 resulted in an increased level of interest expense by $28 million to BPY and management services fees paid
increased by $64 million to BPY, due to BPY’s larger level of capitalization. Both of these negative variances decreased FFO,
partially offsetting the aforementioned positive variances.
Renewable energy: 2013 FFO included a $176 million realized disposition gain that arose on the sale of a partial interest in
BREP, whereas we did not record any realized disposition gains in 2014. Excluding realized disposition gains, FFO increased
by $42 million to $313 million. Higher realized prices and capacity sales, primarily in the first quarter of 2014 increased FFO
by $73 million. This was partially offset by our reduced weighted average ownership interest in BREP and the impact of lower
foreign currency exchange rates on FFO from operations in Brazil and Canada. We generated 22,548 gigawatt (“GWh”), 3%
below long-term average, however 326 GWh (1%) ahead of the prior year due to 1,712 GWh being generated from recently
acquired and commissioned facilities.
Infrastructure: Excluding $250 million of realized disposition gains in 2013, FFO was consistent with the prior year at
$222 million. On a comparable or same-store basis, infrastructure FFO increased by 11%, due primarily to growth in our utilities
rate base, higher volumes in our transport operations and inflation indexation across most of our businesses. These positive
variances were offset by the foregone contribution from assets that were sold in prior periods.
2014 ANNUAL REPORT 35
Private equity: FFO in our private equity operations was $369 million. Private equity FFO declined due to a lower level of
realized disposition gains as well as significantly lower pricing within our panelboard manufacturing operations. This was
partially offset by improved pricing and volumes in our natural gas businesses and the contribution from capital deployed.
Realized disposition gains of $239 million in 2014 related primarily to the sale of a forest products business whereas the prior
year included $316 million of realized disposition gains on asset dispositions.
Residential development: Our North American operations FFO increased 56% to $183 million as a result of improved revenues
and gross margins in our U.S. operations offsetting a lower contribution from Canada due to changes in product mix. FFO
improved by $41 million in our Brazilian operations; however we continue to experience a reduced level of launches and
contracted sales in this business.
Service activities: Construction operations FFO decreased by $10 million to $108 million due to a delay in the completion of
several large projects and negative foreign currency exchange. Property services FFO increased due to a higher level of activity
and sales volumes throughout our operations.
Corporate activities: FFO in 2013 included a $525 million gain on the settlement of a long-dated interest rate swap. We completed
$1.6 billion of term debt refinancing over the past 18 months, decreasing our cost of capital and resulting in $72 million of
interest savings compared to 2013. This positive variance was offset by lower returns from financial assets, which decreased by
$119 million to $40 million.
Common Equity by Segment
Common equity increased by $2.4 billion from $17.8 billion to $20.2 billion as at December 31, 2014. Significant variances in
common equity on a segmented basis consist of the following:
Property: Common equity by segment increased by $1.5 billion from $13.3 billion to $14.9 billion, due to the recognition of
$3.8 billion of fair value gains in 2014, of which $2.3 billion were attributable to the company. These included $3.2 billion
of gains on consolidated investment properties ($1.9 billion at share) primarily in our office properties, $526 million of mark-
to-market gains on BPY’s GGP warrants ($368 million at share) and $319 million of gains on our investment in Canary Wharf
($223 million at share). These positive variances were partially offset by a $558 million equity reduction on the privatization of
our office subsidiary by BPY and $557 million of common and preferred share distributions received from BPY.
Renewable energy: Common equity by segment was $4.9 billion at December 31, 2014, representing a $454 million increase
over the prior year. The contribution from $313 million of FFO and $2.0 billion of revaluation gains on property, plant and
equipment ($856 million at share, net of associated deferred income taxes) was partially offset by $566 of depreciation
and amortization ($303 million at share). Common equity by segment was also reduced by $270 million of distributions received
from BREP and negative foreign currency revaluation.
Residential development: We completed the privatization of our Brazilian residential operations, investing R$840 million
of capital, increasing our investment in BISA by $364 million to $785 million after considering the impact of earnings and
negative currency revaluation. Common equity invested in our North American operations was $1,135 million and increased
by $175 million over 2013 primarily due to the contribution of $183 million of FFO. In addition, we repaid $180 million of
leverage on our directly held residential development operations, resulting in a further increase in the common equity allocated
to this segment. These positive variances were partially offset by the impact of negative currency revaluation on our non-U.S.
dollar investments.
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
2014
$
2,160
$
(477)
2,096
435
3,674
(1,470)
(1,209)
$
5,209
$
2013
3,376
(434)
2,465
(85)
663
(1,455)
(686)
3,844
36 BROOKFIELD ASSET MANAGEMENT
ASSET MANAGEMENT
Overview
Our asset management operations consist of managing listed partnerships, private funds and listed securities within our
public markets portfolios. As at December 31, 2014, we managed approximately $89 billion of fee bearing capital, of which
approximately $58 billion was from clients and $31 billion was from Brookfield. We also provide transaction and other advisory
services.
Listed Partnerships: We manage publicly listed, perpetual capital entities with over $42 million of fee bearing capital, including
Brookfield Property Partners, Brookfield Renewable Energy Partners and Brookfield Infrastructure Partners. We are compensated
for managing these entities through base management fees which are primarily determined by the market capitalization of these
entities. We also are entitled to receive incentive distributions equal to a portion of increases in partnership distributions above
a pre-determined hurdle.
Private Funds: We manage $29 billion of fee bearing capital through 32 private funds. Private fund capital is typically committed
for 10 years with two one-year extension options. Our private fund investor base consists of 280 third-party clients with an
average commitment of $80 million. We are compensated through base fees which are generally determined on both called and
uncalled commitments, and are entitled to receive carried interests, which represents a portion of investment returns provided
that clients receive a minimum pre-determined return.
Public Markets: We manage numerous funds and separately managed accounts on behalf of third-party clients, focused on fixed
income and equity securities. We act as an advisor for these clients and earn base and performance fees for managing our public
securities portfolios.
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 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 and the returns
from the capital invested in our funds. The Brookfield fee bearing capital consists largely of our ownership interests in BPY,
BREP and BIP along with $7 billion invested in private funds.
The following table disaggregates our asset management FFO into fee related earnings, carried interests and realized disposition
gains to facilitate analysis:
FOR THE YEARS ENDED DECEMBER 31
(MILLIONS)
Funds from operations
Fee related earnings
Carried interests
Realized disposition gains
2014
2013
$
$
378
$
3
6
387
$
300
565
—
865
We do not recognize carried interests until the end of the relevant determination period under IFRS, 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 based on fund performance up to the date of the financial statements. Unrealized carried interests
are determined as if the fund was wound up at the reporting date, based on the estimated value of the underlying investments.
We disposed of a low margin, fixed income insurance asset management business during the year, which reduced fee bearing
capital by $7 billion and generated a $6 million realized disposition gain. This business generated $7 million of base management
fees during 2013.
Segment equity in our asset management operations was $323 million at December 31, 2014 (2013 – $216 million) and consists
of goodwill acquired through business combinations and working capital. We do not fair value our asset management operations
under IFRS and as a result, the fair value of these operations is not included within our common equity.
2014 ANNUAL REPORT 37
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 and other
Fee related earnings
2014
2013
$
625
$
48
21
69
763
(385)
$
378
$
502
32
30
53
617
(317)
300
Fee related earnings increased by 26% to $378 million for the year, primarily as a result of increases in fee bearing capital and
associated base management fees, offset in part by increases in operating costs that was largely attributable to growth.
Base management fees increased 25% to $625 million compared to $502 million in the prior year. Base management fees
from our listed partnerships increased by $82 million to $284 million and include $256 million of base management fees from
BPY, BIP and BREP. Base fees from BPY increased by $64 million during 2014 due to increases in capitalization including
$3.3 billion of equity issued as part of the privatization of an office subsidiary in the second quarter of 2014 and a 15% increase
in the market price of BPY’S equity units. Our private funds contributed $246 million of base fees, representing a $34 million
increase over the prior year from fees generated on additional commitments, and a full year of base fees on commitments to our
flagship real estate and infrastructure private funds which closed in 2013. We recorded $18 million of catch-up fees in 2013 in
respect of prior years that were crystallized upon the final close of our flagship property fund. Base fees from our public markets
activities increased by $25 million to $95 million due to increased values and new client commitments.
We received $48 million of incentive distributions from Brookfield Infrastructure Partners and Brookfield Renewable Energy
Partners, representing an increase of 50% from 2013. The growth reflects increases in unit distributions by BIP and BREP of
12% and 7%, respectively.
We earned $21 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. We earned $30 million of
performance fees in 2013.
Our transaction and advisory operations are primarily focused on real estate and infrastructure transactions. Advisory fees
totalled $48 million (2013 – $47 million) and we earned $13 million (2013 – $1 million) of transaction fees on completing
co-investment transactions.
Direct costs and other 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, were
50% for the year, compared to 47% in 2013, excluding the aforementioned $18 million catch-up fee. Direct costs increased by
$68 million year-over-year due to expansion in our operations and include $12 million of non-controlling interests in fee related
earnings recorded by partially owned entities (2013 – $nil).
38 BROOKFIELD ASSET MANAGEMENT
Carried Interests
We generated $178 million of unrealized carried interest during 2014 based on investment performance compared to $195 million
in 2013. Strong performance in local currencies was partially offset by lower U.S. dollar values due to the strengthening
U.S. dollar.
Accumulated unrealized carried interests totalled $488 million at December 31, 2014. We estimate that direct expenses of
approximately $174 million will arise on the realization of the amounts accumulated to date, of which $61 million relates to
the carry generated in the year. We realized $8 million of carried interest during the year, or $3 million of net clients costs and
non-controlling interests, upon completion of the relevant determination period. We realized $558 million of carried interest in
2013, 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, which accumulated over a period of five years. The amount of unrealized carried interests and
associated costs are shown in the following table:
Unrealized
Carried
Interest
2014
Direct
Costs
Unrealized
Carried
Interest
Net
2013
Direct
Costs
Net
$
318
$
(118)
$
200
$
689
$
(57)
$
632
AS AT DECEMBER 31
(MILLIONS)
Unrealized balance, beginning
of year
In-period change
Generated
Less: realized
178
(8)
(61)
5
117
(3)
195
(566)
(62)
1
Unrealized balance, end of year
$
488
$
(174)
$
314
$
318
$
(118)
$
The funds to which unrealized carried interest relates have a weighted average term to realization of five years. Recognition of
carried interest is dependent on future investment performance.
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, 2014
December 31, 2013
Listed
Partnerships1
21,759
$
$
Private
Funds1
15,644
$
Public
Markets
5,315
$
10,880
9,382
—
—
2,169
8,137
2,588
—
—
6,848
—
5,818
$
Total
42,718
13,049
24,367
2,588
5,818
$
$
42,021
32,997
$
$
28,538
25,625
$
$
17,981
$
88,540
20,671
n/a
$
79,293
133
(565)
200
2013
30,313
11,494
21,717
2,683
13,086
n/a
1.
Includes Brookfield capital of $22.7 billion (2013 – $19.7 billion) in listed partnerships and $7.0 billion (2013 – $6.0 billion) in private funds
Listed partnership capital includes the market capitalization of our listed issuers: BPY, BREP, BIP, Brookfield Canada Office
Properties, Acadian Timber Corp. and several smaller listed entities, and also includes corporate debt and preferred shares issued
by these entities to the extent these are included in determining base management fees.
Private fund capital includes $6.9 billion of third-party uninvested capital, which is available to pursue acquisitions within each
fund’s specific mandate. The uninvested capital includes $2.8 billion for property funds, $3.4 billion for infrastructure funds
and $0.7 billion for private equity funds, and have an average term during which they can be called of approximately two years.
We expect that $2.0 billion of this capital, which is currently committed for investments, will be called in the first six months
of 2015. Private fund fee bearing capital has a remaining average term of seven years (nine years with two one-year extension
options). Private fund capital also includes approximately $3.2 billion of co-investment capital.
Public markets capital includes portfolios of fixed income and equity securities, with a particular focus on real estate and
infrastructure, including high yield securities. Fee bearing capital within our public markets is typically redeemable at a client’s
option.
2014 ANNUAL REPORT 39
The principal changes in fee bearing capital during 2014 are set out in the following table:
FOR THE YEAR ENDED DECEMBER 31, 2013
(MILLIONS)
Balance, December 31, 2013
Inflows
Outflows
Expired capital
Distributions
Market activity
Foreign exchange and other
Change
Sale of fixed income operations
Balance, December 31, 2014
Listed
Partnerships
32,997
$
$
5,398
—
—
(1,584)
6,215
(1,005)
9,024
—
42,021
$
$
Private
Funds
25,625
4,744
(294)
(533)
(684)
—
(320)
2,913
Public
Markets
20,671
5,229
(2,283)
—
—
1,324
—
4,270
(6,960)
17,981
$
$
Total
79,293
15,371
(2,577)
(533)
(2,268)
7,539
(1,325)
16,207
(6,960)
88,540
—
28,538
$
$
Fee bearing capital increased to $89 billion during 2014. Net increases of $16.2 billion in the year were offset in part by the sale
of a fixed income business with $7 billion of fee bearing capital. Listed partnership fee bearing capital increased by $9 billion
to $42 billion due to $5.4 billion of equity issuances and increases in unit values. Investing cash reserved by BPY for the
acquisition of an additional 28% interest in Canary Wharf will increase listed partnership capital by $1.8 billion. Private fund
capital increased by $3 billion to $29 billion as a result of new inflows. Net inflows from new and existing clients and market
appreciation added $4.3 billion to our public markets fee bearing capital.
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 activities. We have more than $11 billion of private funds in marketing for a variety of investment
strategies and hope to be in a position to begin an additional $10 billion of fundraising during 2015 by sufficiently investing
existing funds. Looking forward, we continue to focus on expanding fee bearing capital and associated FFO through launching
larger private funds, expanding the range of our products and selectively widening our fund focus by region.
PROPERTY
Overview
We own virtually all of our commercial property assets through our 62% economic ownership interest in Brookfield Property
Partners. BPY is listed on the New York and Toronto Stock Exchanges and had an equity capitalization of $18.1 billion at
December 31, 2014, based on public pricing. We also own $1.3 billion of preferred shares of BPY which yield 6.2% based on
their redemption value.
BPY privatized its office subsidiary, Brookfield Office Properties, during the second quarter of 2014, acquiring the 51% of common
shares that it did not own. Two-thirds of the transaction consideration was in the form of BPY equity units and the remaining
one-third was cash, which resulted in a decrease of our economic ownership interest in BPY from 89% at December 31, 2013 to
68%. During the fourth quarter of 2014, BPY issued $1.8 billion of convertible preferred equity, which reduced our economic
ownership interest in BPY from 68% to 62% on an “as-converted” basis.
BPY’s operations are principally organized as follows:
Office Properties: We own interests in and operate commercial office portfolios, consisting of 244 properties containing over
112 million square feet of commercial office space. The properties are located in major financial, energy, technology and
government cities in North America, Europe, Australia, Brazil and India. We also develop office properties on a selective basis
and our office development assets consist of interests in 21 sites totalling approximately 19 million square feet. BPY owned a
22% equity interest in Canary Wharf at December 31, 2014, which increased to 50% in March 2015. Of the total properties in
our office portfolio, 211 properties, consisting of 94 million square feet, are consolidated and the remaining interests are equity
accounted under IFRS.
Retail Properties: Our retail portfolio consists of interests in 164 retail properties in the United States and Brazil, encompassing
154 million square feet. Our North American retail operations are held through our 33% fully diluted interest in GGP and a
34% interest in Rouse Properties, both of which are equity accounted. Our Brazilian operations are held through a 35% owned
institutional fund managed by us. We also own an interest in a retail property company in Shanghai, China. Of the total properties
in our retail portfolio, 157 properties, consisting of 152 million square feet, are equity accounted investments and the remaining
are consolidated under IFRS. In addition, our retail mall portfolio has a redevelopment pipeline that exceeds $600 million (on a
proportionate basis).
40 BROOKFIELD ASSET MANAGEMENT
Other Properties: We own and operate industrial, multifamily, hotel and triple net lease properties. Our industrial portfolio
consists of interests in 168 operating properties in North America and Europe, containing 44 million square feet of space. We also
own and manage a land portfolio with the potential to build 54 million square feet of industrial properties. Of the total properties
in our industrial portfolio, 116 properties, consisting of 25 million square feet, are consolidated and the remaining interests are
equity accounted. Our multifamily portfolio includes over 27,800 multifamily units in the United States and Canada, while our
hotel portfolio includes 11 properties with 8,700 rooms. Our triple net lease portfolio consists of over 300 properties that are
leased to automotive dealerships across the United States and Canada.
The following table disaggregates segment FFO and segment equity into the amounts attributable to our ownership interests in
BPY, the amounts represented by other property assets and liabilities and realized disposition gains to facilitate analysis:
AS AT AND FOR THE YEARS ENDED DECEMBER 31
(MILLIONS)
Brookfield Property Partners
Equity units1,2
Preferred shares
Other
Property assets
Liabilities and other carrying costs
Realized disposition gains
Funds from
Operations
Common Equity
by Segment
2014
2013
2014
2013
$
$
499
76
575
14
(35)
330
884
$
492
56
548
6
(28)
28
$
13,681
$
1,275
14,956
462
(541)
—
12,180
1,275
13,455
469
(585)
—
$
554
$
14,877
$
13,339
1.
2.
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 a 62% economic ownership interest in BPY
Represents our share of BPY’s FFO of $758 million (2013 – $565), adjusted to exclude $46 million (2013 – $38 million) of FFO related to asset management and service
activities conducted by BPY and its subsidiaries
FFO within our property segment was $884 million and increased from the $554 million recorded in 2013 due primarily to
$330 million of realized disposition gains recorded in 2014 compared to $28 million in 2013. FFO excluding realized disposition
gains increased due to our increased ownership interest in our office portfolio and positive leasing spreads offset by increased
management fees and interest expense. Realized disposition gains in the current year include $139 million of gains on the
disposition of assets in our U.S. office portfolio, a $67 million gain within our U.S. retail portfolio, a $41 million gain on the sale
of a UK office property, a $30 million gain on the repayment of a distressed European debt investment and $53 million of gains
on the sale of assets in our opportunistic funds.
Brookfield Property Partners
BPY’s FFO for 2014 was $758 million, of which our share was $575 million. We received $499 million through our equity
interest and an additional $76 million as dividends on preferred shares that were issued to us on the formation of BPY
(2013 – $56 million). This represents an increase of $27 million from the $548 million of FFO recorded during 2013.
Office Properties
BPY recorded FFO of $539 million from its office property operations in 2014 compared to $354 million 2013. The $185 million
increase in BPY’s office FFO was due primarily to an increase in the weighted average ownership in office portfolio from 49% to
87% in the second quarter of 2014. Same-property revenues at most of our United States and European properties increased due
to higher occupancy levels and positive leasing on expiring leases. These positive variances were partially offset by a decrease
in revenues following an expected large lease expiry at Brookfield Place, New York in October 2013, the negative impact of
foreign currency exchange and the receipt of a $14 million distribution from Canary Wharf in 2013, whereas we did not receive
a distribution in the current period.
Leasing activity during the year consisted of 10.8 million square feet of new and renewal leases at an average in-place net
rent of $34.43, which was 34% higher than expiring net rents of $25.74 per square foot. This resulted in a 2.0% increase in
average in-place net rents from $28.81 to $29.39 per square foot, after reflecting the impact of currency revaluation. Overall
occupancy decreased from the prior year to 86.8% (2013 – 88.0%) as we continued to recycle capital, disposing of mature, high
occupancy office properties and acquiring under leased properties. Nearly 65% of the current year’s leasing was in respect
of new leases, which resulted in tenant improvements and leasing costs related to leasing activity increasing from $42.99 to
$73.14 per square foot. This increase was due to a high percentage of leasing activity associated with new leases that were
concentrated in New York City where leasing costs tend to be higher. Our overall office portfolio in-place net rents are currently
21% below market net rents.
2014 ANNUAL REPORT 41
We currently have 5.1 million square feet of active development projects, including Manhattan West in New York, Bay Adelaide
Centre East in Toronto, Brookfield Places in Calgary and Perth, as well as London Wall Place and Principal Place in London
and the Giroflex towers in São Paulo. These projects are 50% pre-leased in aggregate and we estimate an additional cost of
$2.0 billion to complete construction.
Retail Properties
BPY’s FFO from retail operations, which is derived largely from its ownership interest in GGP, increased to $491 million in 2014
(2013 – $298 million), of which our share was $353 million (2013 – $280 million). The $193 million increase in BPY’s FFO
from retail properties is primarily the result of a 6% increase in our weighted average ownership of GGP from 23% to 29%, a
4.5% increase in same-store net operating income at GGP and an overall reduction in interest expense, as GGP benefitted from
reduced interest rates on refinancing activities. Retail FFO also benefitted from the contribution of our $500 million investment
in a retail property company in Shanghai, China, $157 million of which was contributed by BPY and our institutional partners
funded the remaining portion. This investment contributed $12 million of FFO to BPY.
Our retail portfolio occupancy rate remained relatively unchanged at 95.8% as at December 31, 2014. We leased approximately
7.8 million square feet during the year increasing in-place rents to $54.71 at December 31, 2014 from $53.15 at December 31, 2013
on a suite-to-suite basis. At GGP, total sales, excluding anchors, increased 2.8% compared to the prior year and suite-to-suite
lease spreads increased by 18.3% for executed leases commencing in 2014.
Industrial, Multifamily, Hotels and Triple Net Leased Assets
BPY owns industrial, multifamily, hotel and triple net leased property assets primarily through funds that are managed by us.
The carrying value of BPY’s investment in these operations is $1.6 billion as of December 31, 2014 (2013 – $0.9 million), and
its share of the associated FFO increased to $77 million (2013 – $61 million), primarily from a full year contribution from our
UK and U.S. industrial operations, the acquisition of value-add multifamily units, additional hotel investments in May 2014
through a strategic partnership, and the acquisition of a triple net lease portfolio, consisting of over 300 automotive dealerships,
in the fourth quarter of 2014. Offsetting the contribution from capital deployed, were the removal of FFO on dispositions, which
includes mature assets within the multifamily portfolios, a resort property and a portfolio of Mexican industrial properties.
Corporate
BPY’s FFO from its corporate segment was a charge of $349 million for the year ended December 31, 2014 compared to a charge
of $148 million in the prior year. The $201 million decrease in FFO from 2013 is attributable to an increase in interest expense
on BPY’s credit facilities, which were primarily drawn on to fund the privatization of Brookfield Office Properties Inc. (“BPO”).
Additionally, asset management fees paid during the year increased to $100 million from $36 million in 2013 primarily from an
increase in capitalization and a full year of operation.
Common Equity by Segment
Common equity by segment increased by $1.6 billion to $14.9 billion (2013 – $13.3 billion) primarily due to our share of BPY’s
net income, including fair value gains which are further described on page 22. This was partially offset by foreign currency
revaluation, distributions paid and a net equity reduction on the privatization of our office subsidiary.
Outlook and Growth Initiatives
Subsequent to year-end, BPY agreed to acquire Canary Wharf Group for approximately £2.6 billion, through a strategic
partnership. The UK portfolio will add 6.4 million square feet of premier office and retail properties to its leasing portfolio, and
11.2 million square feet of development assets.
We remain focused on the following strategic priorities:
•
•
•
•
Realizing value from our properties through proactive leasing and select redevelopment initiatives;
Prudent capital management, including refinancing mature properties and disposition of select mature or non-core assets;
Advancing development assets as the economy rebounds and supply constraints create opportunities; and
Renewing and extending borrowings to take advantage of the current low interest rate environment.
We anticipate realizing significant net revenue increases over 2015 and 2016 as a result of the leasing activity completed in
2014. Notably, Brookfield Place New York is now 95% leased, which will result in meaningful increases in FFO as the tenant
build-outs are completed in 2015 and 2016. We anticipate that these new leases will more than offset the FFO reduction from
the large lease expiry noted above.
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.
42 BROOKFIELD ASSET MANAGEMENT
We remain focused on harvesting capital from mature properties, which may result in the sale of assets, on a whole or partial
basis and to fund additional investment activity. The proceeds of these transactions will be utilized to repay our office property
bridge facility which has a term of two years.
Transaction activity is strong 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.
We continue to focus on completing our active developments and redevelopments, which have scheduled completion dates
between 2016 to 2019. In addition to our active developments, we have a 5.6 million square foot development pipeline and
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 63% economic ownership interest in Brookfield Renewable Energy
Partners. BREP is listed on both the NYSE and TSX and had an equity capitalization of $8.5 billion at December 31, 2014,
based on public pricing. BREP operates renewable energy facilities and owns them both directly as well as through our private
infrastructure funds.
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 and
the operations of BEMI:
AS AT AND FOR THE YEARS ENDED DECEMBER 31
(MILLIONS)
Brookfield Renewable Energy Partners1
Brookfield Energy Marketing
Realized disposition gains
Funds from
Operations
2014
359
(46)
—
313
$
$
$
$
2013
390
$
(119)
176
447
Common Equity
by Segment
$
2014
3,806
1,076
—
2013
3,534
894
—
$
4,882
$
4,428
1.
Brookfield’s economic ownership interest in BREP consists of 129.7 million redemption-exchange units, 40.0 million Class A LP units and 2.7 million general partnership
units; together representing a 63% economic ownership interest in BREP
Our share of BREP’s FFO decreased by $31 million to $359 million due to a contractual price decrease in a previously high
price contract, limited operations at a gas-fired plant, and negative foreign currency exchange, which was partially offset
by the contribution from assets acquired or commissioned during the year. In addition, our share of BREP’s FFO decreased
by $8 million as a result of our reduced weighted average ownership interest compared to 2013. BEMI incurred a $46 million
loss during the year, representing an improvement of $73 million over the prior year. FFO benefitted from strong pricing and
capacity sales, primarily in the first quarter of 2014.
BREP completed a $325 million unit issuance in June 2014, in which we did not participate, resulting in a reduction in our
economic ownership interest from 65% to 63%. In the first quarter of 2013, we completed a secondary offering of BREP and
recognized a $176 million realized disposition gain.
Brookfield Renewable Energy Partners
BREP owns one of the world’s largest, publicly traded, pure-play renewable energy portfolios with 6,700 MW of installed
capacity, and long-term average annual generation of 24,000 GWh. This portfolio includes 204 hydroelectric generating stations
on 72 river systems and 28 wind facilities, diversified across 13 power markets in the United States, Canada, Brazil and Europe.
BREP also has an approximate 2,000 MW development pipeline spread across all of our operating jurisdictions.
2014 ANNUAL REPORT 43
FOR THE YEARS DECEMBER 31
(GIGAWATT HOURS AND $MILLIONS)
Actual
Generation (GWh)
Long-Term
Average (GWh)
Funds from
Operations
2014
2013
2014
2013
2014
2013
Revenues
Hydroelectric
Wind energy
Co-generation
Direct operating costs
Interest expense and other
Non-controlling interest
BREP FFO
Brookfield’s share
19,234
3,103
211
22,548
19,232
2,220
770
22,222
19,531
3,417
348
23,296
18,399
$
1,414
$
1,409
2,538
899
21,836
308
29
1,751
(524)
(484)
(183)
560
359
$
$
258
71
1,738
(530)
(470)
(144)
594
390
$
$
BREP’s FFO decreased by $34 million to $560 million (2013 – $594 million), of which our share was $359 million
(2013 – $390 million). Generation levels totalled 22,548 GWh, 3% below the long-term average of 23,296 GWh, and an increase
of 326 GWh (1%) compared to the same period of the prior year.
Hydroelectric generation of 19,234 GWh was 2% below long-term average (“LTA”) compared to generation that was 5% above
LTA in 2013. Generation from hydroelectric assets held throughout both reporting periods was 18,192 GWh, 5% below the
19,232 GWh produced in the prior year. Recently acquired and commissioned facilities and a full year’s contribution from
facilities acquired in 2013 produced 1,042 GWh. The variance in year-over-year results from existing facilities reflects the return
to more normal generation levels in the United States after experiencing very strong hydrological conditions across much of the
portfolio in the prior year. In Brazil, our participation in the hydrological balancing pool mitigated the impact of drought-like
conditions and resulted in generation being only 8% lower than assured levels.
Generation from the wind portfolio of 3,103 GWh, was 9% below long-term average of 3,417 GWh. Our recent acquisition of a
wind portfolio in Ireland contributed 891 GWh, partly offsetting the lower wind conditions across the rest of the wind portfolio
in the United States and Canada. Our 110 MW natural gas-fired co-generation plant in Ontario produced nominal generation
in the period as a result of low power prices relative to gas market prices. The operations at this facility have been temporarily
suspended but remain available to be restarted should economic conditions allow.
Revenues for the year totalled $1,751 million. Our recently acquired and commissioned assets contributed $151 million of
revenue. Stronger merchant pricing and annual escalations in our power purchase agreements partially offset lower generation
from existing U.S. hydroelectric facilities and a contractual price decrease in a previously high price contract, resulting in a
net $46 million decrease in revenue. Generation in Canada was consistent with the prior year in aggregate; however stronger
performance from facilities with higher relative contract prices contributed an additional $9 million. In Brazil, revenues declined
$14 million as the impact of lower generation was partially offset by our ability to capture strong merchant power pricing by
keeping a portion of our output uncontracted. Revenue from our natural gas-fired plant in Ontario decreased by $40 million
reflecting limited operations throughout 2014. Revenues in Canada and Brazil were also impacted by negative foreign currency
variation.
Direct operating costs totalled $524 million representing a decrease of $6 million attributable to the savings achieved from the
cost efficiencies at our operations, the reduction in power purchased in the open market for our co-generation facilities, and
the benefit of reduced Canadian and Brazilian costs in U.S. dollars, based on a stronger U.S. dollar in 2014. The incremental
expense related to the growth in the portfolio was $46 million.
Interest expense totalled $415 million representing an increase of $5 million. The financing relating to the growth in our portfolio
was partly offset by the decrease in borrowing costs due to repayments in the normal course on existing subsidiary borrowings
and on BREP’s credit facilities. Other expenses including management service costs of $51 million representing an increase of
$10 million primarily attributable to the increase in the market value BREP’s equity units and the issuance of LP Units in the
second quarter of 2014.
The $39 million increase in non-controlling interests is primarily due to new assets acquired being held through our private
funds, and accordingly, we receive only a portion of the FFO that they generate.
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 as capacity and renewable energy
credits or premiums.
BEMI purchased approximately 8,900 GWh (2013 – 8,800 GWh) of electricity from BREP during 2014 at an average price
of $73 per megawatt hour (“MWh”) (2013 – $74 per MWh) and sold this power at an average price, including ancillary
revenues, of $68 per MWh (2013 – $61 per MWh), resulting in an FFO deficit of $46 million (2013 – $119 million). Ancillary
44 BROOKFIELD ASSET MANAGEMENT
revenues, which include capacity payments, green credits and revenues generated for the peaking ability of our plants, totalled
$127 million (2013 – $107 million) and increased average realized prices by $14 per MWh (2013 – $12 per MWh).
Approximately 3,300 GWh of BEMI power sales were pursuant to long-term contracts at an average price of $80 per MWh
(2013 – $85 per MWh). The balance of approximately 5,600 GWh was sold in the short-term market at an average price of
$60 per MWh, including ancillary revenues (2013 – $46 per MWh).
Common Equity by Segment
Common equity by segment increased by $454 million to $4.9 billion during the period, primarily due to the contribution from
FFO and the increased value of our portfolio, partially offset by distributions received from BREP. We recorded a $47 million
dilution gain directly to equity on the reduction of our ownership interest in BREP following an equity issue in June 2014, which
we did not participate in.
Outlook and Growth Initiatives
Acquisition and development activities completed during the year increased our estimated annualized generation by 2,501 GWh,
which includes the contributions from a recently acquired wind portfolio in Ireland. This was our first acquisition in Europe and
provides us with a strong foundation to expand our renewable energy business. More recently, we announced the acquisition of
a 488 MW diversified portfolio which will greatly expand our operating capacity in Brazil.
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. Uncontracted power
is being sold at the current market price 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 85% of our long-term average generation for
both 2015 and 2016, based on long-term average generation, declining to 74% in 2017. The average price at which power is sold
under these agreements is $81 per MWh in 2015, and averages $83 per MWh over the next five years.
BEMI is expected to purchase approximately 8,450 GWh of electricity from BREP during each of the next five years based
on long-term average generation, at an average price of $70 per MWh, which increases annually based on a percentage of
inflation. BEMI has entered into long-term contracts to sell approximately 3,200 GWh 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
$71 per MWh. The remaining 5,250 GWh 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 their long-term
averages, however significant variances may occur in any given year. Our North American assets have the ability to store water
in reservoirs approximating 29% 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% economic ownership interest in Brookfield Infrastructure
Partners. BIP is listed on the New York and Toronto Stock Exchanges and had an equity capitalization of $8.8 billion at
December 31, 2014, based on public pricing. BIP owns a number of these infrastructure businesses directly as well as through
private funds that we manage. We also have direct investments in sustainable resources operations.
The following table disaggregates segment FFO and segment equity into the amounts attributable to our economic ownership
interest 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
$
2014
194
28
—
222
$
2013
185
37
250
472
$
$
Common Equity
by Segment
$
2014
1,390
707
—
2013
1,478
693
—
2,097
$
2,171
$
$
1.
Brookfield’s 28% economic ownership interest in BIP consists of 59.8 million redemption-exchange units
2014 ANNUAL REPORT 45
We disposed of our direct and indirectly held Pacific Northwest timberlands in the prior year, generating proceeds of $600 million
and a $163 million realized disposition gain.
Brookfield Infrastructure Partners
BIP’s operations are principally organized as follows:
Utilities operations: consist of 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: are 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 operations are comprised of businesses with regulated tariff structures, such as our rail and toll road operations,
as well as unregulated businesses, such as our ports. Approximately 80% of our transport operations are supported by long-term
contracts or regulation.
Energy operations: consist of systems that provide energy transmission, 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.
BIP recorded $724 million of FFO in 2014 ($194 million at our share), representing a 5% increase from prior year as the benefit
of organic growth and contribution from new investments more than offset the elimination of FFO from assets that were sold in
prior periods as part of a capital recycling initiative.
FFO from utilities operations was $367 million ($105 million at our share), slightly below the prior year FFO of $377 million,
as the benefit from inflation indexation and contributions from organic growth investments over the past year were offset by the
elimination of FFO from the Australasian regulated distribution operation that was sold in the fourth quarter of 2013. Excluding
the impact of the sale, BIP’s utilities FFO increased by $39 million and benefitted from higher connections activity at our
UK regulated distribution business, inflation indexation, a larger regulated asset base and lower costs resulting from margin
improvement programs at a number of operations.
Transport FFO increased by $66 million to $392 million ($112 million at our share) during the year. South American toll roads
contributed an additional $43 million of FFO compared to the prior year, primarily from increased ownership in these operations
and an 8% increase in toll revenues versus the prior year due to increased tariffs and volumes. FFO also benefitted from the
contribution from a Brazilian rail business acquired during the third quarter, which generated $14 million of FFO; and improved
results at our UK port as economic conditions continue to improve in the region.
Energy FFO decreased by $2 million to $68 million ($19 million at our share). The expansion of our North American district
energy business and improved performance at our energy distribution businesses increased FFO by $6 million; however this was
offset by lower transportation volumes at our North American energy transmission business.
Sustainable Resources
Sustainable resource FFO of $28 million decreased by $9 million from the prior year due to the inclusion of $17 million of
FFO from assets disposed in 2013. These investments include timberlands in the northeastern U.S. and Canada, and capital in a
number of timber and agriculture private funds managed by us.
Common Equity by Segment
Infrastructure common equity by segment was lower than the prior year, as the contribution from FFO and positive appraisal
gains was offset by negative currency revaluation and distributions paid to us. A significant amount of the carrying value of
our infrastructure operations is recorded as intangible assets which are held at cost and are amortized over their useful lives as
opposed to being recorded at fair value. Accordingly, common equity by segment is reduced by the amortization recorded on
these assets.
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. 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 $600 million of new investments in these operations through our private infrastructure funds along with our partners.
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 $3.3 billion, as well as direct investments in several private companies and
public companies including Norbord Inc. (“Norbord”).
FFO was $369 million and included $239 million of disposition gains. FFO excluding disposition gains decreased from
$296 million to $130 million in 2014 due largely to a decrease of $91 million in our share of Norbord’s FFO due to 31% lower
North American oriented strand board (“OSB”) prices. OSB prices averaged $218 per thousand square feet (“Msf”) in 2014
compared to $315 per Msf in 2013. In addition, the prior year included $46 million of additional FFO from Western Forest
Products Inc. (“Western Forest Products”), which was disposed of in 2014. Our private funds contributed $61 million of FFO,
representing a $5 million decrease from the 2013. Improved pricing and production in our natural gas businesses was offset by
the impact of reduced pricing and volumes and negative currency revaluation in our indirectly held wood products operations.
We recognized $239 million of realized disposition gains in 2014, primarily related to the sale of Western Forest Products. The
prior year included a $200 million disposition gain on the sale of a private fund investee company as well as gains on the partial
sales of Western Forest Products and Norbord.
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 and 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
Western Forest Products and other investments
Realized disposition gains
Funds from
Operations
Common Equity
by Segment
2014
2013
2014
2013
$
$
61
29
40
239
369
$
$
66
120
110
316
612
$
$
726
189
135
—
474
246
385
—
$
1,050
$
1,105
Our private funds include 16 investments in a diverse range of industries. Our average investment is $23 million, excluding our
largest single investment of $374 million using IFRS values. 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, 2014 was approximately $618 million based on market prices,
compared to our carrying value of $189 million.
Segment equity decreased by $55 million from 2013 to $1.1 billion, representing the distribution of capital following asset
monetizations partially offset by the contribution from earnings and capital invested in our private funds.
Outlook and Growth
In December, Norbord and Ainsworth announced that they have entered into an arrangement under which Norbord will acquire
all of the outstanding shares of Ainsworth Lumber Co. Ltd. The transaction has received shareholder and anti-trust approvals,
and we anticipate closing by March 31, 2015. The combined company will be one of the largest and lowest-cost OSB producers
globally, with a portfolio of high-quality assets that produce a wide range of products for residential, industrial and specialty
applications.
We have now fully invested our most recent private equity fund and continue to focus on enhancing and realizing value within
our existing investments. With the current volatility in energy prices we are actively reviewing opportunities to invest in and
around the oil sector.
We will continue to focus on investing at attractive valuations in sectors where we can leverage our real asset and related
operating platform expertise through our private equity funds which will be the conduit for all of our opportunistic private equity
investments.
2014 ANNUAL REPORT 47
RESIDENTIAL DEVELOPMENT
Our residential development operations consist primarily of direct investments in two companies: Brookfield Residential
Properties Inc. (“Brookfield Residential” or “BRP”) and Brookfield Incorporações S.A. (“BISA”), as well as directly held
operations in Australia.
Our North American business is conducted through BRP. As at December 31, 2014, we held approximately 71% of BRP, which
was listed on the New York and Toronto stock exchanges. BRP is active in 11 principal markets located primarily in Canada,
and the U.S., and controls over 105,000 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. In December 2014, we entered into a definitive arrangement to acquire the 29%
of common shares of Brookfield Residential that we do not already own by way of a court-approved plan of arrangement for
$24.25 per common share. We completed this transaction on March 13, 2015, acquiring 32.4 million common shares of BRP.
Our Brazilian business is conducted through BISA, 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 six other markets that collectively
account for the majority of the Brazilian real estate market. We acquired 262 million shares of BISA during November 2014,
increasing our ownership from 45% to 87%, and are completing a process to acquire the remaining shares of BISA that we do
not own.
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. Our Brazilian residential
development operations have been affected by weaker market fundamentals, which have resulted in both construction delays
and a reduction in overall project launches. As a result, we have recorded a $87 million impairment of our Brazilian residential
goodwill.
The following table disaggregates segment FFO and segment equity into the amounts attributable to our operations by region to
facilitate analysis:
AS AT AND FOR THE YEARS ENDED DECEMBER 31
(MILLIONS)
Residential
North America (BRP)
Brazil (BISA)
Australia and other
Funds from
Operations
Common Equity
by Segment
2014
2013
2014
2013
$
$
183
(20)
1
$
117
$
1,135
$
(61)
(10)
785
160
960
421
54
164
$
46
$
2,080
$
1,435
Funds from operations from BRP increased by 56% to $183 million as a result of improved revenues and gross margins in our
U.S. operations offsetting a lower contribution from Canada due to changes in product mix. Overall gross margins for land and
housing were 31% for the quarter. The average home selling price increased 16% to $516,000, compared to $444,000 for the
same period in 2013. Single family lot sales decreased to 2,107 lots from 2,402 lots in 2013 and 216 fewer raw and partially
finished acres were sold in 2014. This was partially offset by a 14% increase in the average lot selling price. We have 29 active
land communities and 61 active housing communities, up from 21 and 47 in 2013, respectively.
We delivered 43 projects in our Brazilian operations during 2014, recognizing $1,095 million of revenue. We continue to
experience reduced level of launches and contracted sales in this business and we are focusing on operational efficiencies
to increase margins.
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. Recently announced changes to lending standards and the
proposed reduction in FHA premiums should help to further stimulate activity in the U.S. market. In Canada, the impact of
declining commodity prices on the housing market may have offsetting impacts. We believe the rapid decline in oil prices could
present challenges for the energy-driven Alberta market. Elsewhere however, we believe the overall impact of lower oil and gas
prices could prove to be positive for both the Canadian and U.S. consumer and therefore the homebuilding industry. Net new
home orders increased 1.1% to 2,382 units in 2014 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 8.1% and 9.4%, respectively, over the prior year, with much
of the increase occurring within our U.S. operations. At the end of 2014, the North American backlog of homes sold but not
delivered was 989, with a sales value of $490 million, compared to 915 homes with a value of $448 million at the same time
last year.
48 BROOKFIELD ASSET MANAGEMENT
Brazil is currently experiencing lower growth, which is having a negative impact on current returns. We intend to restructure the
company’s operations and refocus the company in select key markets.
SERVICE ACTIVITIES
The following table disaggregates segment FFO and segment equity into the amounts attributable to our construction services
and property services businesses to facilitate analysis:
AS AT AND FOR THE YEARS ENDED DECEMBER 31
(MILLIONS)
Service activities
Construction
Property services
Funds from
Operations
Common Equity
by Segment
2014
2013
2014
2013
$
$
108
44
152
$
$
118
39
157
$
$
$
914
306
938
348
1,220
$
1,286
We recognized $108 million of construction FFO during 2014, representing a decrease of $10 million from the prior year.
Revenues and direct costs decreased by $551 million and $541 million to $2,669 million and $2,561 million, respectively, due
to a delay in large projects in the first three quarters of 2014 across several geographies and negative foreign currency exchange.
Operating margins decreased to 7.1% from 7.5% in 2013. Work-in-hand continued to grow during the year, particularly in the
fourth quarter, increasing to $6.4 billion at the end of December 31, 2014 from $3.4 billion at December 31, 2013 primarily due
to the successful contract of a large stadium in Perth, Australia. Our work book consists of 85 projects with an average project
life of 2.4 years, of which 1.2 years are remaining.
Property services fees include property and facilities management, leasing and project management and a range of real estate
services. The increase in FFO was due to increased activity and sale volumes throughout our operations, partially offset by the
impact of lower currency values for the Australian and Canadian dollars. Subsequent to year end, we acquired the 50% of our
Canadian and Australian facilities management operations that we do not own. This acquisition will facilitate a merger with
our wholly owned businesses in the Middle East and South America as part of a broader plan to create a leading global facilities
management business. We intend to expand our facilities management businesses to the United States and Europe, building on
client relationships across our 340 million square foot property portfolio.
CORPORATE ACTIVITIES
Our corporate operations primarily consist of allocating capital to our operating platforms, principally through our listed
partnerships (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
Realized disposition gains
Corporate and subsidiary borrowings
Capital securities and preferred equity1
Corporate costs and taxes/net working capital
2014
40
(6)
(230)
(2)
(133)
(331)
$
$
2013
159
525
(291)
(13)
(157)
223
$
$
2014
897
—
(4,075)
(3,549)
351
(6,376)
$
$
2013
814
—
(3,975)
(3,261)
223
(6,199)
$
$
1.
FFO excludes preferred share distributions of $154 million (2013 – $145 million)
We invest capital within our corporate operations into a variety of financial assets and enter into financial contracts to manage
our foreign currency and interest rate risks. Our financial assets consist of $1,197 million of cash and financial assets, which are
partially offset by $300 million (2013 – $782 million) of deposits and other liabilities.
2014 ANNUAL REPORT 49
FFO from these activities includes dividends and interests from our financial assets, mark-to-market gains or losses and realized
disposition gains or losses. We describe cash and financial assets, corporate borrowings and preferred shares in more detail
within Part 4 – Capitalization and Liquidity.
Interest expense on corporate and subsidiary borrowings declined by $61 million compared to 2013. We terminated a long-dated
interest rate swap in the third quarter of 2013 through a one-time $905 million payment, which resulted in us no longer incurring
interest expense in the current year (2013 – $87 million) and the recognition of a $525 million gain. We financed the repayment
through a series of medium-term note issuances, which decreased our cost of capital by nearly 500 basis points.
We redeemed our remaining C$175 million of capital securities on April 6, 2014, using the proceeds from the issuance of
C$200 million, Series 38 4.4% preferred shares in the first quarter. We issued and redeemed C$300 million, Series 40 4.5%
preferred shares and C$300 million, Series 22 7% preferred shares in the second and third quarter, respectively. We also issued
C$300 million, Series 42 4.5% rate reset preferred shares.
Net working capital includes corporate accounts receivable, accounts payable, other assets and liabilities and our corporate
net deferred income tax asset of $567 million (2013 – $625 million). Net working capital also includes a $570 million loan
receivable from BPY.
50 BROOKFIELD ASSET MANAGEMENT
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.
We maintain sufficient liquidity at the corporate level and within our key operating platforms in order to enable us to react to
attractive investment opportunities and deal with contingencies when they arise. 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
dispositions and refinancings. Accordingly, we believe we have the necessary liquidity to manage our financial commitments
and to capitalize on attractive investment opportunities.
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), proportionally consolidated and consolidated
basis.
AS AT DECEMBER 31
(MILLIONS)
Corporate borrowings
Non-recourse borrowings
Property-specific mortgages
Subsidiary borrowings
Accounts payable and other
Deferred tax liabilities
Subsidiary equity obligations
Equity
Non-controlling interests
Preferred equity
Common equity
Consolidated
Corporate
Proportionate
20141
4,075 $
2013
3,975 $
2014
4,075 $
2013
3,975 $
20142
4,075 $
2013
3,975
$
41,674
8,329
54,078
10,474
8,140
3,541
29,545
3,549
20,153
53,247
35,495
7,392
46,862
10,316
6,164
1,877
—
—
4,075
1,158
50
—
—
—
3,975
978
24
163
23,555
5,174
32,804
6,945
4,781
2,149
26,647
3,098
17,781
47,526
112,745 $
—
3,549
20,153
23,702
28,985 $
—
3,098
17,781
20,879
26,019 $
—
3,549
20,153
23,702
70,381 $
20,319
3,998
28,292
6,041
3,737
655
—
3,098
17,781
20,879
59,604
Total capitalization
$
129,480 $
1.
2.
Reflects liabilities associated with assets held for sale on a consolidated basis
Reflects liabilities associated with assets held for sale on a proportionate basis
2014 ANNUAL REPORT 51
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, such as our investment
in General Growth Properties and several of our infrastructure businesses.
The increase in consolidated borrowings reflects additional non-recourse asset-specific and subsidiary borrowings relating to
newly acquired or consolidated assets and businesses.
Corporate Capitalization
Our corporate (deconsolidated) capitalization shows the amount of debt that has recourse to the Corporation. Corporate
borrowings increased by $100 million compared to 2013 due to a $185 million increase in term debt, in U.S. dollars, partially
offset by an $88 million reduction in short-term borrowings. We issued C$500 million of medium-term notes during the year,
which was partially offset by a $245 million reduction in the value of our Canadian dollar term debt due to a lower Canadian
dollar relative to the U.S. dollar. We also issued C$800 million of rate-reset preferred shares during the year, the proceeds of
which were primarily utilized to refinance the redemption of our remaining C$175 million of capital securities on April 6, 2014
and C$300 million of rate-reset preferred shares on September 30, 2014.
Common and preferred equity totals $23.7 billion (2013 – $20.9 billion) and represents approximately 82% of our corporate
capitalization.
Corporate borrowings are further described on page 53.
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 increased since 2013 as a result
of our increased ownership of our office portfolio, and the associated mortgage debt, which increased from 45% to 68% at
December 31, 2014, upon completion of the privatization of our office subsidiary as well as our share of BPY’s $1.5 billion
bridge facility which financed one-third of the acquisition.
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
2014
$
97
$
1,170
626
3,465
927
6,285
3,160
9,445
$
$
2013
179
498
33
2,758
1,479
4,947
3,663
Corporate
2014
2013
$
61
186
17
344
47
655
542
141
303
18
730
43
1,235
361
1,596
$
8,610
$
1,197
$
Consolidated Cash and Financial Assets
Consolidated cash and financial assets includes financial assets which are held by wholly owned and partially owned entities
throughout our operations and include both publicly traded investments as well as investments in private entities. Our consolidated
cash and financial assets include investments that are allocated to certain of our business operating segments. For example,
BPY’s 22% common share investment in Canary Wharf, which is carried at $1.3 billion within consolidated financial assets, is
included in our property segment.
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.
52 BROOKFIELD ASSET MANAGEMENT
Government and corporate bonds include short duration securities for liquidity purposes and longer dated securities that match
$96 million of insurance liabilities that are included in net working capital within our corporate segment.
Loans receivable exclude $570 million drawn on our $1.0 billion facility with BPY, which is included as a receivable within net
working capital in our corporate activities segment.
In addition to the carrying values of financial assets, we hold credit default swaps under which we have purchased protection
against increases in credit spreads on debt securities with a notional value of $800 million (2013 – $800 million). The carrying
value of these derivative instruments reflected in our financial statements at December 31, 2014 was a liability of $9 million
(2013 – liability of $12 million).
Corporate Borrowings
Corporate borrowings at December 31, 2014 included term debt of $3.5 billion (December 31, 2013 – $3.3 billion) and $574 million
(December 31, 2013 – $662 million) of commercial paper and bank borrowings pursuant to, or backed by, $2.0 billion of
committed revolving term credit facilities of which $1.7 billion have a five-year term and the remaining $300 million have a
three-year term. As at December 31, 2014, approximately $137 million (December 31, 2013 – $170 million) of the facilities were
utilized for letters of credit.
Term debt consists of public bonds, all of which are fixed rate and have maturities ranging from 2016 until 2035. These financings
provide an important source of long-term capital and an appropriate match to our long-term asset profile.
Our corporate term debt have an average term of nine years (December 31, 2013 – nine years). The average interest rate on our
corporate borrowings was 4.6% at December 31, 2014 (December 31, 2013 – 4.5%).
Property-Specific Borrowings
As part of our financing strategy, the majority of our debt capital is in the form of property-specific mortgages and project
financings, denominated in local currencies that have recourse only to the assets being financed and have no recourse to the
Corporation.
AS AT DECEMBER 31
($ MILLIONS)
Property
Renewable energy
Infrastructure
Residential development
Private equity and other
Corporate
Total
Average Term
Consolidated
2014
2013
2014
2013
5
10
10
1
3
1
6
4
12
10
3
1
1
6
$
25,543
$
21,577
5,991
6,520
1,531
752
27
4,907
6,078
2,214
342
377
$
40,364
$
35,495
The increase in property-specific borrowings of $4.9 billion during 2014 is due primarily to borrowings incurred or assumed
in respect of acquisitions. We repaid $371 million of borrowings within our Brazilian residential development operations,
which partially offset this increase. Borrowings are generally denominated in the same currencies as the assets they finance
and therefore the overall increase in the value of the U.S. dollar during the period resulted in our non-U.S. dollar denominated
borrowings decreasing in value.
Subsidiary Borrowings
We endeavour to capitalize our principal subsidiary entities to enable continuous access to the debt capital markets, usually on an
investment-grade basis, thereby reducing the demand for capital from the Corporation and sharing the cost of financing equally
among other equity holders in partially owned subsidiaries.
AS AT DECEMBER 31
($ MILLIONS)
Subsidiary borrowings
Property
Renewable energy
Infrastructure
Residential development
Private equity and other
Total
Average Term
Consolidated
2014
2013
2
6
4
7
2
4
2
7
4
7
3
4
$
$
2014
4,025
1,687
719
1,076
822
$
8,329
$
2013
3,075
1,717
435
1,266
899
7,392
2014 ANNUAL REPORT 53
Subsidiary borrowings generally have no recourse to the company. Property borrowings increased due to borrowings assumed
on acquisitions and our bridge facility utilized to fund the cash portion of the privatization of BPO. Private equity borrowings
decreased due to the deconsolidation of debt following the sale of Western Forest Products.
Subsidiary Equity Obligations
Subsidiary equity obligations consist of limited life funds and redeemable fund units, capital securities and preferred equity units.
AS AT DECEMBER 31
(MILLIONS)
Limited life funds and redeemable fund units
Capital securities and subsidiary preferred shares
Subsidiary preferred equity units
Total
Limited Life Funds and Redeemable Fund Units
2014
1,423
$
583
1,535
2013
1,086
791
—
3,541
$
1,877
$
$
Limited life funds and redeemable fund units increased by $337 million to $1.4 billion due to additional capital invested in
limited life funds and increased fund valuations.
Subsidiary Preferred Shares
Subsidiary preferred shares 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.
The company redeemed all of its directly issued Class A Series 12 preferred shares for cash effective April 6, 2014, and the
balance represent obligations of BPY and its subsidiaries.
Subsidiary Preferred Equity Units
BPY issued $1,800 million of exchangeable preferred equity units in three $600 million tranches redeemable in 2021, 2024
and 2026, respectively. The preferred equity units are exchangeable into equity units of BPY at $25.70 per unit, at the option
of the holder, at any time up to and including the maturity date. BPY may redeem the preferred equity units after specified
periods if the BPY equity unit price exceeds predetermined amounts. At maturity, the preferred equity units will be converted
into BPY equity units at the lower of $25.70 or the then market price of a BPY equity unit. The preferred equity units represent
compound financial instruments and the value of the liability and equity conversion option was determined to be $1,535 million
and $265 million, respectively, at the time of issuance. The Corporation is required under certain circumstances to purchase the
preferred equity units at their redemption value in equal amounts in 2021 and 2024 and may be required to purchase the 2026
tranche.
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
2014
2.11%
4.82%
4.59%
4.31%
2013
2.13% $
4.82%
5.00%
4.51% $
2014
480
753
2,316
3,549
$
$
2013
480
753
1,865
3,098
Fixed rate-reset preferred shares are issued with an initial fixed rate coupon that is reset after an initial period, typically between
five and seven years, at a pre-determined spread over the Canadian five-year government bond yield. The average reset spread
as at December 31, 2014 was 255 basis points.
On March 13, 2014, the company issued 8.0 million Series 38 fixed rate-reset preferred shares with an initial dividend rate of
4.4% for total gross proceeds of C$200 million and used the proceeds to redeem C$175 million of 5.4% capital securities.
On June 5, 2014, the company issued 12.0 million Series 40 fixed rate-reset preferred shares with an initial dividend rate of 4.5%
for total gross proceeds of C$300 million, and used the proceeds to redeem C$300 million of Series 22 preferred shares.
On October 8, 2014, the company issued 12.0 million Series 42 fixed rate-reset preferred shares, with an initial dividend rate of
4.5% for total gross proceeds of C$300 million.
54 BROOKFIELD ASSET MANAGEMENT
Non-controlling Interests
Non-controlling interests in our consolidated results primarily consist of co-investors interests in Brookfield Property Partners,
Brookfield Renewable Energy Partners and Brookfield Infrastructure Partners, and their consolidated entities as well as other
participating interests in our consolidated listed and unlisted investments as follows:
FOR THE YEARS ENDED DECEMBER 31
(MILLIONS)
Brookfield Property Partners
Brookfield Renewable Energy Partners
Brookfield Infrastructure Partners
Other interests
Private equity operations
Residential development operations
Other
2014
2013
$
14,618 $
12,810
5,075
4,932
1,359
602
2,959
4,002
5,127
1,410
1,020
2,278
$
29,545 $
26,647
Non-controlling interests at Brookfield Property Partners increased by $1.8 billion due to the portion of comprehensive income
attributable to non-controlling interests, including $1.3 billion of gains on consolidated investment properties primarily in our
office properties. BPY’s non-controlling interest also increased due to equity contributed by our partners and a gain recorded on
the Brookfield Office Properties privatization transaction, as the consideration of $20.34 per share was a discount to IFRS book
value. These increases were offset by the cash portion of the privatization transaction of BPO, distributions paid and negative
foreign currency revaluation. Non-controlling interests at Brookfield Renewable Energy Partners increased by $1.0 billion due
to a C$325 million equity issuance by BREP that we did not participate in and private fund capital calls, as well as the portion
of comprehensive income attributable to non-controlling equity interests.
Common Equity
Issued and Outstanding Shares
Changes in the number of issued and outstanding Class A common shares (“Class A shares”) during the periods 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
2014
615.5
(1.5)
4.6
0.2
618.8
36.7
655.5
2013
619.6
(8.8)
4.5
0.2
615.5
35.6
651.1
We purchased 1.5 million Class A shares during 2014 for $61 million of which 1.3 million shares ($51 million) are in respect of
long-term share employee ownership programs.
The company holds 10.8 million Class A shares (December 31, 2013 – 9.6 million) purchased in consolidated entities in respect
of long-term share ownership programs and which have been deducted from the total amount of shares outstanding at the date
acquired. Included in diluted shares outstanding are 2.9 million (December 31, 2013 – 1.0 million) shares issuable in respect
of these plans based on the market value of the Class A shares at December 31, 2014 and December 31, 2013, resulting in a net
reduction of 7.9 million (December 31, 2013 – 8.6 million) diluted shares outstanding.
The cash value of unexercised options is $906 million (2013 – $904 million) based on the proceeds that would be received on
exercise of the options.
As of March 24, 2015, the Corporation had outstanding 617,888,348 Class A shares and 85,120 Class B shares.
2014 ANNUAL REPORT 55
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
2014
$
3,110
$
(154)
2,956
2
$
2,958
$
616.7
15.7
1.2
633.6
2013
2,120
(145)
1,975
13
1,988
616.1
12.8
7.9
636.8
1.
2.
3.
Subject to the approval of the Toronto Stock Exchange, the Series 12 and 21 shares, unless redeemed by the company for cash, are convertible into Class A 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 12 and 21 shares were
redeemed on April 6, 2014 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, 2014, our net floating rate liability position on a proportionate basis was $5.4 billion
(December 31, 2013 – $4.0 billion). As a result, a 10 basis-point increase in interest rates would decrease funds from operations
by $5 million (December 31, 2013 – $4 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, 2014 (December 31, 2013 – $2 million).
We have been active in taking advantage of low long-term rates to fix the coupons on floating rate debt and near term maturities.
This has resulted in an increase in our current borrowing expense but we believe this will result in lower costs in the long term.
We completed approximately $18 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 $10 billion of the asset-specific
financings and the $3 billion of preferred shares issued have fixed rate coupons.
As at December 31, 2014, we held a $2.9 billion notional amount (2013 – $2.7 billion) of interest rate contracts, $1.9 billion
net to the Corporation (2013 – $1.7 billion), to lock in the risk-free component of interest rates for projected debt refinancings
over the next three years at an average risk-free rate of 2.70% (2013 – 2.53%). The effective rate will be approximately 3.92%
(2013 – 3.76%) at the time of issuance which reflects the premium relating to the steepness of the yield curve during this period.
This represents approximately 30% of expected issuance into the North American and UK markets (2013 – 50%) at our share in
the next 3 years. 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 $28 million positive mark-to-market
(2013 – $25 million), and $21 million net to Brookfield (2013 – $14 million), being recorded in other comprehensive income
and vice versa.
LIQUIDITY
Overview
As an asset manager, most of our capital transactions and liquidity activities occur within our private funds and listed partnerships.
We structure these entities so that they are self-funding, preferably on an investment grade basis, and in almost all circumstances
do not rely on financial support from the company other than pre-determined equity commitments such as our share of capital
commitments to private funds.
Our principal sources of short-term liquidity are corporate cash and financial assets together with undrawn committed credit
facilities, which we refer to collectively as core liquidity. As at December 31, 2014, core liquidity at the corporate level was
$2.2 billion, consisting of $0.9 billion in net cash and financial assets and $1.3 billion in undrawn credit facilities. Aggregate core
56 BROOKFIELD ASSET MANAGEMENT
liquidity includes the core liquidity of our principal subsidiaries, which consist for these purposes of BPY, BREP and BIP, and
was $6.9 billion at the end of the year, approximately $1.1 billion higher than at the end of 2013. 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. Uninvested capital in
our private funds totalled $6.9 billion at December 31, 2014.
The following table presents core liquidity and undrawn capital commitments on a corporate and consolidated basis:
AS AT DECEMBER 31
(MILLIONS)
Corporate
Principal
Subsidiaries
Total
Cash and financial assets, net
Undrawn committed credit facilities
2014
2013
2014
2013
2014
$
$
897 $
814 $
2,340 $
913 $
3,237 $
1,254
1,405
2,425
2,733
3,679
2,151 $
2,219 $
4,765 $
3,646 $
6,916 $
2013
1,727
4,138
5,865
On a consolidated basis, our two largest normal course capital requirements 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 to lessen exposure to capital market dispositions. Most of our
acquisitions are completed by private funds or listed partnerships 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 managed entities such as our listed partnerships. In the case of listed partnerships, 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 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 and infrastructure funds, these commitments are expected to be
funded by our listed partnerships, specifically BPY, BREP and BIP, although in certain circumstances the agreements provide
that the Corporation will fund any commitments that our listed entities fail to fund. As at December 31, 2014 the company
had commitments of $3.4 billion to funds, of which $2.9 billion is expected to be funded by managed entities and the balance
by the Corporation. In addition, we had $6.9 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.
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.
As discussed further on pages 64 and 65, 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.
On a deconsolidated basis, our primary sources of recurring cash flow are asset management revenues other than carried interests
and distributions from our listed partnerships. During 2014 we earned $763 million of asset management revenues which
contributed $378 million of fee related earnings after direct costs. We received $1,014 million in distributions from our listed
securities during 2014 and have the ability to distribute surplus cash flow of controlled, privately held, investments. Recurring
liquidity and capital requirements at the corporate level are typically limited to the payment of interest and dividends, as well
as operating expenses. Interest expense and preferred share distributions totalled $232 million and $154 million, respectively,
during 2014. Corporate operating expenses and cash taxes totalled $133 million.
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, which typically is at our discretion as we manage the funds; 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; payments related to our energy
marketing initiatives, when realized prices on power sales are less than the contracted price paid to BREP; ongoing corporate
operating costs; and dividend payments declared by our Board of Directors. We describe our contractual obligations on page 59.
We maintain cash and financial assets, as well as undrawn credit facilities, to fund capital transactions. We typically refinance
debt in advance of maturity. Most of the our capital at the corporate level is invested in publicly listed securities, in particular
2014 ANNUAL REPORT 57
our listed partnerships and we have the ability to sell a portion of our interests in the listed partnerships to generate additional
liquidity. Our economic ownership interests BREP and BPY, at 63%, and 62%, respectively, are both well in excess of what we
expect our longer term ownership positions to be. We also receive capital distributions from time to time from asset sales by
private funds that we hold direct interests in, such as our private equity funds, and from the sale of directly held assets.
We hold much of the capital invested by the Corporation in the form of listed equity securities which, as noted above, provide
us with important source of liquidity and ongoing cash distributions. The following table shows the quoted market value of
company’s listed securities and annualized cash distributions, excluding our cash and financial asset portfolio.
AS AT AND FOR THE YEAR ENDED
DECEMBER 31, 2014
(MILLIONS)
Brookfield Property Partners
Brookfield Renewable Energy Partners
Brookfield Infrastructure Partners
Norbord
Ainsworth Lumber Co. Ltd.
Acadian Timber Corp.
Units
Distributions
Per Unit1
Quoted
Value2
Distributions
(Annualized)
482.8
172.3
59.8
27.8
53.7
7.5
$
1.06
$
11,042 3 $
1.66
2.12
0.80
—
0.73
5,329
2,504
618
154
98
588 3
286
127
25
—
6
$
19,745
$
1,032
1.
2.
3.
Based on current distribution policies
Quoted value using December 31, 2014 public pricing
Quoted value includes $1,250 million of preferred shares and distributions includes $76 million of preferred distributions
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.
REVIEW OF CONSOLIDATED STATEMENTS 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
Change in cash and cash equivalents
$
2014
2,574
6,633
(9,596)
(389)
$
2013
2,278
2,710
(4,041)
947
$
$
This statement reflects activities within our consolidated operations and therefore excludes activities within non-consolidated
entities such as our equity accounted investment in GGP.
Operating Activities
Cash flow from operating activities totalled $2.6 billion in 2014, $296 million higher than in 2013. These cash flows consist 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 is 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 or 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 generated $57 million of cash flow for 2014 (2013 – outlay
of $378 million). Cash flow prior to non-cash working capital and residential inventory was $3.1 billion during 2014 which was
largely consistent with 2013.
Financing Activities
The company generated $6.6 billion of cash flows from financing activities compared to the $2.7 billion in the comparative
period. Property-specific financings generated net cash proceeds of $2.3 billion (2013 – $1.0 billion) and our subsidiaries
raised $2.3 billion, net of repayments, from credit facilities and note issuances as temporary financing for acquisitions, prior
to establishing long-term debt or calling capital from fund partners (2013 – $0.7 billion). This included $1.7 billion to fund the
cash portion of the privatization of our office property subsidiary by BPY. We raised $5.7 billion of capital from our institutional
58 BROOKFIELD ASSET MANAGEMENT
private fund partners and other shareholders (2013 – $3.2 billion) to fund their portion of acquisitions, which included capital calls
under contractual commitments as well as $1.8 billion of exchangeable preferred equity units issued by BPY. We distributed and
repaid $5.6 billion to private fund and other investors, up from the $2.5 billion in distributions and repayments in the prior year.
We also issued C$800 million of corporate preferred securities and C$500 million of corporate debt which refinanced preferred
shares and capital securities at lower rates. Financing activities in the prior year include the distribution of the proceeds from two
large asset sales, including the sale of a paper and packaging investment in a private equity fund and timberlands in a sustainable
resource fund, and a $905 million payment to settle a long-dated interest rate swap liability.
Investing Activities
During 2014 we invested $16.3 billion and generated proceeds of $6.7 billion from dispositions for net cash deployed in
investing activities of $9.6 billion. This compares to net cash investments of $4.0 billion in 2013. Investing activities included
the $1.7 billion cash consideration paid by BPY to privatize Brookfield Office Properties, but excluded the $3.3 billion of BPY
equity units issued on the transaction. We acquired $6.0 billion of consolidated subsidiaries which includes investing $1.2 billion
in a triple net lease portfolio, $1.1 billion in multifamily assets, $304 million in a portfolio of office parks in India, $909 million
in hydroelectric generation assets in the northeastern U.S and $718 million in wind generation assets in Ireland. We also invested
$850 million in a rail logistics operation in South America, $517 million in distressed debt investments, $266 million hotels in the
U.S. and made $0.9 billion in capital expenditures on our property development projects. As noted in financing activities above,
we set aside $1.8 billion as restricted cash on deposit for our follow-on acquisition in Canary Wharf.
Dispositions totalled approximately $6.7 billion, down from $7.3 billion prior year. As discussed in financing activities above, the
prior year included the disposition of two large consolidated operations for gross proceeds of approximately $2.8 billion, whereas
in the current period the largest dispositions include an office property in the UK for proceeds of approximately $510 million and
the sale of our remaining interest in a forest products investment in our private equity operations for approximately $350 million.
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
Subsidiary equity obligations
Accounts payable and other
Capital lease obligations
Other
Commitments
Operating leases
Interest expense2
Long-term debt
Subsidiary equity obligations
Payments Due By Period
Less than
1 Year
1 – 3
Years
4 – 5
Years
After 5
Years
$
— $
712
$
1,161
$
2,202
$
3,596
835
454
3
9,881
822
54
2,377
121
11,980
3,495
129
1
368
—
145
7,449
1,984
—
3
83
—
97
2,131
306
4,446
199
17,339
2,015
2,958
44
25
265
1,704
6,653
368
Total
4,075
40,364
8,329
3,541
51
10,357
1,087
2,000
15,607
994
1.
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 $1.1 billion (2013 – $0.9 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. The company is required under certain
circumstances to purchase BPY’s preferred equity units at redemption, as described on pages 54 and 60, and accordingly,
commitments in 2014 include $265 million, which represents the value of the exchange option at the time of issuance in respect
of BPY’s subsidiary preferred units, and the remaining $1,535 million was recorded within subsidiary equity obligations. All
other balances, with the exception of interest expense incurred in future periods, are included in our consolidated balance sheet.
2014 ANNUAL REPORT 59
The company and its consolidated subsidiaries execute agreements that provide for indemnifications and guarantees to third
parties in transactions or dealings such as business dispositions, business acquisitions, sales of assets, provision of services,
securitization agreements, and underwriting and agency agreements. The company has also agreed to indemnify its directors and
certain of its officers and employees. The nature of substantially all of the indemnification undertakings prevents the company
from making a reasonable estimate of the maximum potential amount the company could be required to pay third parties, as
in most cases the agreements do not specify a maximum amount, and the amounts are dependent upon the outcome of future
contingent events, the nature and likelihood of which cannot be determined at this time. Neither the company nor its consolidated
subsidiaries have made significant payments in the past, nor do they expect at this time to make any significant payments under
such indemnification agreements in the future.
The company periodically enters into joint venture, consortium or other arrangements that have contingent liquidity rights
in favour of the company or its counterparties. These include buy sell arrangements, registration rights and other customary
arrangements. These agreements generally have embedded protective terms that mitigate the risk to us. The amount, timing and
likelihood of any payments by the company under these arrangements is, in most cases, dependent on either future contingent
events or circumstances applicable to the counterparty and therefore cannot be determined at this time.
Our wholly owned energy marketing group has committed to purchase power and other wind generation produced by 63%
owned BREP as previously described on pages 44 and 45.
The Corporation has entered into arrangements with respect to $1.8 billion of exchangeable preferred equity units issued by BPY,
which are redeemable in equal tranches of $600 million in 2021, 2024 and 2026, respectively. The preferred equity units are
exchangeable into equity units of BPY at $25.70 per unit, at the option of the holder, at any time up to and including the maturity
date. BPY may redeem the preferred equity units after specified periods if the BPY equity unit price exceeds predetermined
amounts. At maturity, the preferred equity units will be converted into BPY equity units at the lower of $25.70 or the then market
price of a BPY equity unit. In order to provide the purchaser with enhanced liquidity, the Corporation has agreed to purchase
the preferred equity units for cash at the option of the holder, for the initial purchase price plus accrued and unpaid dividends.
In order to decrease dilution risk to BPY, the Corporation has agreed with the holder and BPY that if the price of a BPY equity
unit is less than 80% of the exchange price of $25.70 at the redemption date of the 2021 and 2024 tranches, the Corporation will
acquire the preferred equity units subject to redemption, at the redemption price, and to exchange these preferred equity units for
preferred equity units with similar terms and conditions, including redemption date, as the 2026 tranche.
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.
60 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 company’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;
2014 ANNUAL REPORT 61
•
Investment Committees to oversee the investment process as well as monitor the ongoing performance of investments;
• 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.
a)
Ownership of Common Shares
The trading price of our Class A shares as well as the dividends paid to holders of our Class A shares are subject to volatility
and cannot be predicted.
The historical and potential future returns of the assets and public and private limited partnerships that we manage may not
be directly linked to returns on our Class A shares. Therefore, any continued positive performance of the assets and limited
partnerships we manage may not necessarily result in positive returns on an investment in our Class A shares. However, poor
performance of these assets and limited partnerships would cause a decline in our revenue and would therefore have a negative
effect on our performance and possibly the returns on an investment in our Class A shares.
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 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) changes in the values of our investments or changes in the amount of distributions, dividends or interest paid
in respect of investments; (vii) differences between our actual financial and operating results and those expected by investors
and analysts; (viii) changes in analysts’ recommendations or earnings projections; (ix) changes in the extent of analysts’ interest
in covering the company and its publicly traded affiliates; (x) the depth and liquidity of the market for our Class A shares;
(xi) dilution from the issuance of additional equity; (xii) investor perception of our businesses and the industries in which we
operate; (xiii) investment restrictions; (xiv) our dividend policy; (xv) the departure of key executives; (xvi) sales of Class A
shares by senior management or significant shareholders; and (xvii) the materialization of other risks described in this section.
62 BROOKFIELD ASSET MANAGEMENT
b)
Reputation
Certain actions or conduct could have a negative impact on stakeholders’ perception of us and may adversely impact our
financial performance and ability to attract and retain capital.
The growth of our asset management business relies on continuous fundraising for various products. We depend on our business
relationships and our reputation for integrity and high-calibre asset management services to attract and retain investors and
advisory clients and to pursue investment opportunities for us and the public and private limited partnerships we manage. If we
are unable to continue to raise capital from third party investors, we would be unable to collect fees, which would materially
reduce our revenue and cash flow and adversely affect our financial condition. Our ability to continue to raise capital from third
party investors depends on a number of factors, including certain factors that are outside our control.
Poor performance of any kind could damage our reputation with current and potential limited partners, making it more difficult
for us to raise new capital. Investors may decline to invest in current and future limited partnerships and may withdraw their
investments from our limited partnerships as a result of poor performance in the limited partnerships in which they are invested,
and investors in our private funds may demand lower fees or fee concessions for new or existing funds, all of which would
decrease our revenue.
The governing agreements of our private funds provide that, subject to certain conditions, third party investors in those funds
will have the right to remove us as general partner or to accelerate the liquidation date of the fund for convenience. Any negative
impact to our reputation as an asset manager or otherwise would be expected to increase the likelihood that a fund could be
terminated by investors for convenience. Such an event, were it to occur, would result in a reduction in the fees we would earn
from such fund, particularly if we are unable to maximize the value of the fund’s investments during the liquidation process or
in the event of the triggering of a “clawback” obligation.
We could be negatively impacted if there is misconduct or alleged misconduct by our personnel or that of the portfolio companies
in which we and our limited partnerships invest. We may face increased risk of misconduct to the extent our capital allocated to
emerging markets increases. If we face allegations of improper conduct by private litigants or regulators, whether the allegations
are valid or invalid or whether the ultimate outcome is favourable or unfavourable to us, such allegations may result in negative
publicity and press speculation about us, our investment activities or the asset management industry in general, which could
harm our reputation and may be more damaging to our business than to other types of businesses.
We are subject to a number of obligations and standards arising from our asset management business and our authority over the
assets we manage. The violation of these obligations and standards by any of our employees may adversely affect our limited
partners and our business and reputation. Our business often requires that we deal with confidential matters of great significance
to the companies in which we may invest and to other third parties. If our employees were to improperly use or disclose
confidential information, we could suffer serious harm to our reputation, financial position and current and future business
relationships. It is not always possible to detect or deter employee misconduct, and the precautions we take to detect and prevent
this activity may not be effective.
Because of our various lines of businesses, we may be subject to a number of actual and potential conflicts of interest than that
to which we would otherwise be subject if we had just one line of business. In addressing these conflicts, we have implemented
certain policies and procedures that may reduce the positive synergies that we cultivate across these businesses. It is also possible
that actual, potential or perceived conflicts could give rise to investor dissatisfaction or litigation or regulatory enforcement
actions. Appropriately dealing with conflicts of interest is complex and difficult and our reputation could be damaged if we
fail, or appear to fail, to deal appropriately with potential or actual conflicts of interest. Regulatory scrutiny of, or litigation in
connection with, conflicts of interest could have a material adverse effect on our reputation, business, financial condition or
results of operations in a number of ways, including an inability to raise additional funds and a reluctance of counterparties to
do business with us.
Implementation of new investment and growth strategies involves a number of risks that could result in losses and harm our
professional reputation, including the risk that the expected results are not achieved, that new strategies are not appropriately
planned for or integrated, that the new strategies may conflict, detract from or compete against our existing businesses, and that
the investment process, controls and procedures that we have developed will prove insufficient or inadequate. Furthermore, our
strategic initiatives may include joint ventures, in which case we will be subject to additional risks and uncertainties in that we
may be dependent upon, and subject to liability, losses or reputational damage relating to systems, controls and personnel that
are not under our control.
c)
Investment/Capital Allocation
Our investment returns or those of our managed limited partnerships could be lower than expected.
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, if required, notwithstanding
difficulties experienced in a particular industry.
2014 ANNUAL REPORT 63
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 in a timely manner, or at all. 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.
In addition, liabilities may exist that we or our limited partnerships do not discover in due diligence prior to the consummation of
an acquisition, or circumstances may exist with respect to the entities or assets acquired that could lead to future liabilities and, in
each case, we or our limited partnerships may not be entitled to sufficient, or any, recourse against the contractual counterparties
to an acquisition agreement. The failure of a newly acquired business to perform according to expectations could have a material
adverse effect on our assets, liabilities, business, financial condition, results of operations and cash flow. Alternatively, we may
be required to sell a business before it has realized our expected level of returns.
We often pursue investment opportunities that involve business, regulatory, legal and other complexities that may deter other
investors. Our tolerance for complexity presents risks, as such transactions can be more difficult, expensive and time consuming
to finance and execute; it can be more difficult to manage or realize value from the assets acquired in such transactions; and such
transactions sometimes entail a higher level of regulatory scrutiny or a greater risk of contingent liabilities. Any of these risks
could harm the performance of our investments.
If any of our limited partnerships performed poorly, our fee-based revenue and cash flow would decline. Moreover, we could
experience losses on our own capital invested in our limited partnerships as a result of poor investment performance. Certain
of our investments may be concentrated in particular asset types or geographic regions, which could exacerbate any negative
performance of one or more of our limited partnerships to the extent those concentrated investments perform poorly.
Competition from other asset managers for public and private institutional capital is fierce and poor investment performance
could hamper our ability to compete for those sources of capital or force us to reduce our management fees. If poor investment
returns prevent us from raising further capital from our existing limited partners, we may need to identify and attract new
investors in order to maintain or increase the size of our limited partnerships, and there are no assurances that we can find
new investors. If we cannot raise capital from third-party investors, we will be unable to deploy their capital into investments and
collect management fees, and potentially collect transaction fees or carried interest, which would materially reduce our revenue
and cash flow and adversely affect our financial condition.
In pursuing investment returns, we and our limited partnerships face competition from other investors. Each of our businesses
is subject to competition in varying degrees and our competitors may have certain competitive advantages over us, which are
outside our control. Some of our competitors may have higher risk tolerances, different risk assessments, lower return thresholds
or a lower cost of capital, which could allow them to consider a wider variety of investments and to bid more aggressively than
us for investments. We may lose investment opportunities in the future if we do not match investment prices, structures and terms
offered by competitors. Moreover, if we are forced to compete with other investment firms on the basis of price, we may not be
able to maintain our current asset management fees structure, including with respect to base management fees, carried interest
or other terms. These pressures could reduce investment returns and negatively affect our overall revenues, operating cash flows
and financial condition.
d)
Currency Risk and other Financial Exposures
Foreign exchange rate fluctuations and the use of or failure to use derivatives to hedge certain financial positions could adversely
impact our financial performance.
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 may remain unhedged. We may also choose to
establish unhedged positions in the ordinary course of business.
There is no assurance that hedging strategies, to the extent they are used, 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 and a potential requirement to fund mark-to-market adjustments. Our
Treasury and Financial Risk Management Policy utilized to govern the management of our financial risks may not be followed
or it may be followed and not effective at managing financial risks.
64 BROOKFIELD ASSET MANAGEMENT
The Dodd-Frank Act and similar laws in other jurisdictions impose rules and regulations governing federal oversight of the
over-the-counter derivatives market and its participants. These regulations may impose additional costs and regulatory scrutiny
on the company. If our derivative transactions are required to be executed through exchanges or regulated facilities we will face
incremental collateral requirements in the form of initial margin, and require variation margin to be cash settled on a daily basis,
which would increase our liquidity risk. Such an increase in margin requirements (relative to bilateral agreements), were it to
occur, perhaps combined with a more restricted list of securities that qualify as eligible collateral, would require us to hold larger
positions in cash and treasuries, which could reduce income.
We cannot predict the effect of changing derivatives legislation on our hedging costs, our hedging strategy or its implementation,
or the composition of the risks we hedge. Regulation of the derivatives markets may 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, all of which may reduce the company’s use of derivatives and result in the increased volatility and decreased
predictability of our cash flows.
e)
Laws, Rules and Regulations
Failure to comply with laws, regulatory requirements and listing exchange requirements could damage our reputation.
There are many laws, governmental rules and regulations and stock exchange rules 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. The failure of us or our publicly listed
affiliates to comply with the rules and registration requirements of the respective stock exchanges on which we and they are
listed could adversely affect our reputation and financial condition.
Our asset management business is subject to substantial and increasing regulatory compliance and oversight. There continues
to be uncertainty 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.
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 result in uncertainty and delays, and impose on us additional costs, which may adversely affect our results
of operations. Changes in these laws may negatively impact us and our businesses or may benefit our competitors or their
businesses.
Additionally, liability under such laws, rules and regulations may occur without our fault. In certain cases, private parties have
the right to pursue legal actions against us to enforce compliance as well as seek damages for non-compliance 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.
Our broker-dealer business is regulated by the United States Securities and Exchange Commission (the “SEC”), the Canadian
provincial securities commissions, as well as self-regulatory organizations. These regulatory bodies may conduct administrative
proceedings that can result in censure, fine, suspension or expulsion of a broker-dealer, its officers or employees. Such
administrative proceedings, whether or not resulting in adverse findings, can require substantial expenditures and can have an
adverse impact on the reputation of a broker-dealer.
The advisors of certain of our limited partnerships are registered as investment advisors with the SEC. Registered investment
advisors are subject to the requirements and regulations of the Investment Advisors Act of 1940, which grants supervisory
agencies broad administrative powers, including the power to limit or restrict the carrying on of business for failure to comply
with 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 advisor may engage, suspension or
revocation of the investment advisor’s registration as an advisor, censure and fines. Compliance with these requirements and
regulations results in the expenditure of 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 provide certain protections to
investors and impose certain restrictions on companies that are registered as investment companies. 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 and 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 principal.
2014 ANNUAL REPORT 65
f)
Governmental Investigations and Anti-Bribery and Corruption
Our policies and procedures designed to ensure strict compliance with applicable laws, including anti-bribery laws and corruption
laws, may not be effective in all instances to prevent violations and as a result we may be subject to related governmental
investigations.
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, can 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 sanctions 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 such 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 limited partnerships 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.
The increased global focus on anti-bribery and corruption enforcement may also lead to more governmental investigations,
audits and inquiries, both formal and informal in this area, the results of which cannot be predicted. For example, in 2012 we
were notified by the U.S. Securities and Exchange Commission (“SEC”) that the SEC was conducting an anti-bribery and
corruption investigation related to a Brazilian subsidiary of ours that allegedly made payments to certain third parties in Brazil
and those payments were, in turn, allegedly used, with our knowledge, to pay certain municipal officials to obtain permits and
other benefits. The U.S. Department of Justice (“DOJ”) opened an investigation in 2013. A civil action against our Brazilian
subsidiary by a public prosecutor in Brazil has been ongoing since 2012. All involved have denied the allegations. The SEC and
DOJ sought information from us and we cooperated with both authorities in this regard. In 2012, a leading international law firm
conducted an independent investigation into the allegations, and based on the results of that investigation we have no reason to
believe that our Brazilian subsidiary or its employees engaged in any wrongdoing. We hope to resolve this matter in due course
and do not expect that any legal outcome will be financially material to the company.
g)
Financial Reporting and Disclosure
Deficiencies in financial reporting and disclosures could adversely impact our reputation.
As we expand the size and scope of our business, there is a greater susceptibility that our financial reporting and other public
disclosure documents may contain material misstatements and that the controls we maintain to attempt to ensure the complete
accuracy of our public disclosures may fail to operate as intended. The occurrence of such events could adversely impact our
reputation.
The company’s management is responsible for establishing and maintaining adequate internal control over financial reporting to
give our stakeholders assurance regarding the reliability of our financial reporting and the preparation of financial statements for
external purposes in accordance with international financial reporting standards.
However, the process for establishing and maintaining adequate internal controls over financial reporting has inherent limitations,
including the possibility of human error. Our internal controls over financial reporting may not prevent or detect misstatements
in our financial disclosures on a timely basis, or at all.
Our disclosure controls and procedures are designed to provide assurance that information required to be disclosed by us in
reports filed or submitted under Canadian and U.S. securities laws is recorded, processed, summarized and reported within the
time periods specified. In this regard, we maintain a Disclosure Policy which stipulates, among other things, that all material
disclosures be approved by a disclosure committee and that only certain employees are permitted to provide disclosures to third
parties on behalf of the company.
66 BROOKFIELD ASSET MANAGEMENT
There is no guarantee that our policies and procedures governing disclosures will ensure that all material information regarding
the company is disclosed in a proper and timely fashion, or that we will be successful in preventing the disclosure of material
information to a single person or a limited group of people before such information is generally disseminated.
h)
Economic Conditions
Unfavourable economic conditions or changes in the industries in which we operate could adversely impact our financial
performance.
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 the following: 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.
Unfavourable economic conditions could affect the jurisdictions in which our entities are formed and where we own assets and
operate businesses, and may cause a reduction in: (i) securities prices, (ii) the liquidity of investments made by us and our limited
partnerships, (iii) the value or performance of the investments made by us and our limited partnerships, and (iv) the ability of
us and our limited partnerships to raise or deploy capital, each of which could materially reduce our revenue and cash flow and
adversely affect our financial condition.
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 a significant adverse effect on our operating margins and asset values.
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.
If global economic conditions deteriorate, our investment performance could suffer, resulting in, for example, the payment of
less or no carried interest to us. The payment of less or no carried interest to us could cause our cash flow from operations to
decrease, which could materially adversely affect our liquidity position and the amount of cash we have on hand to conduct our
operations and pay dividends to our shareholders. A reduction in our cash flow from operations could, in turn, require us to rely
on other sources of cash (such as the capital markets which may not be available to us on acceptable terms, or debt and other
forms of leverage).
i)
Geopolitical
Political instability, changes in government policy, or unfamiliar cultural factors could adversely impact the value of our
investments.
We make investments in businesses that are based outside of North America and we may pursue investments in unfamiliar
markets, which may expose us to additional risks not typically associated with investing in North America. We may not properly
understand and comply with the local culture and business practices in such markets, and there is the prospect that we may hire
personnel or partner with local persons who might not understand and comply with our well-established culture and ethical
business practices; either scenario could result in the failure of our initiatives in new markets and lead to financial losses for us
and our limited partnerships.
Any existing or new operations may be subject to significant political, economic and financial risks, which vary by country, and
may include: (i) changes in government policies or personnel; (ii) changes in general economic conditions; (iii) restrictions on
currency transfer or convertibility; (iv) changes in labour relations; (v) political instability and civil unrest; (vi) less developed
or efficient financial markets than in North America; (vii) the absence of uniform accounting, auditing and financial reporting
standards, practices and disclosure requirements; (viii) less government supervision and regulation; (ix) a less developed legal
or regulatory environment, differences in the legal and regulatory environment or enhanced legal and regulatory compliance;
(x) heightened exposure to corruption risk; (xi) political hostility to investments by foreign investors; (xii) less publicly available
information in respect of companies in non-North American markets; (xiii) higher rates of inflation; (xiv) higher transaction
costs; (xv) difficulty in enforcing contractual obligations and expropriation or confiscation of assets; and (xvi) fewer investor
protections.
j)
Interest Rates
Rising interest rates could adversely impact our financial performance.
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.
2014 ANNUAL REPORT 67
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, interest rates are
at historically low levels. These rates may remain relatively low over the short to medium term , but they will rise at some point
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.
k)
Human Capital
Ineffective maintenance of our culture or ineffective management of human capital could adversely impact our financial
performance.
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.
Our senior management team has a significant role in our success and oversees the execution of our strategy. Our ability to
retain and motivate our management group or attract suitable replacements should any members of our management group
leave is dependent on, among other things, the competitive nature of the employment market and the career opportunities and
compensation that we can offer.
We may experience departures of key professionals in the future. We cannot predict the impact that any such departures will
have on our ability to achieve our objectives, and such departures could adversely impact our financial condition and cash flow.
Competition for the best human capital 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. Our human capital risks may be exacerbated by the fact that we do not maintain any
key person insurance.
Our senior management team possesses substantial experience and expertise and has strong business relationships with investors
in our limited partnerships and other members of the business communities and industries in which we operate. As a result, the
loss of these personnel could jeopardize our relationships with investors in our limited partnerships and other members of the
business communities and industries in which we operate and result in the reduction of our assets under management or fewer
investment opportunities. 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.
A portion of the workforce in some of our businesses is unionized. If we are unable to negotiate acceptable collective bargaining
agreements with any of our unions, as existing 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.
l)
Financial and Liquidity
We may not have cash available to meet our financial obligations when due.
We employ debt and other forms of leverage in the ordinary course of business to enhance returns to our investors and finance
our operations. We attempt to match the profile of any leverage to the associated assets. We are therefore subject to the risks
associated with debt financing and refinancing, including but not limited to the following: (i) our cash flow may be insufficient
to meet required payments of principal and interest; (ii) payments of principal and interest on borrowings may leave us with
insufficient cash resources to pay operating expenses and dividends; (iii) 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; (iv) 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 (v) if we are able to refinance our assets, the terms of a refinancing may not be as
favourable as the original terms of the related indebtedness. Regulatory changes, including, for example, standards for banks
under Basel, may also result in higher borrowing costs and reduced access to credit.
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 the dividends
paid 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.
68 BROOKFIELD ASSET MANAGEMENT
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.
A large proportion of our capital is invested in physical assets and securities that can be hard to sell, especially if 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.
Because there is significant uncertainty in the valuation of, or in the stability of the value of illiquid or non-public investments,
the fair values of such investments do not necessarily reflect the prices that would actually be obtained when such investments
are realized. Realizations at values significantly lower than the values at which investments have been recorded would result in
losses, a decline in asset management fees and the potential loss of carried interest and incentive fees.
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 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.
m)
Tax
Reassessments by tax authorities or changes in tax laws could create additional tax costs for us.
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 earn on our investments, the level of capital available to be invested by us
or our limited partnerships, and the willingness of investors to invest in our limited partnerships. This risk would include any
reassessments by tax authorities on our tax returns if we were to incorrectly interpret any tax policy, legislation or practice.
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. There are a number of factors that could increase our effective tax rates, which would
have a negative impact on our net income, including, but not limited to, changes in the valuation of our deferred tax assets and
liabilities, and any reassessment of taxes by a taxation authority.
Governments around the world are increasingly seeking to regulate multinational companies and their use of differential tax rates
between jurisdictions. This effort includes a greater emphasis by various nations to coordinate and share information regarding
companies and the taxes they pay. Governmental taxation policies and practices could adversely affect us and, depending on the
nature of such policies and practices, could have a greater impact on us than on other companies. As a result of this increased
focus on the use of tax planning by multinational companies, we could also face reputational risk as a result of negative media
coverage of our tax planning or otherwise.
n)
Health, Safety and the Environment
Inadequate or ineffective health and safety programs could result in injuries to employees or the public and, as with ineffective
management of environmental and sustainability issues, could damage our reputation, adversely impact our financial
performance and may lead to regulatory action.
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 contaminated lands, 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, 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, any of which could have a material adverse effect on our business.
2014 ANNUAL REPORT 69
Health, safety and environmental laws and regulations can change rapidly and significantly and we may become subject to more
stringent laws and regulations in the future. The occurrence of any adverse health and safety or environmental event, 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 an owner and operator of real assets, 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 assets or to borrow using these assets as collateral, and could potentially result in claims or other proceedings against us.
o)
Catastrophic Event/Loss and Cyber terrorism
Catastrophic events (or combination of events), such as earthquakes, tornadoes, floods, terrorism/sabotage, or fire, as well as
deliberate cyber terrorism, could adversely impact our financial performance.
Our assets under management could be exposed to effects of catastrophic events, such as severe weather conditions, natural
disasters, major accidents, acts of malicious destruction, sabotage or terrorism, which could impact our operations and financial
results.
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, affect other of our businesses or damage our assets. Further, rising sea levels could,
in the future, affect the value of any low-lying coastal real assets 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.
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 be heightened by foreign policy decisions of the U.S. (where we
have significant operations) and other influential countries or general geopolitical conditions.
We rely heavily on our financial, accounting, communications and other data processing systems. 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, through the introduction of computer viruses, cyber attacks and other means, and
could originate from a wide variety of sources, including our own employees or unknown third parties outside the company.
Although we have implemented measures to ensure the integrity of our information technology systems, 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.
p)
Dependence on Information Technology Systems
The failure of our information technology systems could adversely impact our reputation and financial performance.
We operate in businesses that are dependent on information systems and technology. Our information systems and technology
may not continue to be able to accommodate our growth, and the cost of maintaining such systems may increase from its current
level. Such a failure to accommodate growth, or an increase in costs related to such information systems, could have a material
adverse effect on us.
We rely on third-party service providers to manage certain aspects of our business, including for certain information systems
and technology, data processing systems, and the secure processing, storage and transmission of information. Any interruption
or deterioration in the performance of these third parties or failures of their information systems and technology could impair the
quality of our operations and could adversely affect our business and reputation.
q)
Litigation
We and our affiliates may become involved in legal disputes in Canada, the U.S. and internationally that could adversely impact
our financial performance and reputation.
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. The investment decisions we make in
70 BROOKFIELD ASSET MANAGEMENT
our asset management business and the activities of our investment professionals on behalf of the portfolio companies of our
limited partnerships may subject us, our limited partnerships and our portfolio companies to the risk of third-party litigation.
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.
Management of our litigation matters is generally handled by legal counsel in the business unit most directly impacted by the
litigation, and not by a centralized legal department. As a result, we may not have control over the decisions made with respect
to certain legal cases that impact us and the way we approach the management of litigation across the organization may be
inconsistent.
The final outcome with respect to outstanding, pending or future litigation 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, any litigation has the potential to adversely affect our business, including by damaging our reputation.
r)
Insurance
Losses not covered by insurance may be large, which could adversely impact our financial performance.
We carry various insurance policies on our assets. These policies contain policy specifications, limits and deductibles that may
mean that such policies may not provide coverage or sufficient coverage against all potential material losses. We may also self-
insure a portion of certain of these risks, and therefore the company may not be able to recover from a third-party insurer in the
event that the company, if it had asset insurance coverage from a third-party, could make a claim for recovery. 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 the insured 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.
We also carry directors and officers liability insurance, or D&O insurance, for losses or advancement of defense costs in the
event a legal action is brought against the company or its directors or officers for alleged wrongful acts in their capacity as
directors or officers. Our D&O insurance contains certain customary exclusions that may make it unavailable for the company
in the event it is needed; and in any case our D&O insurance may not be adequate to protect the company against liability for
the conduct of its officers and directors. We may also self-insure a portion of our D&O insurance, and therefore the company
may not be able to recover from a third-party insurer in the event that the company, if it had D&O insurance from a third-party,
could make a claim for recovery.
s)
Credit
Inability to collect amounts owing to us could adversely impact financial performance.
Third parties may not fulfill their payment obligations to us, which could include money, securities or other assets, thereby
impacting our operations and financial results. These parties include deal and trading counterparties, government agencies,
portfolio company customers and financial intermediaries. Third parties may default on their obligations to us due to bankruptcy,
lack of liquidity, operational failure or other reasons.
We have business lines whose model is to earn investment returns by loaning money to distressed companies, either privately or
via an investment in publicly traded debt securities. As a result, we actively take credit risk in other entities from time to time and
whether we realize satisfactory investment returns on these loans is uncertain and may be beyond our control. If some of these
debt investments fail, our financial performance could be negatively impacted.
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.
t)
Property
We face risks specific to our property activities.
We invest in high-quality commercial properties and are therefore exposed to certain risks inherent in the commercial property
business. Commercial property investments are generally subject to varying degrees of risk depending on the nature of the
property. These risks include changes in general economic conditions (such as the availability and cost of mortgage capital),
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.
2014 ANNUAL REPORT 71
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
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 an economic slowdown.
Our retail property operations are susceptible to any economic factors that have a negative impact on consumer spending.
Lower consumer spending would have an unfavourable effect on the sales of our retail tenants, which could result in their
inability or unwillingness to make all payments owing to us, and on our ability to keep existing tenants and attract new tenants.
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 our retail properties.
In addition, low occupancy or sales at our retail properties, as a result of competition or otherwise, could result in termination of
or reduced rent payable under certain of our retail leases, which could adversely affect our retail property revenues. Further, our
retail property leases generally do not contain provisions designed to ensure the creditworthiness of the tenant. The bankruptcy or
closure of a national tenant or the voluntary or involuntary closure of stores in our properties may adversely affect our revenues.
We are subject to a range of operating risks common to the hospitality and multifamily industries. The profitability of our
investments in these industries may be adversely affected by a number of factors, many of which are outside our control. Such
factors could limit or reduce the demand for or the prices our hospitality properties are able to obtain for their accommodations,
or could increase our costs and therefore reduce the profitability of our hospitality businesses. There are numerous housing
alternatives which compete with our multifamily properties, including other multifamily properties as well as condominiums and
single family homes which are available for rent or purchase in the markets in which our properties are located. This competitive
environment could have a material adverse effect on our ability to lease apartment homes at our present properties or any newly
developed or acquired property, as well as on the rents realized.
u)
Renewable Energy
We face risks specific to our renewable energy activities.
Our renewable energy operations are subject to changes in the weather, hydrology and price, but also include risks related to
equipment or dam failure, counterparty performance, water rental costs, land 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, wind and other elements beyond our control. Hydrology varies naturally from year to year and may
also change permanently because of climate change or other factors. It is therefore possible that low water levels at our North
American power generating operations could occur 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 and we cannot accurately predict future electricity prices. Additionally, 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; however, they may not be effective in achieving this outcome.
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 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. 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
future development of our power generation projects.
In certain cases, some catastrophic 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 power generation assets are
located in remote areas which make access for repair of damage difficult.
72 BROOKFIELD ASSET MANAGEMENT
v)
Infrastructure
We face risks specific to our infrastructure activities.
Our infrastructure operations include utilities, transport, energy, timberlands and agrilands operations. 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, counterparty performance, capital
expenditure requirements and land use.
Many of our infrastructure operations are subject to forms of economic regulation, including with respect to revenues. 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.
General domestic and global economic conditions affect international demand for the commodities handled by our infrastructure
operations and the goods produced and sold by our timberlands and agrilands business. A downturn in the economy generally, or
specific to any of our infrastructure businesses, 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.
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. 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.
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.
Our infrastructure operations require the usage of large areas of land for construction and operation. Although we believe that we
have valid land use rights necessary for our operations, not all of our rights are registered against the lands to which they relate
and may not bind subsequent owners. They may also be subject to First Nations claims by indigenous inhabitants.
w)
Private Equity
We face risks specific to our private equity activities.
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.
Our private equity funds may invest in companies that are experiencing significant financial or business difficulties, including
companies involved in work-outs, liquidations, spin-offs, reorganizations, bankruptcies and similar transactions. Such an
investment entails the risk that the transaction in which the business is involved either will be unsuccessful, will take considerable
time or will result in a distribution of cash or new securities the value of which may be less than the purchase price to the private
equity fund of the securities or other financial instruments in respect of which such distribution is received. In addition, if an
anticipated transaction does not in fact occur, the private equity fund may be required to sell its investment at a loss. Investments
in troubled companies often become subject to legal proceedings and therefore our investment may be adversely affected by
legal developments beyond our control.
x)
Residential Development
We face risks specific to our residential development activities.
Our residential homebuilding and land development operations are cyclical and significantly affected by changes in general
and local economic and industry conditions, such as consumer confidence, employment levels, availability of financing for
homebuyers, household debt, levels of new and existing homes for sale, demographic trends and housing demand. Competition
from rental properties and resale homes, including homes held for sale by investors and foreclosed homes, may reduce our ability
to sell new homes, depress prices and reduce margins for the sale of new homes.
2014 ANNUAL REPORT 73
Virtually all of our homebuilding customers finance their home acquisitions through lenders providing mortgage financing.
Even if potential customers do not need financing, changes in interest rates or the unavailability of mortgage capital 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.
We hold land for future development and may in the future acquire additional land holdings. The risks inherent in purchasing,
owning and developing land increase as the demand for new homes decreases. Real estate markets are highly uncertain and, as
a result, the value of undeveloped land has fluctuated significantly and may continue to fluctuate. In addition, carrying costs can
be significant and can result in losses or reduced profitability. As a result, we hold certain land, and may in the future acquire
additional land, in our development pipeline at a cost we may not be able to fully recover or at a cost which precludes profitable
development. If there are subsequent changes in the fair value of our land holdings which we determine is less than the carrying
basis of our land holdings reflected in our financial statements plus estimated costs to sell, we may be required to take future
impairment charges which would reduce our net income.
y)
Service Activities
We face risks specific to our service activities.
We have several companies that operate in the highly competitive service industry. The revenues and profitability of these
companies are largely dependent on the awarding of new contracts, which may not materialize, and they face uncertainty related
to contract award timing. A wide variety of micro and macroeconomic factors affecting our clients and over which we have no
control can impact whether and when these companies receive new contracts.
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 our construction business, the ability of the private
and/or public sector to fund projects could adversely affect the awarding or timing of new contracts and margins. If an expected
contract award is delayed or not received, or if an ongoing contract is cancelled, our construction business could incur significant
costs.
74 BROOKFIELD ASSET MANAGEMENT
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, 2014 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:
2014 ANNUAL REPORT 75
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 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 asset’s 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 and the determination of functional currency.
76 BROOKFIELD ASSET MANAGEMENT
Adoption of 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 became effective on January 1, 2014. The adoption of
IFRIC 21 did not have a material effect on the company’s consolidated financial statements.
Future Changes in Accounting Standards
Property, Plant, and Equipment and Intangible Assets
IAS 16 Property, Plant, and Equipment (“IAS 16”) and IAS 38 Intangible Assets (“IAS 38”) were both amended by the IASB
as a result of clarifying the appropriate amortization method for intangible assets of service concession arrangements under
IFRIC 12 Service Concession Arrangements (“SCAs”). The IASB determined that the issue does not only relate to SCAs but all
tangible and intangible assets that have finite useful lives. Amendments to IAS 16 prohibit entities from using a revenue-based
depreciation method for items of property, plant, and equipment. Similarly, the amendment to IAS 38 introduces a rebuttable
presumption that revenue is not an appropriate basis for amortization of an intangible asset, with only limited circumstances
where the presumption can be rebutted. Guidance is also introduced to explain that expected future reductions in selling prices
could be indicative of a reduction of the future economic benefits embodied in an asset. The amendments apply prospectively
and are effective for annual periods beginning on or after January 1, 2016, with earlier application permitted. The company has
not yet determined the impact of the amendments to IAS 16 or IAS 38 on its consolidated financial statements.
Revenue from Contracts with Customers
IFRS 15, Revenue from Contracts with Customers (“IFRS 15”) specifies how and when revenue should be recognized as
well as requiring more informative and relevant disclosures. This standard supersedes IAS 18 Revenue, IAS 11 Construction
Contracts and a number of revenue-related interpretations. Application of the Standard is mandatory and it applies to nearly all
contracts with customers: the main exceptions are leases, financial instruments and insurance contracts. IFRS 15 must be applied
for periods beginning on or after January 1, 2017 with early application permitted. The company has not yet determined the
impact of IFRS 15 on its consolidated financial statements.
Financial Instruments
In July 2014, the IASB issued the final publication of IFRS 9, Financial Instruments (“IFRS 9”), superseding IAS 39, Financial
Instruments. IFRS 9 establishes principles for the financial reporting of financial assets and financial liabilities that will present
relevant and useful information to users of financial statements for their assessment of the amounts, timing and uncertainty of
an entity’s future cash flows. This new standard also includes a new general hedge accounting standard which will align hedge
accounting more closely with risk management. It does not fully change the types of hedging relationships or the requirement
to measure and recognize ineffectiveness, however, it will provide more hedging strategies that are used for risk management
to qualify for hedge accounting and introduce more judgment to assess the effectiveness of a hedging relationship. The standard
has a mandatorily effective date for annual periods beginning on or after January 1, 2018 with early adoption permitted. The
company has not yet determined the impact of IFRS 9 on its consolidated financial statements.
Assessment and Changes in Internal Control Over Financial Reporting
Management has evaluated the effectiveness of the company’s internal control over financial reporting as of December 31, 2014
and based on that assessment concluded that, as of December 31, 2014, 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, 2014 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, 2014. 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, 2014 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.
2014 ANNUAL REPORT 77
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 2014 Consolidated Financial Statements accompanied by this MD&A give a true and fair view of the assets, liabilities,
financial position, and profit or loss of the company and the undertakings included in the Consolidated Financial Statements
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 company and the undertakings included in
the Consolidated Financial Statements taken as a whole as of December 31, 2014.
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, 2014 and
December 31, 2013.
In 2013, we entered into a $500 million three-year subordinated credit facility with wholly owned subsidiaries of BPY which
was subsequently increased to a notional amount of $1.0 billion in 2014. $570 million was drawn on the facility at year end.
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. All transactions related to this facility have been approved by the
independent directors of BPY.
The Corporation has entered into arrangements with respect to $1.2 billion of the $1.8 billion of exchangeable preferred equity
units issued by BPY, which are redeemable in equal tranches of $600 million in 2021 and 2024. The Corporation has agreed
with the holder and BPY that if the price of a BPY equity unit is less than 80% of the exchange price of $25.70 per unit at the
redemption date of the 2021 and 2024 tranches, the Corporation will acquire the preferred equity units subject to redemption, at
the redemption price, and to exchange these preferred equity units for preferred equity units with similar terms and conditions,
including redemption date, as the 2026 tranche.
78 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, 2014, based
on the criteria set forth in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations
of the Treadway Commission. Based on this assessment, management concludes that, as of December 31, 2014, Brookfield’s
internal control over financial reporting is effective. Management excluded from its design and assessment of internal control over
financial reporting for Candor Office Parks, Capital Automotive Real Estate Services Inc., Manhattan Multifamily, Pennsylvania
Hydro and Ireland Wind Portfolio which were acquired during 2014, and whose total assets, net assets, total revenues and net
income on a combined basis constitute approximately 7%, 8%, 1% and 1%, respectively, of the consolidated financial statement
amounts as of and for the year ended December 31, 2014.
Brookfield’s internal control over financial reporting as of December 31, 2014, 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, 2014. 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, 2014.
J. Bruce Flatt
Chief Executive Officer
Brian D. Lawson
Chief Financial Officer
March 26, 2015
Toronto, Canada
2014 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 internal control over financial reporting of Brookfield Asset Management Inc. and subsidiaries (the
“Company”) as of December 31, 2014, based on the criteria established in Internal Control – Integrated Framework (2013)
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 Candor Office Parks, Capital Automotive Real Estate Services Inc. (“CARS”), Manhattan Multifamily, Pennsylvania
Hydro and Ireland Wind Portfolio, which were acquired during 2014, and whose total assets, net assets, total revenues and net
income on a combined basis constitute approximately 7%, 8%, 1% and 1%, respectively, of the consolidated financial statement
amounts as of and for the year ended December 31, 2014. Accordingly, our audit did not include the internal control over
financial reporting at Candor Office Parks, CARS, Manhattan Multifamily, Pennsylvania Hydro and Ireland Wind Portfolio. 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, 2014, based on the criteria established in Internal Control – Integrated Framework (2013) 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, 2014 of the Company and our report dated March 26, 2015 expressed an unmodified opinion on those financial
statements.
Chartered Professional Accountants, Chartered Accountants
Licensed Public Accountants
March 26, 2015
Toronto, Canada
80 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 83 through 149 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 board of directors
and 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.
J. Bruce Flatt
Chief Executive Officer
Brian D. Lawson
Chief Financial Officer
March 26, 2015
Toronto, Canada
2014 ANNUAL REPORT 81
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, 2014 and December 31, 2013, 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 a summary of significant accounting policies
and other explanatory information.
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, 2014 and December 31, 2013, 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, 2014, based on the criteria established in Internal
Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and
our report dated March 26, 2015 expressed an unqualified opinion on the Company’s internal control over financial reporting.
Chartered Professional Accountants, Chartered Accountants
Licensed Public Accountants
March 26, 2015
Toronto, Canada
82 BROOKFIELD ASSET MANAGEMENT
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
(MILLIONS)
Assets
Cash and cash equivalents
Other financial assets
Accounts receivable and other
Inventory
Assets classified as held for sale
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
Liabilities associated with assets classified as held for sale
Corporate borrowings
Non-recourse borrowings
Property-specific mortgages
Subsidiary borrowings
Deferred income tax liabilities
Subsidiary equity obligations
Equity
Preferred equity
Non-controlling interests
Common equity
Total equity
Total Liabilities and Equity
On behalf of the Board:
Note
Dec. 31, 2014
Dec. 31, 2013
6
6
7
8
9
10
11
12
13
14
15
16
17
9
18
19
19
16
20
21
21
21
$
$
$
$
3,160
6,285
8,399
5,620
2,807
14,916
46,083
34,617
446
4,327
1,406
1,414
129,480
10,408
1,419
4,075
40,364
8,329
8,097
3,541
3,549
29,545
20,153
53,247
129,480
$
$
$
$
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
1,877
3,098
26,647
17,781
47,526
112,745
Frank J. McKenna, Director
George S. Taylor, Director
2014 ANNUAL REPORT 83
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31
(MILLIONS, EXCEPT PER SHARE AMOUNTS)
Revenues
Direct costs
Other income and gains
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
Note
2014
22
23
24
10
25
16
21
21
$
18,364
$
(13,118)
190
1,594
(2,579)
(123)
3,674
(1,470)
(1,323)
5,209
$
3,110
2,099
5,209
4.67
4.79
$
$
$
$
$
$
$
$
$
2013
20,093
(13,928)
1,262
759
(2,553)
(152)
663
(1,455)
(845)
3,844
2,120
1,724
3,844
3.12
3.21
84 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 sales agreements
Available-for-sale securities
Equity accounted investments
Foreign currency translation
Income taxes
Items that will not be reclassified to net income
Revaluation of property, plant and equipment
Revaluation of pension obligations
Equity accounted investments
Income taxes
Other comprehensive income (loss)
Comprehensive income
Attributable to:
Shareholders
Net income
Other comprehensive income (loss)
Comprehensive income
Non-controlling interests
Net income
Other comprehensive income (loss)
Comprehensive income
Note
2014
$
5,209
$
10
16
29
10
16
(301)
(105)
(22)
(1,717)
22
(2,123)
2,998
(77)
245
(632)
2,534
411
$
5,620
$
$
$
$
$
3,110
$
301
3,411
$
2,099
$
110
2,209
$
2013
3,844
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
2014 ANNUAL REPORT 85
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Accumulated Other Comprehensive
Income
YEAR ENDED DECEMBER 31, 2014
(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, 2013
$ 2,899 $
159 $ 7,159 $ 2,354 $ 5,165 $
190 $
(145) $ 17,781 $ 3,098 $ 26,647 $ 47,526
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
—
—
—
—
—
—
—
—
—
—
—
—
3,110
—
3,110
(388)
(154)
—
—
—
—
—
—
—
redemptions
132
(18)
Share-based compensation
Ownership changes
Total change in year
—
—
132
44
—
26
(69)
(7)
51
2,543
—
—
(375)
(375)
—
1,094
1,094
—
(670)
(670)
—
3,110
(123)
301
(123)
3,411
—
—
—
—
—
(126)
—
—
—
—
—
39
—
—
—
—
—
(388)
(154)
—
45
37
(168)
(579)
—
—
—
—
—
—
2,099
5,209
110
411
2,209
5,620
—
—
(388)
(154)
(2,428)
(2,428)
451
2,505
3,001
—
—
16
596
53
17
968
(631)
(291)
2,372
451
2,898
5,721
Balance as at December 31, 2014
$ 3,031 $
185 $ 9,702 $ 1,979 $ 6,133 $
(441) $
(436) $ 20,153 $ 3,549 $ 29,545 $ 53,247
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
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)
—
—
(145)
—
(12)
22
—
10
(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)
(299)
197
1,675
1,573
(9)
61
—
—
45
326
36
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
86 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 and other 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
Subsidiary equity obligations issued
Subsidiary equity obligations redeemed
Capital provided from non-controlling interests
Capital repaid to non-controlling interests
Preferred equity issuances
Preferred equity redemption
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
Equity accounted investments
Other financial assets
Acquisition of subsidiaries
Dispositions
Investment properties
Property, plant and equipment
Equity accounted investments
Other financial assets
Disposition of subsidiaries
Restricted cash and deposits
Cash and cash equivalents
Change in cash and cash equivalents
Foreign exchange revaluation
Balance, beginning of year
Balance, end of year
Note
2014
2013
$
5,209
$
24
25
16
31
$
(190)
(920)
(3,674)
1,470
1,209
57
(587)
2,574
454
—
(88)
10,939
(8,650)
5,463
(3,191)
1,947
(342)
5,733
(3,228)
706
(268)
108
(63)
(2,345)
(542)
6,633
(1,970)
(1,098)
(27)
(1,645)
(3,877)
(5,999)
2,192
313
471
3,651
161
(1,768)
(9,596)
(389)
(114)
3,663
3,160
$
3,844
(1,820)
(307)
(663)
1,455
686
(378)
(539)
2,278
949
(224)
(35)
11,073
(10,029)
6,781
(6,115)
541
(343)
3,218
(1,543)
191
—
85
(388)
(910)
(541)
2,710
(1,835)
(1,374)
(53)
(2,326)
(2,745)
(2,960)
948
98
657
1,502
4,057
(10)
(4,041)
947
(134)
2,850
3,663
2014 ANNUAL REPORT 87
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 26, 2015.
b)
Adoption of 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 became effective on January 1, 2014. The adoption of IFRIC 21
did not have a material effect on the company’s consolidated financial statements.
c)
Future Changes in Accounting Standards
Property, Plant, and Equipment and Intangible Assets
IAS 16 Property, Plant, and Equipment (“IAS 16”) and IAS 38 Intangible Assets (“IAS 38”) were both amended by the IASB
as a result of clarifying the appropriate amortization method for intangible assets of service concession arrangements under
IFRIC 12 Service Concession Arrangements (“SCAs”). The IASB determined that the issue does not only relate to SCAs but all
tangible and intangible assets that have finite useful lives. Amendments to IAS 16 prohibit entities from using a revenue-based
depreciation method for items of property, plant, and equipment. Similarly, the amendment to IAS 38 introduces a rebuttable
presumption that revenue is not an appropriate basis for amortization of an intangible asset, with only limited circumstances
where the presumption can be rebutted. Guidance is also introduced to explain that expected future reductions in selling prices
could be indicative of a reduction of the future economic benefits embodied in an asset. The amendments apply prospectively
and are effective for annual periods beginning on or after January 1, 2016, with earlier application permitted. The company has
not yet determined the impact of the amendments to IAS 16 or IAS 38 on its consolidated financial statements.
Revenue from Contracts with Customers
IFRS 15, Revenue from Contracts with Customers (“IFRS 15”) specifies how and when revenue should be recognized as
well as requiring more informative and relevant disclosures. This standard supersedes IAS 18 Revenue, IAS 11 Construction
Contracts and a number of revenue-related interpretations. Application of the Standard is mandatory and it applies to nearly all
contracts with customers; the main exceptions are leases, financial instruments and insurance contracts. IFRS 15 is effective for
periods beginning on or after January 1, 2017 with early application permitted. The company has not yet determined the impact
of IFRS 15 on its consolidated financial statements.
Financial Instruments
In July 2014, the IASB issued the final publication of IFRS 9, Financial Instruments (“IFRS 9”), superseding IAS 39, Financial
Instruments. IFRS 9 establishes principles for the financial reporting of financial assets and financial liabilities that will present
relevant and useful information to users of financial statements for their assessment of the amounts, timing and uncertainty of
an entity’s future cash flows. This new standard also includes a new general hedge accounting standard which will align hedge
accounting more closely with risk management. It does not fully change the types of hedging relationships or the requirement
to measure and recognize ineffectiveness, however, it will provide more hedging strategies that are used for risk management
to qualify for hedge accounting and introduce more judgment to assess the effectiveness of a hedging relationship. The standard
has a mandatorily effective date for annual periods beginning on or after January 1, 2018 with early adoption permitted. The
company has not yet determined the impact of IFRS 9 on its consolidated financial statements.
88 BROOKFIELD ASSET MANAGEMENT
d)
Basis of Presentation
The financial statements are prepared on a going concern basis.
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 control is obtained, 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 other income
and gains in the Consolidated Statements of Operations.
Transaction costs incurred in connection with the acquisition of control of a subsidiary are expensed immediately within fair
value changes in the Consolidated Statements of Operations.
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 equity accounted 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. The carrying value of associates or joint ventures is assessed for impairment at each balance sheet
date. Impairment losses on equity accounted investments may be subsequently reversed in net income. Further information on
the impairment of long-lived assets is available in Note 2j).
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 Statements of Operations and Consolidated Statements of Comprehensive Income.
e)
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
on translation are accumulated as a component of equity. On the disposal of a foreign operation, or the loss of control, joint
2014 ANNUAL REPORT 89
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.
f)
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.
g)
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 10.
h)
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, commencing in the first year subsequent to the date of acquisition, unless there is an indication
that assets are impaired. 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 includes estimates of forecasted revenue, operating costs, maintenance and other
capital expenditures. Discount rates are selected for each facility giving consideration to the expected proportion of contracted to
un-contracted revenue and markets into which power is sold.
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.
90 BROOKFIELD ASSET MANAGEMENT
Depreciation on renewable energy 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.
The depreciation of property, plant and equipment in our Brazilian renewable energy operations is based on the duration of the
authorization or the useful life of a concession. The weighted average remaining duration at December 31, 2014 is 15 years
(2013 – 16 years). Land rights are included as part of the concession or authorization and are subject to depreciation.
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, bridges, 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 3 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 and geography of its revenue streams.
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 district energy systems
Machinery, equipment, transmission stations and towers
Rail and transport assets
Useful Lives
Up to 50
Up to 40
Up to 40
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.
Hotel 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.
Depreciation on hotel assets is calculated on a straight-line basis over the estimated service lives of the components of the assets,
which range from 3 to 50 years for buildings and 3 to 10 years for other equipment.
2014 ANNUAL REPORT 91
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.
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 of the inventory in the ordinary course of business in its
completed state, less estimated expenses, including holding costs, costs to complete and costs to sell.
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 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 or significant interest in the underlying investment and commences equity accounting or 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 in net income in the period in which they arise.
i)
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 Notes 6, 11, 12 and 13.
92 BROOKFIELD ASSET MANAGEMENT
j)
Impairment of Long-Lived Assets
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.
k)
Accounts Receivable
Trade receivables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest
method, less any allowance for uncollectability.
l)
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.
m) 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.
n)
Subsidiary Equity Obligations
Subsidiary equity obligations include subsidiary preferred equity units, subsidiary preferred shares and capital securities, limited-
life funds and redeemable fund units.
Subsidiary preferred equity units and capital securities are preferred shares that may be settled by a variable number of common
equity units 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 or yield distributions on these instruments are recorded
as interest expense. To the extent conversion features are not closely related to the underlying liability the instruments are
bifurcated into debt and equity components.
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.
Limited-life funds and redeemable fund units are classified as liabilities and recorded at fair value within subsidiary equity
obligations on the Consolidated Balance Sheets. Changes in the fair value are recorded in net income in the period of the change.
2014 ANNUAL REPORT 93
o)
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
revenues 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 revenues in the Consolidated Statements of Operations.
ii.
Property Operations
Property revenues primarily consist of rental revenues from leasing activities and hotel revenues and interest and dividends from
unconsolidated real estate investments.
Property rental income is recognized when the property is ready for its intended use. Office and retail properties are considered
to be ready for their intended use when the property is capable of operating in the manner intended by management, which
generally occurs upon completion of construction and receipt of all occupancy and other material permits.
The company has retained substantially all of the risks and benefits of ownership of its investment properties and therefore
accounts for leases with its tenants as operating leases. Revenue recognition under a lease commences when the tenant has a right
to use the leased asset. The total amount of contractual rent to be received from operating leases is recognized on a straight-line
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 hotel 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 collectability 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.
94 BROOKFIELD ASSET MANAGEMENT
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 collectability 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
collectability 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.
Investments in Financial Assets
Dividend and interest income from other financial assets are recorded within revenues when declared or on an accrual basis using
the effective interest method.
Revenue from loans and notes receivable, less a provision for uncollectible amounts, is recorded on the accrual basis using the
effective interest method.
xii. Other Income and Gains
Other income and gains represent the excess of proceeds over carrying values on the disposition of subsidiaries, investments or
assets, or the settlement of liabilities for less than carrying values.
p)
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 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 revenues, direct costs or corporate costs, as applicable. Realized and
unrealized gains and losses on derivatives which are considered economic hedges, and where hedge accounting is not able to be
elected, are recorded in fair value changes in the Consolidated Statements of Operations.
2014 ANNUAL REPORT 95
q)
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.
r)
Business Combinations
Business combinations are accounted for using the acquisition method. The cost of a business acquisition is measured at the
aggregate of the fair values at the date of exchange of assets given, liabilities incurred or assumed, and equity instruments issued
in exchange for control of the acquiree. The acquiree’s identifiable assets, liabilities and contingent liabilities are recognized at
their fair values at the acquisition date, except for non-current assets that are classified as held-for-sale which are recognized
and measured at fair value less costs to sell. The interest of non-controlling shareholders in the acquiree is initially measured at
the non-controlling shareholders’ proportion of the net fair value of the identifiable assets, liabilities and contingent liabilities
recognized.
To the extent the fair value of consideration paid exceeds the fair value of the net identifiable tangible and intangible assets, the
excess is recorded as goodwill. To the extent the fair value of consideration paid is less than the fair value of net identifiable
tangible and intangible assets, the excess is recognized in net income.
When a business combination is achieved in stages, previously held interests in the acquired entity are re-measured to fair
value at the acquisition date, which is the date control is obtained, and the resulting gain or loss, if any, is recognized in net
income, other than amounts transferred directly to retained earnings. Amounts arising from interests in the acquiree prior to the
acquisition date that have previously been recognized in other comprehensive income are reclassified to net income. Transaction
costs are recorded as an expense within fair value changes in the Consolidated Statements of Operations.
s)
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.
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.
iii.
Pensions and other post-employment benefits
The company offers pension and other post-employment benefit plans to employees of certain of its subsidiaries, with certain of
these subsidiaries offering defined benefit plans. Defined benefit pension expense, which includes the current year’s service cost,
is included in Direct costs. For each defined benefit plan, we recognize the present value of our defined benefit obligations less
the fair value of the plan assets, as a defined benefit liability reported in Accounts payable and other on our Consolidated Balance
Sheets. The company’s obligations under its defined benefit pension plans are determined periodically through the preparation
of actuarial valuations.
t)
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.
96 BROOKFIELD ASSET MANAGEMENT
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 11.
b.
Revaluation Method for Property, Plant and Equipment
When determining the carrying value of property, plant and equipment using the revaluation method, the company uses the
following critical assumptions and estimates: the timing of forecasted revenues, future sales prices and margins; future sales
volumes; future regulatory rates; maintenance and other capital expenditures; discount rates; terminal capitalization rates;
terminal valuation dates; useful lives; and residual values. Determination of the fair value of property, plant and equipment under
development includes estimates in respect of the timing and cost to complete the development.
Further information on estimates used in the revaluation method for property, plant and equipment is provided in Note 12.
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 13.
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; the amount of the liability and equity components of compound financial instruments; 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 development costs,
costs to hold and future selling costs.
f.
Other
Other estimates and assumptions utilized in the preparation of the company’s consolidated 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; fair value of assets held as collateral and the percentage of completion for construction contracts.
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
2014 ANNUAL REPORT 97
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 asset’s 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 (subsidiary equity obligations) 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; and the determination of functional currency.
3.
a)
SEGMENTED INFORMATION
Operating Segments
Our operations are organized into eight operating segments which are regularly reported to our Chief Executive Officer (our
Chief Operating Decision Maker). We measure performance primarily using the funds from operations, a non IFRS measure,
generated by each operating segment and the amount of common equity attributable to each segment.
98 BROOKFIELD ASSET MANAGEMENT
Our operating segments are described below:
i.
ii.
iii.
iv.
v.
vi.
vii.
Asset management operations consist of managing our listed partnerships, private funds and public markets 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, operation and development of office, retail, industrial, multifamily, hotel and
other properties.
Renewable energy operations include the ownership, operation and development of hydroelectric, wind power and other
generating facilities.
Infrastructure operations include the ownership, operation and development of utilities, transport, energy, timberland and
agricultural operations.
Private equity operations include the investments and operations overseen by our private equity group which include both
direct investments and investments made by 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, condominium development and land
development.
Service activities include construction management and contracting services, and property services operations which
include global corporate relocation, facilities management and residential brokerage services.
viii. Corporate activities include the investment of 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.
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, deferred income taxes, and transaction costs. 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
on a fully diluted basis.
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 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 principal
adjustment is 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. These amounts
are based on the in-place terms of the asset management contracts 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.
2014 ANNUAL REPORT 99
c)
Reportable Segment Measures
The following tables present selected reportable segment measures.
YEAR ENDED
DECEMBER 31, 2014
(MILLIONS)
Asset
Management
Property
Renewable
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
215
556
771
—
—
—
387
323
—
—
$
5,010
$
1,679
$
2,193
$
2,559
$
2,912
$
3,599
$
197
$ 18,364
—
5,010
609
(1,287)
(29)
884
—
1,679
26
(414)
(18)
313
—
2,193
392
(379)
(25)
222
14,877
4,882
2,097
10,586
273
3,544
10,971
2,879
2,617
—
2,559
31
(77)
(7)
369
1,050
—
426
—
2,912
67
(186)
(24)
164
2,080
330
72
—
3,599
34
(9)
—
152
1,220
154
17
2
199
—
(229)
(11)
(331)
558
i
18,922
1,159
(2,581)
(114)
2,160
ii
iii
iv
v
(6,376)
20,153
29
14,916
287
17,269
1.
Includes additions to, and acquisitions of, equity accounted investments, investment properties, property, plant and equipment, sustainable resources, intangible assets and
goodwill
YEAR ENDED
DECEMBER 31, 2013
(MILLIONS)
Asset
Management
Property
Renewable
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
$
2,326
$
4,124
$
2,521
$
3,817
$
352
$ 20,093
—
4,569
429
(1,123)
(59)
554
—
1,620
21
(409)
(19)
447
—
2,326
333
(407)
(26)
472
—
4,124
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
—
352
12
419
i
20,512
844
(315)
(2,553)
(23)
223
(159)
3,376
(6,199)
17,781
135
13,277
8
13,188
ii
iii
iv
v
1.
i.
Includes additions to, and acquisitions of, equity accounted investments, investment properties, property, plant and equipment, sustainable resources, intangible assets and
goodwill
Inter-Segment Revenues
The adjustment to external revenues, when determining segmented revenues, consists of management fees earned from
consolidated entities totalling $556 million (2013 – $419 million) and interest income on loans between consolidated entities
totalling $2 million (2013 – $nil), which were eliminated on consolidation to arrive at the company’s consolidated revenues.
100 BROOKFIELD ASSET MANAGEMENT
ii.
Equity Accounted Income
The company defines segment equity accounted income 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 segment 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
iii.
Interest Expense
2014
1,159
$
435
1,594
$
$
$
2013
844
(85)
759
Interest expense includes interest on loans between consolidated entities totalling $2 million (2013 – $nil), which is eliminated
on consolidation when determining the company’s consolidated interest expense.
iv.
Current Income Taxes
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
v.
Reconciliation of FFO to Net Income
The following table reconciles total reportable segment FFO to net income:
YEARS ENDED DECEMBER 31
(MILLIONS)
Total reportable segment FFO
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
Fair value changes
Depreciation and amortization
Deferred income taxes
Net income
vi.
Realized Disposition Gains
2014
(114)
$
(1,209)
(1,323)
$
$
$
2013
(159)
(686)
(845)
Notes
2014
$
2,160
$
vi
ii
iv
(477)
2,096
435
3,674
(1,470)
(1,209)
$
5,209
$
2013
3,376
(434)
2,465
(85)
663
(1,455)
(686)
3,844
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
2014
— $
477
477
$
2013
160
274
434
$
$
2014 ANNUAL REPORT 101
d)
Geographic Allocation
The company’s revenue and consolidated assets by location are as follows:
AS AT AND FOR THE YEARS ENDED DECEMBER 31
(MILLIONS)
United States
Canada
Australia
Brazil
Europe
Other
2014
2013
Revenue
Assets
Revenue
$
6,150
$
67,125
$
7,099
$
3,403
3,136
1,864
2,128
1,683
19,487
12,747
11,849
10,758
7,514
3,513
4,243
1,684
1,657
1,897
Assets
49,020
21,669
14,258
13,074
9,099
5,625
$
18,364
$
129,480
$
20,093
$
112,745
Intangible assets and goodwill by geographic segments are included in Note 14 and 15, respectively.
e)
Revenues Allocation
Total external revenues by product or service are as follows:
2014
$
215
$
2,602
321
2,087
1,354
308
17
958
706
274
255
2,559
2,912
3,599
197
2013
764
2,579
207
1,783
1,287
253
80
927
690
221
488
4,124
2,521
3,817
352
$
18,364
$
20,093
YEARS ENDED DECEMBER 31
(MILLIONS)
Asset management
Property
Office properties
Retail properties
Industrial, multifamily, hotel and other
Renewable energy
Hydroelectric
Wind energy
Co-generation and other
Infrastructure
Utilities
Transport
Energy
Sustainable resources
Private equity
Residential development
Service activities
Corporate activities
Total revenues
102 BROOKFIELD ASSET MANAGEMENT
4.
SUBSIDIARIES
The following table presents the details of the company’s subsidiaries with significant non-controlling interests:
Jurisdiction
of Formation
Voting Rights Held by
Non-Controlling Interests1
Ownership Interest Held by
Non-Controlling Interests2
Dec. 31, 2014 Dec. 31, 2013 Dec. 31, 2014 Dec. 31, 2013
Brookfield Property Partners L.P. (“BPY”)
Bermuda
Brookfield Renewable Energy Partners L.P. (“BREP”)
Bermuda
Brookfield Infrastructure Partners L.P. (“BIP”)
Bermuda
—
—
—
—
—
—
Brookfield Residential Properties Inc. (“BRP”)
Canada
29.4%
31.5%
32.3%3
37.5%4
71.5%
29.4%
10.6%
35.0%
71.5%
31.5%
1.
2.
3.
4.
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
The company’s ownership interest in BPY, BREP and BIP includes holding a combination of redemption-exchange units (REUs), Class A limited partnership units, special
limited partnership units and general partnership units in each subsidiary, where applicable. Each of BPY, BREP and BIP’s partnership capital includes its Class A limited
partnership units whereas REUs and general partnership units are considered non-controlling interests for the respective partnerships. REUs share the same economic
attributes in all respects except for the redemption right described above. The REUs and general partnership units participate in earnings and distributions on a per unit basis
equivalent to the per unit participation of the Class A limited partnership units of the subsidiary.
During 2014, BPY completed a tender offer for its publicly traded subsidiary Brookfield Office Properties Inc. (“BPO”) the consideration being a combination of cash and
BPY units which resulted in a decrease in the company’s ownership in BPY from 89.4% to 67.7%
During 2014, BREP completed an equity issuance, decreasing the company’s ownership interest by 2.5% to 62.5%
The table below presents the exchanges in which the company’s subsidiaries with significant non-controlling interests were
publicly listed as of December 31, 2014:
BPY
BREP
BIP
BRP
TSX
BPY.UN
BEP.UN
BIP.UN
BRP
NYSE
BPY
BEP
BIP
BRP
All publicly listed entities are 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 significant non-controlling interests are set
out below. The summarized financial information represents amounts before intra-group eliminations:
AS AT DECEMBER 31, 2014
(MILLIONS)
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Non-controlling interests
Equity attributable to Brookfield1
BPY
BREP
BIP
$
4,524
$
694
$
1,560
$
61,051
(5,356)
(31,920)
(14,618)
19,155
(687)
(10,281)
(5,075)
14,935
(821)
(9,352)
(4,932)
$
13,681
$
3,806
$
1,390
$
BRP
1,493
1,884
(364)
(1,417)
(496)
1,100
1.
Includes Brookfield’s investment in common equity, general partnership units, redemption-exchange units, Class A limited partnership units and special limited partnership
units in each subsidiary where applicable
2014 ANNUAL REPORT 103
FOR THE YEAR ENDED DECEMBER 31, 2014
(MILLIONS)
Revenues
Net income attributable to:
Non-controlling interests
Shareholders
Other comprehensive income (loss)
attributable to:
Non-controlling interests
Shareholders
Distributions paid to
non-controlling interests in common equity
Cash flows from (used in):
Operating activities
Investing activities
Financing activities
AS AT DECEMBER 31, 2013
(MILLIONS)
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Non-controlling interests
Equity attributable to Brookfield1
$
$
$
$
$
$
$
BPY
BREP
BIP
4,373
$
1,714
$
1,924
$
BRP
1,532
1,821
2,599
4,420
$
$
(139)
$
(308)
(447)
$
185
$
131
72
203
445
423
868
176
$
$
$
$
$
$
$
$
190
39
229
(48)
(13)
(61)
$
78
176
254
(21)
(50)
(71)
288
$
—
483
$
700
$
691
$
(5,000)
4,455
(2,037)
1,299
(1,073)
42
BPY
BREP
BIP
$
3,011
$
626
$
1,268
$
49,435
(6,973)
(20,483)
(12,810)
16,373
(920)
(8,543)
(4,002)
14,414
(598)
(8,479)
(5,127)
$
12,180
$
3,534
$
1,478
$
128
(62)
(189)
BRP
1,410
1,878
(333)
(1,480)
(515)
960
1.
Includes Brookfield’s investment in common equity, general partnership units, redemption-exchange units, Class A limited partnership units and special limited partnership
units in each subsidiary where applicable
FOR THE YEAR ENDED DECEMBER 31, 2013
(MILLIONS)
Revenues
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 in common equity
Cash flows from (used in):
Operating activities
Investing activities
Financing activities
$
$
$
$
$
$
$
BPY
BREP
BIP
4,287
$
1,717
$
1,826
$
BRP
1,356
$
928
835
1,763
$
126
89
215
$
$
(222)
$
(162)
$
(241)
(386)
(463)
$
(548)
$
82
$
(17)
65
$
155
46
201
$
$
51
98
149
(16)
(35)
(51)
29
$
135
$
253
$
—
421
$
735
$
694
$
(1,622)
1,669
(397)
(263)
(162)
(232)
(52)
(66)
391
104 BROOKFIELD ASSET MANAGEMENT
The following table outlines the composition of accumulated non-controlling interests presented within the company’s
consolidated financial statements:
(MILLIONS)
BPY
BREP
BIP
BRP
Brookfield Incorporações S.A. (“BISA”)
Individually immaterial subsidiaries with non-controlling interests
Dec. 31, 2014
Dec. 31, 2013
$
14,618
$
12,810
5,075
4,932
496
106
4,318
$
29,545
$
4,002
5,127
515
505
3,688
26,647
During the year ended December 31, 2014, the company increased its effective ownership in BISA from 45.0% to 87.1% through
a cash tender for BISA shares for aggregate consideration of $160 million.
In December 2014, the company entered into a plan of arrangement to acquire the approximately 30% of common shares of BRP
that it did not already own for $24.25 per common share. The transaction received the unanimous approval of BRP’s independent
directors, and was approved by BRP shareholders on March 10, 2015. The transaction closed on March 13, 2015.
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 2014
The following table summarizes the balance sheet impact of business combinations that occurred during the year ended
December 31, 2014:
(MILLIONS)
Cash and cash equivalents
Accounts receivable and other
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
42
193
8,332
$
—
4
—
8,571
(226)
(3,831)
(23)
(336)
(4,416)
4,155
3,968
$
$
$
$
Renewable
Energy
61
52
—
2,416
—
—
2,529
(142)
(322)
(127)
—
(591)
1,938
1,915
Other
$
— $
76
—
608
6
78
768
(47)
(219)
(145)
(138)
(549)
219
219
$
$
$
$
Total
103
321
8,332
3,024
10
78
11,868
(415)
(4,372)
(295)
(474)
(5,556)
6,312
6,102
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 $299 million of revenue and $51 million of 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 $801 million and $125 million, respectively. Certain of the current year business
combinations were completed in close proximity to the year-end date of December 31, 2014 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.
2014 ANNUAL REPORT 105
The following table summarizes the balance sheet impact as a result of significant business combinations that occurred in 2014:
Property
Renewable Energy
(MILLIONS)
Five
Manhattan
West
Cash and cash equivalents
$
— $
Accounts receivable and other
Investment properties
Property, plant and equipment
Total assets
Less:
Accounts payable and other
Non-recourse borrowings
Deferred income tax liabilities
Non-controlling interests1
Net assets acquired
Consideration2
$
$
57
653
—
710
(2)
(462)
—
(4)
(468)
242
57 3
$
$
CARS
15
6
4,313
—
4,334
(28)
(2,980)
(22)
(120)
(3,150)
1,184
1,184
Manhattan
Multifamily
Candor
Office Parks
Pennsylvania
Hydro
Ireland Wind
Portfolio
$
— $
$
15
9
1,044
—
1,068
(9)
—
—
(3)
(12)
$
$
1,056
1,056
$
$
100
785
—
885
(179)
(193)
—
(209)
(581)
304
304
$
$
15
11
—
1,040
1,066
(24)
(77)
(56)
—
(157)
909
909
$
$
$
35
22
—
1,075
1,132
(116)
(232)
(66)
—
(414)
718
718
1.
2.
3.
Includes non-controlling interests recognized on business combinations measured as the proportionate share of fair value of the assets and liabilities on the date of acquisition
Total consideration, including amounts paid by non-controlling interests and previous interests measured at the purchase date
Excludes previously held $185 million equity accounted investment
In January 2014, a subsidiary of Brookfield purchased an additional 23.6% interest in a New York City office property (“Five
Manhattan West”) that was previously an equity accounted joint venture. The incremental interest was purchased for total
consideration of $57 million and resulted in the acquisition of control and increased Brookfield’s ownership to 98.6%. The fair
value of the previous interest was $185 million and accordingly, no remeasurement gain or loss was recorded as part of this
acquisition. Total revenue and net income that would have been recorded if the acquisition had occurred at the beginning of the
year would have been $31 million and $4 million, respectively.
In October 2014, a subsidiary of Brookfield acquired a 91% interest in Capital Automotive Real Estate Services Inc. (“CARS”),
an owner and operator of more than 300 triple net leased automotive dealerships across North America. Total consideration
was $1,184 million and includes contingent consideration based on investment returns hurdles on two of CARS’s portfolio
properties. The investment property and debt valuations as well as contingent consideration and certain tax implications from the
acquisition were accounted for based on provisional information. Total revenue and net income that would have been recorded if
the acquisition had occurred at the beginning of the year would have been $275 million and $89 million, respectively.
In October 2014, a subsidiary of Brookfield completed the acquisition of a 4,000 unit multifamily portfolio across six properties
in Manhattan, New York City, for total consideration of $1,056 million. Total revenue and net income that would have been
recorded if the acquisition had occurred at the beginning of the year would have been $102 million and $14 million, respectively.
In November 2014, a subsidiary of Brookfield acquired 60% interest in a portfolio of office parks in India (“Candor Office
Parks”) for total consideration of $304 million. The portfolio consists of six properties with a total of approximately 16.8 million
square feet of gross leaseable area. The purchase price allocation has been done on a preliminary basis.
In March 2014, a subsidiary of Brookfield purchased a 33% economic and 50% voting interest in a 417 MW hydroelectric
generation facility in Pennsylvania for total cash consideration of $295 million and commenced equity accounting for this
interest at that time. In August 2014, this subsidiary acquired the remaining 67% economic and 50% voting interest in the
facility for additional cash consideration of $614 million, and began consolidating the operation. Prior to the acquisition of
the remaining interest, the previously held 33% economic interest was re-measured at fair value. The purchase price allocation
has been done on a preliminary basis. Total revenue and net income that would have been recorded if the acquisition had
occurred at the beginning of the year would have been $99 million and $13 million, respectively.
In June 2014, a subsidiary of Brookfield acquired a wind portfolio comprising 326 MW of operating wind capacity across
17 wind projects in Ireland which is expected to generate 837 GWh annually. Total consideration was $718 million and the
purchase price allocation has been done on a preliminary basis. Total revenue and net loss that would have been recorded if the
acquisition had occurred at the beginning of the year would have been $92 million and $11 million, respectively.
106 BROOKFIELD ASSET MANAGEMENT
b)
Completed During 2013
The following table summarizes the balance sheet impact as a result of the business combinations that occurred in 2013:
(MILLIONS)
Cash and cash equivalents
Accounts receivable and other
Equity accounted 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
Renewable
Energy
$
8
$
118
4
—
1,387
—
1,517
(79)
(1,075)
(65)
(68)
(1,287)
$
$
230
230
$
$
Property
Other
280
176
346
5,530
29
20
6,381
(391)
(2,940)
—
(163)
(3,494)
2,887
2,861
$
$
$
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 2013. 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.
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
Equity accounted 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
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.
2014 ANNUAL REPORT 107
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
$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.
c)
Business Combinations Achieved in Stages
The following table provides details of the business combinations achieved in stages:
YEARS ENDED DECEMBER 31
(MILLIONS)
Fair value of investment immediately before acquiring control
Less: Carrying value of investment immediately before acquisition
Amounts recognized in other comprehensive income1
Remeasurement loss recorded in net income
1.
Included in the carrying value of the investment immediately before acquisition
6.
FAIR VALUE OF FINANCIAL INSTRUMENTS
2014
637
$
(649)
4
(8)
$
2013
248
(256)
6
(2)
$
$
The following tables list the company’s financial instruments by their respective classification as at December 31, 2014 and
2013:
AS AT DECEMBER 31, 2014
(MILLIONS)
FINANCIAL INSTRUMENT CLASSIFICATION
MEASUREMENT BASIS
Financial assets2
FVTPL1
Available-
for-Sale
Loans and
Receivables/Other
Financial Liabilities
(Fair Value)
(Fair Value)
(Amortized Cost)
Total
Cash and cash equivalents
$
— $
— $
3,160
$
3,160
Other financial assets
Government bonds
Corporate bonds and debt instruments
Fixed income securities
Common shares and warrants
Loans and notes receivable
Accounts receivable and other3
Financial liabilities
Corporate borrowings
Property-specific mortgages
Subsidiary borrowings
Accounts payable and other3
Subsidiary equity obligations
$
$
66
60
684
3,023
49
3,882
1,369
31
867
185
442
—
1,525
—
—
—
—
—
878
878
5,755
97
927
869
3,465
927
6,285
7,124
5,251
$
1,525
$
9,793
$
16,569
— $
— $
4,075
$
—
—
1,922
1,423
—
—
—
—
40,364
8,329
8,486
2,118
$
3,345
$
— $
63,372
$
4,075
40,364
8,329
10,408
3,541
66,717
1.
2.
3.
Financial instruments classified as fair value through profit or loss
Total financial assets include $2,014 million of assets pledged as collateral
Includes derivative instruments which are elected for hedge accounting totalling $1,121 million included in accounts receivable and other and $1,459 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, 2013
(MILLIONS)
FINANCIAL INSTRUMENT CLASSIFICATION
MEASUREMENT BASIS
Financial assets2
FVTPL1
Available-
for-Sale
Loans and
Receivables/Other
Financial Liabilities
(Fair Value)
(Fair Value)
(Amortized Cost)
Total
Cash and cash equivalents
$
— $
— $
3,663
$
3,663
Other financial assets
Government bonds
Corporate bonds and debt instruments
Fixed income securities
Common shares and warrants
Loans and notes receivable
Accounts receivable and other3
Financial liabilities
Corporate borrowings
Property-specific mortgages
Subsidiary borrowings
Accounts payable and other
Subsidiary equity obligations3
$
$
75
36
68
2,493
31
2,703
1,163
3,866
$
104
283
144
265
—
796
—
796
—
—
—
—
1,448
1,448
4,013
179
319
212
2,758
1,479
4,947
5,176
$
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
1,877
59,055
1.
2.
3.
Financial instruments classified as fair value through profit or loss
Total financial assets include $1,626 million of assets pledged as collateral
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
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, 2014, $14 million of net deferred gains (2013 – $35 million) previously recognized in
accumulated other comprehensive income were reclassified to net income as a result of the disposition of available-for-sale
securities.
Included in cash and cash equivalents is $2,650 million (2013 – $3,128 million) of cash and $510 million of short-term deposits
at December 31, 2014 (2013 – $535 million).
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, 2014, the unrealized gains and losses relating to the fair value of available-for-sale securities amounted
to $24 million (2013 – $60 million) and $124 million (2013 – $41 million), respectively.
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.
2014 ANNUAL REPORT 109
The following table provides the carrying values and fair values of financial instruments as at December 31, 2014 and
December 31, 2013:
(MILLIONS)
Financial assets
Dec. 31, 2014
Dec. 31, 2013
Carrying
Value
Fair Value
Carrying
Value
Fair Value
Cash and cash equivalents
$
3,160
$
3,160
$
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 other
Financial liabilities
Corporate borrowings
Property-specific mortgages
Subsidiary borrowings
Accounts payable and other
Subsidiary equity obligations
$
$
97
927
869
3,465
927
6,285
7,124
97
927
869
3,465
927
6,285
7,124
179
319
212
2,758
1,479
4,947
5,176
179
319
212
2,758
1,479
4,947
5,176
16,569
$
16,569
$
13,786
$
13,786
4,075
$
4,401
$
3,975
$
40,364
8,329
10,408
3,541
41,570
8,546
10,408
3,558
35,495
7,392
10,316
1,877
4,323
36,389
7,225
10,316
1,898
60,151
The current and non-current balances of other financial assets are as follows:
$
66,717
$
68,483
$
59,055
$
(MILLIONS)
Current
Non-current
Total
Hedging Activities
Dec. 31, 2014
Dec. 31, 2013
$
$
1,234
5,051
6,285
$
$
942
4,005
4,947
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, 2014, pre-tax net unrealized losses of $224 million
(2013 – gains of $29 million) were recorded in other comprehensive income for the effective portion of the cash flow hedges.
As at December 31, 2014, there was an unrealized derivative liability balance of $128 million relating to derivative contracts
designated as cash flow hedges (2013 – $30 million asset). 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, 2014, unrealized pre-tax net
gains of $312 million (2013 – gain of $1 million) were recorded in other comprehensive income for the effective portion of
hedges of net investments in foreign operations. As at December 31, 2014, there was an unrealized derivative asset balance
of $307 million relating to derivative contracts designated as net investment hedges (2013 – $70 million liability).
110 BROOKFIELD ASSET MANAGEMENT
Fair Value Hierarchy Levels
Assets and liabilities measured at fair value on a recurring basis include $3,627 million (2013 – $2,729 million) of financial
assets and $1,429 million (2013 – $1,089 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
Subsidiary equity obligations
Dec. 31, 2014
Dec. 31, 2013
Level 1
Level 2
Level 3
Level 1
Level 2
Level 3
$
$
28
768
57
765
—
—
$
1,618
$
69
159
39
5
37
1,222
1,531
$
— $
—
773
2,695
12
147
$
41
20
44
838
—
131
$
3,627
$
1,074
$
138
299
55
1
23
343
859
$
—
—
113
1,919
8
689
$
2,729
$
$
— $
1,830
$
92
$
—
86
— $
1,916
$
1,337
1,429
$
117
—
117
$
1,046
$
139
142
947
$
1,185
$
1,089
There were no transfers between Level 1, Level 2 and Level 3 in 2014 or 2013.
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, and redeemable fund units.
The following table summarizes the valuation techniques and key inputs used in the fair value measurement of Level 2 financial
instruments:
(MILLIONS)
Type of asset/liability
Derivative assets/Derivative
liabilities
(accounts receivable/
payable)
Redeemable fund units
(subsidiary equity
obligations)
Other financial assets
Carrying value
Dec. 31, 2014 Valuation technique(s) and key input(s)
$
1,222/
(1,830)
Foreign currency forward contracts – 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
Interest rate contracts – discounted cash flow model – forward interest rates
(from observable yield curves) and applicable credit spreads discounted at a
credit adjusted rate
Energy derivatives – quoted market prices, or in their absence internal valuation
models corroborated with observable market data
86 Aggregated market prices of underlying investments
309 Valuation models based on observable market data
Fair values determined using valuation models (Level 3 financial assets and liabilities) require the use of unobservable inputs,
including assumptions concerning the amount and timing of estimated future cash flows and discount rates. In determining those
unobservable inputs, the company uses observable external market inputs such as interest rate yield curves, currency rates, and
price and rate volatilities, as applicable, to develop assumptions regarding those unobservable inputs.
2014 ANNUAL REPORT 111
The following table summarizes the valuation techniques and significant unobservable inputs used in the fair value measurement
Level 3 financial instruments:
Carrying value
Dec. 31, 2014 Valuation technique(s)
$
773 Discounted cash flows
Significant
unobservable input(s)
• Future cash flows
Relationship of unobservable
input(s) to fair value
• Increases (decreases) in
(MILLIONS)
Type of asset/liability
Fixed income
securities
Investment in common
shares
• Discount rate
1,297 Net asset valuation
• Forward exchange
rates (from
observable forward
exchange rates
at the end of the
reporting period)
• Discount rate
Warrants
1,398 Black-Scholes model
• Volatility
Limited-life funds
(subsidiary equity
obligations)
1,337 Discounted cash flows
• Future cash flows
• Discount rate
• Terminal
capitalization rate
• Investment horizon
future cash flows increase
(decrease) fair value
• Increases (decreases) in
discount rate decrease
(increase) fair value
• Increases (decreases)
in the forward
exchange rate increase
(decrease) fair value
• Increases (decreases) in
discount rate decrease
(increase) fair value
• Increases (decreases)
in volatility increase
(decrease) fair value
• Increases (decreases) in
future cash flows increase
(decrease) fair value
• Increases (decreases) in
discount rate decrease
(increase) fair value
• Increases (decreases) in
terminal capitalization
rate decrease (increase)
fair value
• Increases (decreases) in the
investment horizon increase
(decrease) fair value
Derivative assets/
Derivative liabilities
(accounts
receiveable/payable)
147/
(92)
Discounted cash flows
• Future cash flows
• Increases (decreases) in
future cash flows increase
(decrease) fair value
• Forward exchange
• Increases (decreases)
rates (from
observable forward
exchange rates
at the end of the
reporting period)
• Discount rate
in the forward
exchange rate increase
(decrease) fair value
• Increases (decreases) in
discount rate decrease
(increase) fair value
112 BROOKFIELD ASSET MANAGEMENT
The following table presents the change in the balance of financial assets and liabilities classified as Level 3 as at December 31, 2014
and December 31, 2013:
(MILLIONS)
Balance at beginning of year
Fair value changes recorded in net income
Fair value changes recorded in other comprehensive income1
Additions, net of disposals
Balance at end of year
1.
Includes foreign currency translation
Financial Assets
Financial Liabilities
2014
2013
2014
$
2,729
$
2,334
$
1,089
$
788
(114)
224
(24)
104
315
110
(59)
289
2013
680
(35)
36
408
$
3,627
$
2,729
$
1,429
$
1,089
The following table categorizes liabilities measured at amortized cost, but for which fair values are disclosed:
Dec. 31, 2014
Dec. 31, 2013
(MILLIONS)
Level 1
Level 2
Level 3
Level 1
Level 2
Level 3
Corporate borrowings
$
Property-specific mortgages
Subsidiary borrowings
Subsidiary equity obligations
4,401
1,054
2,172
—
$
— $
— $
4,323
$
— $
—
14,461
2,342
—
26,055
4,032
2,135
922
1,836
—
12,640
1,980
—
22,827
3,409
812
Fair values for Level 2 and Level 3 liabilities measured at amortized cost but for which fair values are disclosed are determined
using valuation techniques such as adjusted public pricing and discounted cash flows.
7.
ACCOUNTS RECEIVABLE AND OTHER
(MILLIONS)
Accounts receivable
Prepaid expenses and other assets
Restricted cash
Total
Note
Dec. 31, 2014
Dec. 31, 2013
(a)
$
(b)
$
3,110
2,644
2,645
$
8,399
$
3,220
2,569
877
6,666
The current and non-current balances of accounts receivable and other are as follows:
(MILLIONS)
Current
Non-current
Total
a)
Accounts Receivable
Dec. 31, 2014
Dec. 31, 2013
$
$
6,312
2,087
8,399
$
$
4,840
1,826
6,666
Accounts receivable includes $228 million (2013 – $592 million) of unrealized mark-to-market gains on energy sales contracts
and $718 million (2013 – $764 million) of completed contracts and work-in-progress related to contracted sales from the
company’s residential development operations.
b)
Restricted Cash
Restricted cash in 2014 includes $1.8 billion of deposits restricted for a subsidiary of the company’s bid to acquire the remaining
interest in Canary Wharf Group plc (“Canary Wharf”) that it did not already own, as part of a joint venture. On March 5, 2015,
the joint venture’s bid for the additional interest became compulsory to the remaining outstanding shareholders that had not yet
accepted the prior offers.
The remaining $845 million (2013 – $877 million) of restricted cash 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.
2014 ANNUAL REPORT 113
8.
INVENTORY
(MILLIONS)
Residential properties under development
Land held for development
Completed residential properties
Forest products and other
Total
The current and non-current balances of inventory are as follows:
(MILLIONS)
Current
Non-current
Total
Dec. 31, 2014
Dec. 31, 2013
$
$
2,468
2,176
519
457
2,785
2,541
443
522
$
5,620
$
6,291
Dec. 31, 2014
Dec. 31, 2013
$
$
2,815
2,805
5,620
$
$
2,839
3,452
6,291
During the year ended December 31, 2014, the company recognized as an expense $3,091 million (2013 – $5,388 million) of
inventory relating to cost of goods sold and $147 million (2013 – $33 million) relating to impairments of inventory. The carrying
amount of inventory pledged as security at December 31, 2014 was $2,284 million (2013 – $2,462 million).
9.
HELD FOR SALE
The following is a summary of the assets and liabilities that were classified as held for sale as at December 31, 2014:
(MILLIONS)
Assets
Accounts receivables and other
Investment properties
Property, plant and equipment
Equity accounted investments
Intangible assets
Assets classified as held for sale
Liabilities
Accounts payable and other
Property-specific mortgages
Deferred income tax liabilities
Liabilities associated with assets classified as held for sale
Property
Infrastructure
$
Total
72
2,173
218
311
33
$
2,807
4
—
218
311
33
566
55
$
11
$
1,165
—
1,220
$
145
43
199
$
66
1,310
43
1,419
$
68
$
2,173
—
—
—
2,241
$
$
$
$
During the year ended December 31, 2014 the company classified seven separate asset groups or investments as held for sale.
i.
Property
As at December 31, 2014, a subsidiary of the company classified a group of commercial office properties in Washington D.C.
as held for sale based on approved plans to sell a controlling interest in these properties. The Washington D.C. office properties
have assets of $1,334 million and total liabilities of $687 million. In addition, the subsidiary also agreed to sell office properties
in Toronto and Seattle and multifamily assets in Virginia and Maryland and has therefore classified these assets as held for sale.
Total assets and liabilities of the office and multifamily assets to be disposed of are $907 million and $533 million, respectively.
ii.
Infrastructure
At December 31, 2014, a subsidiary of the company has initiated a plan to dispose its interest in its New England electricity
transmission operations and its North American natural gas transmission business during 2015. The New England
electricity transmission operation’s total assets are $255 million and total liabilities are $199 million. The company’s North
American natural gas transmission investment is equity accounted with a carrying value of $311 million.
114 BROOKFIELD ASSET MANAGEMENT
10. 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 Properties
245 Park Avenue1
Grace Building
Rouse Properties
Other property joint ventures1
Other property investments1
Renewable energy
Voting Interest
Carrying Value
Investment
Type
Dec. 31
2014
Dec. 31
2013
Dec. 31
2014
Dec. 31
2013
28% $
6,887
$
6,044
Associate
Joint Venture
Joint Venture
Associate
29%
51%
50%
34%
51%
50%
39%
Joint Venture
25 – 75%
25 – 75%
Associate
20 – 75%
20 – 75%
708
538
408
1,736
266
653
695
399
1,586
366
Other renewable energy investments
Associate
14 – 50%
14 – 50%
273
290
Infrastructure
Brazilian toll road
South American transmission operations
Brazilian rail and port operations
Other infrastructure investments
Other joint ventures
Other investments
Total
Associate
Associate
Associate
Associate
49%
28%
27%
49%
28%
—
26 – 50%
26 – 50%
Joint Venture
25 – 50%
25 – 50%
Associate
28 – 50%
28 – 50%
1,237
1,203
724
767
816
403
153
717
—
694
343
287
$ 14,916
$ 13,277
1.
Investments in which the company’s ownership interest is greater than 50% represent investments in equity accounted joint ventures or associates where control is either
shared or does not exist resulting in the investment being equity accounted
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 (including reclassifications to held for sale)
Acquisitions through business combinations
Share of net income
Impairments of equity accounted investments
Share of other comprehensive income
Distributions received
Foreign exchange
Balance at end of year
2014
$
13,277
$
1,011
—
1,345
249
223
(674)
(515)
2013
11,618
1,099
350
1,283
(524)
239
(452)
(336)
$
14,916
$
13,277
2014 ANNUAL REPORT 115
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, 2014
Dec. 31, 2013
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
$
1,108
$ 40,631
$
830
$ 17,985
$
1,132
$ 38,335
$
754
$ 16,224
245 Park Avenue
Grace Building
Rouse Properties
Other property investments
Renewable energy
30
47
107
290
2,167
1,930
2,823
7,417
13
19
76
805
795
882
1,618
2,853
20
15
99
603
2,057
1,742
2,449
8,217
14
369
66
855
791
—
1,455
1,999
Other renewable energy investments
42
782
27
254
54
958
27
405
Infrastructure
Brazilian toll road
South American transmission operation
Brazilian rail and port operations
Other infrastructure investments
Other
683
244
787
330
1,430
5,867
5,513
3,337
3,374
544
666
155
240
230
860
1,495
3,361
883
1,730
248
805
1,254
—
542
1,579
4,758
4,543
—
8,087
1,024
532
1,189
—
383
459
2,578
2,055
—
6,229
654
$
5,098
$ 74,385
$
3,921
$ 32,104
$
6,103
$ 72,170
$
4,648
$ 32,390
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.
The following table presents total revenues, net income, and other comprehensive income (“OCI”) of the Company’s investments
in associates and joint ventures and dividends received by the company from these investments:
YEARS ENDED DECEMBER 31
(MILLIONS)
Property
2014
Net
Dividends
2013
Net
Dividends
Revenue
Income
OCI
Received
Revenue
Income
OCI
Received
General Growth Properties
$
3,188
$
2,556
$
(5) $
158
$
3,079
$
2,835
$
64
$
107
245 Park Avenue
Grace Building
Rouse Properties
Other property investments
Renewable energy
Other renewable energy investments
Infrastructure
Brazilian toll road
South American transmission operation
Brazilian rail and port operations
Australian energy distribution
Other infrastructure investments
Other
Total
149
106
304
645
109
1,056
434
459
—
929
164
191
87
381
6
88
65
58
—
26
1,523
169
—
—
—
8
115
41
335
—
—
72
(7)
17
252
14
72
27
—
28
—
—
36
70
145
100
263
921
110
1,125
446
—
308
1,459
488
55
154
146
448
20
(15)
113
—
206
(1,032)
178
—
—
—
—
—
(193)
264
—
(45)
204
(18)
29
—
11
128
18
—
68
—
19
34
38
$
8,902
$
3,791
$
559
$
674
$
8,444
$
3,108
$
276
$
452
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 equity accounted investments in comparison to the company’s carrying value is as follows:
116 BROOKFIELD ASSET MANAGEMENT
(MILLIONS)
General Growth Properties
Rouse Properties
Other
Dec. 31, 2014
Dec. 31, 2013
Public Price
Carrying
Value
Public Price
Carrying
Value
$
$
7,183
$
6,887
$
5,125
$
6,044
359
28
408
17
430
31
399
23
7,570
$
7,312
$
5,586
$
6,466
At December 31, 2014, the Company reviewed the valuation of its investment in General Growth Properties Inc. (“GGP” or
“General Growth Properties”) to determine whether the impairment recognized in 2013 of $249 million, or any portion thereof,
may no longer be required. Based on the published price of GGP common stock as at December 31, 2014 the recoverable amount
of the investment in GGP had increased to an amount that was in excess of the company’s carrying value and the impairment
loss was reversed. The impairment and subsequent reversal has been recorded within equity accounted income. The Company’s
investment in GGP at December 31, 2014 includes $552 million of excess of consideration paid over the fair value of the
investment at the date of acquisition.
In 2013, the company recognized a $275 million impairment relating to its investment in a North American natural gas
transmission operation based on weak market fundamentals in the U.S. market.
11.
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 and reclassifications to assets held for sale
Fair value changes
Foreign currency translation
Fair value at end of year
2014
2013
$
38,336
$
33,161
2,269
8,332
(4,800)
3,266
(1,320)
$
46,083
$
1,835
5,530
(1,908)
1,031
(1,313)
38,336
Investment properties include the company’s office, retail, multifamily, industrial and other properties as well as higher-
and-better use land within the company’s sustainable resource operations. Investment properties generated $3,679 million
(2013 – $3,093 million) in rental income, and incurred $1,729 million (2013 – $1,302 million) in direct operating expenses.
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 increase
driven by net operating income
(decrease) fair value
• Discount rate
• Increases (decreases) in discount rate decrease
(increase) fair value
• Terminal capitalization rate
• Increases (decreases) in terminal capitalization rate
decrease (increase) fair value
• Investment horizon
• Increases (decreases) in the investment horizon
increase (decrease) 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)
2014
7.1%
6.0%
10
2013
7.4%
6.3%
11
2014
9.2%
7.2%
10
2013
9.2%
7.6%
10
2014
6.7%
7.3%
10
2013
8.6%
7.5%
10
2014
7.1%
6.1%
10
2013
7.7%
6.6%
11
2014 ANNUAL REPORT 117
12. PROPERTY, PLANT AND EQUIPMENT
(MILLIONS)
Cost
Accumulated fair value changes
Accumulated depreciation
Total
Dec. 31, 2014
Dec. 31, 2013
$
25,337
$
13,978
(4,698)
$
34,617
$
23,281
11,574
(3,836)
31,019
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.
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 Value1
Carried at Amortized Cost
Total
Note
Dec. 31, 2014 Dec. 31, 2013 Dec. 31, 2014 Dec. 31, 2013 Dec. 31, 2014 Dec. 31, 2013
(a)
(b)
(c)
(d)
$
19,970
$
16,611
$
— $
— $
19,970
$
16,611
9,061
2,872
—
8,564
3,042
—
—
—
—
—
2,714
2,802
9,061
2,872
2,714
8,564
3,042
2,802
$
31,903
$
28,217
$
2,714
$
2,802
$
34,617
$
31,019
1.
Classified as Level 3 in the fair value hierarchy due to the use of significant unobservable inputs when determining fair value
a)
Renewable Energy
Our renewable energy, property, plant and equipment is comprised of the following:
(MILLIONS)
Hydroelectric and other
Wind energy
Note
(i)
(ii)
$
$
2014
16,687
$
3,283
19,970
$
2013
14,148
2,463
16,611
Renewable energy assets are accounted for under the revaluation model and the most recent date of revaluation was
December 31, 2014. 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 increase
(decrease) fair value
• Discount rate
• Increases (decreases) in discount rate decrease
(increase) fair value
• Terminal capitalization rate
• Increases (decreases) in terminal capitalization rate
decrease (increase) 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.
118 BROOKFIELD ASSET MANAGEMENT
Key valuation metrics of the company’s hydro and wind generating facilities at the end of 2014 and 2013 are summarized below.
United States
Canada
Brazil
Dec. 31, 2014 Dec. 31, 2013 Dec. 31, 2014 Dec. 31, 2013 Dec. 31, 2014 Dec. 31, 2013
Discount rate
Contracted
Uncontracted
Terminal capitalization rate
Exit date
5.2%
7.1%
7.1%
2034
5.8%
7.6%
7.1%
2033
4.8%
6.7%
6.5%
2034
5.1%
6.9%
6.4%
2033
8.4%
9.7%
n/a
2029
9.1%
10.4%
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, 2014 is 15 years (2013 –
16 years). Consequently, there is no terminal value attributed to the hydroelectric assets in Brazil.
i.
Renewable Energy – Hydroelectric and Other
(MILLIONS)
Cost
Accumulated fair value changes
Accumulated depreciation
Total
Dec. 31, 2014
Dec. 31, 2013
$
7,997
$
10,877
(2,187)
$
16,687
$
6,647
9,413
(1,912)
14,148
2013
5,864
170
957
(344)
6,647
The following table presents the changes to the cost of the company’s hydroelectric and other 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
2014
$
6,647
$
365
1,341
(356)
$
7,997
$
As at December 31, 2014, the cost of generating facilities under development includes $126 million of capitalized costs
(2013 – $9 million).
The following table presents the changes to the accumulated fair value changes of the company’s hydroelectric and other energy
generation assets:
YEARS ENDED DECEMBER 31
(MILLIONS)
Balance at beginning of year
Fair value changes
Foreign currency translation
Balance at end of year
$
2014
9,413
1,932
(468)
$
10,877
$
2013
$
10,031
(155)
(463)
9,413
The following table presents the changes to the accumulated depreciation of the company’s hydroelectric and other energy
generation assets:
YEARS ENDED DECEMBER 31
(MILLIONS)
Balance at beginning of year
Depreciation expense
Foreign currency translation
Balance at end of year
2014
2013
$
(1,912)
$
(1,604)
(403)
128
(413)
105
$
(2,187)
$
(1,912)
2014 ANNUAL REPORT 119
ii.
Renewable Energy – Wind Energy
(MILLIONS)
Cost
Accumulated fair value changes
Accumulated depreciation
Total
The following table presents the changes to the cost of the company’s wind energy assets:
YEARS ENDED DECEMBER 31
(MILLIONS)
Balance at beginning of year
Acquisitions through business combinations
Additions, net of disposals
Foreign currency translation
Balance at end of year
Dec. 31, 2014
Dec. 31, 2013
$
$
$
3,079
$
657
(453)
3,283
$
$
2014
2,137
1,075
78
(211)
2,137
645
(319)
2,463
2013
1,753
430
16
(62)
$
3,079
$
2,137
The following table presents the changes to the accumulated fair value changes of the company’s wind energy assets
YEARS ENDED DECEMBER 31
(MILLIONS)
Balance at beginning of year
Fair value changes
Foreign currency translation
Balance at end of year
2014
645
57
(45)
657
$
$
$
$
The following table presents the changes to the accumulated depreciation of the company’s wind energy 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:
(MILLIONS)
Utilities
Transportation
Energy
Sustainable resources
$
$
$
Note
(i)
(ii)
(iii)
(iv)
2014
(319)
$
(157)
23
(453)
$
$
2014
3,637
2,702
1,745
977
$
9,061
$
2013
681
5
(41)
645
2013
(193)
(138)
12
(319)
2013
3,624
2,941
1,198
801
8,564
120 BROOKFIELD ASSET MANAGEMENT
i.
Infrastructure – Utilities
(MILLIONS)
Cost
Accumulated fair value changes
Accumulated depreciation
Total
Dec. 31, 2014
Dec. 31, 2013
$
$
3,122
$
729
(214)
3,637
$
3,369
378
(123)
3,624
The company’s utilities assets are comprised of terminals and energy transmission and distribution networks, which are operated
primarily under regulated rate base arrangements.
Utilities assets are accounted for under the revaluation model, and the most recent date of revaluation was December 31, 2014.
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 increase
(decrease) fair value
• Discount rate
• Increases (decreases) in discount rate decrease
• Terminal capitalization multiple
(increase) fair value
• Increases (decreases)
in
terminal capitalization
multiple decrease (increase) fair value
• Investment horizon
• Increases (decreases) in the investment horizon
decrease (increase) fair value
Key assumptions used in the December 31, 2014 valuation process include: discount rates ranging from 8% to 12%
(2013 – 8% to 13%), terminal capitalization multiples ranging from 8x to 16x (2013 – 10x to 16x), and an investment horizon
between 10 and 20 years (2013 – 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 and assets reclassified to held for sale
Foreign currency translation
Balance at end of year
2014
3,369
$
17
(264)
2013
3,203
165
1
3,122
$
3,369
$
$
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
Dispositions and assets reclassified to held for sale
Foreign currency translation
Balance at end of year
$
$
2014
378
449
(55)
(43)
$
729
$
The following table presents the changes to the accumulated depreciation of the company’s utilities assets:
YEARS ENDED DECEMBER 31
(MILLIONS)
Balance at beginning of year
Depreciation expense
Dispositions and assets reclassified to held for sale
Foreign currency translation
Balance at end of year
2013
113
271
—
(6)
378
2013
(6)
(121)
—
4
2014
$
(123)
$
(130)
28
11
$
(214)
$
(123)
2014 ANNUAL REPORT 121
ii.
Infrastructure – Transport
(MILLIONS)
Cost
Accumulated fair value changes
Accumulated depreciation
Total
Dec. 31, 2014
Dec. 31, 2013
$
$
2,187
$
725
(210)
2,702
$
2,334
744
(137)
2,941
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, 2014.
The company determined fair value to be the current replacement cost.
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 increase
(decrease) fair value
• Discount rate
• Increases (decreases) in discount rate decrease
• Terminal capitalization multiple
(increase) fair value
• Increases (decreases)
in
terminal capitalization
multiple decrease (increase) fair value
• Investment horizon
• Increases (decreases) in the investment horizon
decrease (increase) fair value
Key assumptions used in the December 31, 2014 valuation process include: discount rates ranging from 11% to 15%
(2013 – 11% to 12%), terminal capitalization multiples ranging from 10x to 12x (2013 – 7x to 11x), and an investment horizon
between 10 and 20 years (2013 – 10 years).
The following table presents the changes to the cost of the company’s transport assets:
YEARS ENDED DECEMBER 31
(MILLIONS)
Balance at beginning of year
Additions, net of disposals
Foreign currency translation
Balance at end of year
2014
2,334
$
122
(269)
2,187
$
$
$
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
2014
744
$
8
(27)
725
$
$
$
The following table presents the changes to the accumulated depreciation of the company’s transport assets:
YEARS ENDED DECEMBER 31
(MILLIONS)
Balance at beginning of year
Depreciation expense
Foreign currency translation
Balance at end of year
122 BROOKFIELD ASSET MANAGEMENT
2014
(137)
$
(129)
56
(210)
$
$
$
2013
2,502
160
(328)
2,334
2013
519
317
(92)
744
2013
(33)
(127)
23
(137)
iii.
Infrastructure – Energy
(MILLIONS)
Cost
Accumulated fair value changes
Accumulated depreciation
Total
Dec. 31, 2014
Dec. 31, 2013
$
$
1,653
$
1,132
210
(118)
131
(65)
1,745
$
1,198
The company’s energy assets consist of energy transmission, 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, 2014.
The company determined fair value to be the current replacement cost.
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 increase
driven by transmission, distribution
and storage volumes and pricing
(decrease) fair value
• Discount rate
• Increases (decreases) in discount rate decrease
• Terminal capitalization multiple
(increase) fair value
• Increases (decreases)
in
terminal capitalization
multiple decrease (increase) fair value
• Investment horizon
• Increases (decreases) in the investment horizon
decrease (increase) fair value
Key assumptions used in the December 31, 2014 valuation process include: discount rates ranging from 10% to 13%
(2013 – 15% to 16%), terminal capitalization multiples ranging from 8x to 12x (2013 – 8x to 12x), and an investment horizon
of 10 years (2013 – 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
2014
$
1,132
$
59
517
(55)
2013
1,004
33
142
(47)
$
1,653
$
1,132
The following table presents the changes to the accumulated fair value changes of the company’s energy assets:
YEARS ENDED DECEMBER 31
(MILLIONS)
Balance at beginning of year
Fair value changes
Foreign currency translation
Balance at end of year
2014
131
89
(10)
210
$
$
The following table presents the changes to the accumulated depreciation of the company’s energy assets:
YEARS ENDED DECEMBER 31
(MILLIONS)
Balance at beginning of year
Depreciation expense
Foreign currency translation
Balance at end of year
$
$
2014
(65)
(56)
3
(118)
$
$
$
$
2013
47
83
1
131
2013
(25)
(37)
(3)
(65)
2014 ANNUAL REPORT 123
iv.
Infrastructure – Sustainable Resources
Sustainable resources assets represents timberlands and other agricultural land.
(MILLIONS)
Cost
Accumulated fair value changes
Accumulated depreciation
Total
2014
480
519
(22)
977
$
$
2013
469
349
(17)
801
$
$
Investment properties within our sustainable resources operations are accounted for under the revaluation model and the most
recent date of revaluation was December 31, 2014.
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 increase
(decrease) fair value
• Discount rate
• Increases (decreases) in discount rate decrease
(increase) fair value
• Terminal valuation date
• Increases (decreases) in terminal valuation date
decrease (increase) fair value
• Exit date
• Increases (decreases) in the exit date decrease
(increase) fair value
Key valuation assumptions included a weighted average discount rate of 6% (2013 – 7%), and a terminal valuation date of
3 to 30 years (2013 – 3 to 35 years).
The following table presents the changes to the cost of the company’s sustainable resources business:
YEARS ENDED DECEMBER 31
(MILLIONS)
Balance at beginning of year
Additions, net of disposals
Foreign currency translation
Balance at end of year
2014
469
63
(52)
480
$
$
2013
1,264
(784)
(11)
469
$
$
The following table presents the changes to the accumulated fair value changes of the company’s sustainable resources business:
YEARS ENDED DECEMBER 31
(MILLIONS)
Balance at beginning of year
Fair value changes
Dispositions
Foreign currency translation
Balance at end of year
2014
349
212
—
(42)
519
$
$
2013
166
49
133
1
349
$
$
The following table presents the changes to the accumulated depreciation of 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
124 BROOKFIELD ASSET MANAGEMENT
2014
$
(17)
$
(8)
—
3
2013
(18)
(3)
3
1
$
(22)
$
(17)
c)
Property
(MILLIONS)
Cost
Accumulated fair value changes
Accumulated depreciation
Total
Dec. 31, 2014
Dec. 31, 2013
$
$
2,859
$
455
(442)
2,872
$
3,168
170
(296)
3,042
The company’s property assets include hotel assets accounted for under the revaluation model, with the most recent revaluation
as at December 31, 2014. The company determines fair value for these assets by discounting the expected future cash flows
using internal valuations.
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 increase
(decrease) fair value
• Discount rate
• Increases (decreases) in discount rate decrease
(increase) fair value
• Terminal capitalization rate
• Increases (decreases) in terminal capitalization rate
decrease (increase) fair value
• Investment horizon
• Increases (decreases) in the investment horizon
decrease (increase) fair value
Key valuation assumptions included a weighted average discount rate of 10.0% (2013 – 10.5%), terminal capitalization rate of
7.0% (2013 – 7.6%), and investment horizon of 6 years (2013 – 7 years).
The following table presents the changes to the cost of the company’s hotel assets included within its property operations:
YEARS ENDED DECEMBER 31
(MILLIONS)
Balance at beginning of year
Additions, net of disposals
Foreign currency translation
Balance at end of year
2014
3,168
$
(227)
(82)
2013
3,130
137
(99)
2,859
$
3,168
$
$
The following table presents the changes to the accumulated fair value changes of the company’s hotel assets included 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
2014
170
324
(39)
455
$
$
2013
4
166
—
170
$
$
The following table presents the changes to the accumulated depreciation of the company’s hotel assets included within its
property operations:
YEARS ENDED DECEMBER 31
(MILLIONS)
Balance at beginning of year
Depreciation expense
Dispositions
Foreign currency translation
Balance at end of year
2014
$
(296)
$
(152)
4
2
2013
(166)
(130)
—
—
$
(442)
$
(296)
2014 ANNUAL REPORT 125
d)
Private Equity and Other
(MILLIONS)
Cost
Accumulated impairments
Accumulated depreciation
Total
Dec. 31, 2014
Dec. 31, 2013
$
$
3,960
$
(194)
(1,052)
2,714
$
4,025
(256)
(967)
2,802
Other property, plant and equipment includes assets owned by the company’s private equity, residential development and service
operations held directly or consolidated through funds.
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
2014
$
4,025
$
73
90
(228)
$
3,960
$
2013
3,928
124
86
(113)
4,025
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
Dispositions
Foreign currency translation
Balance at end of year
2014
(256)
$
$
(41)
75
28
2013
(162)
(99)
—
5
$
(194)
$
(256)
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
13. SUSTAINABLE RESOURCES
(MILLIONS)
Timberlands
Other agricultural assets
Total
2014
$
(967)
$
(224)
141
(2)
$
(1,052)
$
2013
(854)
(217)
110
(6)
(967)
Dec. 31, 2014
Dec. 31, 2013
$
$
394
52
446
$
$
449
53
502
The company held 1.8 million acres of consumable freehold timberlands at December 31, 2014 (2013 – 1.4 million), representing
39.9 million cubic metres (2013 – 39.9 million) of mature timber and available for harvest. Additionally, the company provides
management services to approximately 1.3 million acres (2013 – 1.3 million) of licensed timberlands.
126 BROOKFIELD ASSET MANAGEMENT
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
Additions, net of disposals
Fair value adjustments
Decrease due to harvest
Foreign currency changes
Balance at end of year
2014
$
502
$
62
38
(81)
(75)
$
446
$
2013
3,516
(2,991)
205
(186)
(42)
502
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 increase
(decrease) fair value
• Growth assessments
• Increases (decreases) in growth assessments increase
(decrease) fair value
• Timber/Agricultural prices
• Increases (decreases) in price increase (decrease)
fair value
• Discount rate/terminal
capitalization rate
• Increases (decreases) in discount rate or terminal
capitalization rate decrease (increase) fair value
Key valuation assumptions include a weighted average discount and terminal capitalization rate of 5.9% (2013 – 6.9%), and
terminal valuation dates of 30 years (2013 – 20 to 28 years). Timber and agricultural asset prices were based on a combination
of forward prices available in the market and price forecasts.
14.
INTANGIBLE ASSETS
(MILLIONS)
Cost
Accumulated amortization and impairment losses
Total
Intangible assets are allocated to the following cash-generating units:
(MILLIONS)
Infrastructure – Utilities
Infrastructure – Transport
Property – Industrial, Multifamily, Hotel and other
Private equity
Service activities
Renewable energy
Other
a)
Infrastructure – Utilities
Dec. 31, 2014
Dec. 31, 2013
$
$
4,864
$
(537)
4,327
$
5,492
(448)
5,044
Note
Dec. 31, 2014
Dec. 31, 2013
$
(a)
(b)
$
2,048
1,427
309
156
266
18
103
2,231
1,633
327
257
297
94
205
$
4,327
$
5,044
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 the company has an option to extend the arrangement an additional 49 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 $334 million (2013 – $355 million) of
indefinite life intangible assets which represent perpetual conservancy rights associated with the company’s UK port operation.
2014 ANNUAL REPORT 127
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
Cost at end of year
2014
$
5,492
$
(218)
10
(420)
$
4,864
$
2013
6,166
(13)
20
(681)
5,492
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)
2014
Accumulated amortization and impairment losses at beginning of year
$
(448)
$
Amortization
Disposals
Foreign currency translation and other
(139)
40
10
2013
(396)
(105)
39
14
Accumulated amortization and impairment losses at end of year
$
(537)
$
(448)
The following table presents intangible assets by geography:
(MILLIONS)
United States
Canada
Australia
Europe
Chile
Brazil and other
Dec. 31, 2014
Dec. 31, 2013
$
$
112
119
2,283
426
1,093
294
$
4,327
$
180
266
2,535
456
1,278
329
5,044
Intangible assets, including trademarks, concession agreements and conservancy rights, are recorded at amortized cost and are
tested for impairment annually or when an indicator of impairment is identified 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
increase (decrease) the recoverable amount
• Discount rate
• Increases (decreases) in discount rate will decrease
(increase) the recoverable amount
• Terminal capitalization rate
• Increases (decreases) in terminal capitalization rate
will decrease (increase) the recoverable amount
• Exit date
• Increases (decreases) in the exit date will decrease
(increase) the recoverable amount
15. GOODWILL
(MILLIONS)
Cost
Accumulated impairment losses
Total
128 BROOKFIELD ASSET MANAGEMENT
Dec. 31, 2014
Dec. 31, 2013
$
$
1,579
$
(173)
1,406
$
1,635
(47)
1,588
Goodwill is allocated to the following cash-generating units:
(MILLIONS)
Services – Construction
Residential development – Brazil
Services – Property services
Asset management
Other
Total
a)
Construction
Note
Dec. 31, 2014
Dec. 31, 2013
$
(a)
(b)
$
660
153
54
323
216
720
277
54
341
196
$
1,406
$
1,588
Goodwill in our construction business is tested for impairment using a discounted cash flow analysis with the following valuation
assumptions used to determine the recoverable amount: discount rate of 14.5% (2013 – 15.6%), terminal capitalization rate of
10.3% (2013 – 12.1%) and exit date of 2019 (2013 – 2018).
b)
Residential Development – Brazil
Goodwill in our Brazilian residential development business is tested for impairment using a discounted cash flow with the
following valuation assumptions used to determine the recoverable amount: discount rate of 13.5% (2013 – 14.0%) and terminal
capitalization rate of 9.0% (2013 – 9.5%). The current year test resulted in an $87 million impairment of goodwill as a result of
the recoverable amount of the business unit being less than our carrying value.
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
Foreign currency translation
Accumulated impairment at end of year
The following table presents goodwill by geography:
(MILLIONS)
United States
Canada
Australia
Brazil
Europe
Other
2014
$
1,635
$
78
(3)
(131)
2013
2,540
—
(645)
(260)
$
1,579
$
1,635
2014
(47)
$
(130)
4
(173)
$
2013
(50)
—
3
(47)
$
$
Dec. 31, 2014
Dec. 31, 2013
$
$
314
28
577
230
26
231
282
4
625
397
27
253
$
1,406
$
1,588
2014 ANNUAL REPORT 129
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
increase (decrease) the recoverable amount
• Discount rate
• Increases (decreases) in discount rate will decrease
(increase) the recoverable amount
• Terminal capitalization rate
• Increases (decreases) in terminal capitalization rate
will decrease (increase) the recoverable amount
• Exit date
• Increases (decreases) in the exit date will decrease
(increase) the recoverable amount
16.
INCOME TAXES
The major components of income tax expense for the years ended December 31, 2014 and December 31, 2013 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 new legislation
Total deferred income taxes
Income taxes
2014
$
114
$
1,087
(174)
296
1,209
1,323
$
$
2013
159
871
(130)
(55)
686
845
The company’s Canadian domestic statutory income tax rate has remained consistent at 26% throughout both of 2014 and
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 interests
Recognition of previously unrecorded deferred tax assets
Non-recognition of the benefit of current year’s tax losses
Change in tax rates and new legislation
Other
Effective income tax rate
2014
26%
2013
26%
—
(5)
(5)
(1)
2
4
(1)
(1)
(3)
(7)
(2)
3
—
2
20%
18%
Deferred income tax assets and liabilities as at December 31, 2014 and 2013 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, 2014
Dec. 31, 2013
$
$
827
143
463
544
878
215
385
511
(8,660)
$
(6,683)
$
(6,741)
(4,752)
The aggregate amount of temporary differences associated with investments in subsidiaries for which deferred tax liabilities
have not been recognized as at December 31, 2014 is approximately $8 billion (2013 – approximately $8 billion).
130 BROOKFIELD ASSET MANAGEMENT
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)
2015
2016
2017
2018 and after
Do not expire
Total
Dec. 31, 2014
Dec. 31, 2013
$
$
15
11
5
355
764
2
1
—
290
901
$
1,150
$
1,194
The components of the income taxes in other comprehensive income for the years ended December 31, 2014 and 2013 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
Total deferred tax in other comprehensive income
17. ACCOUNTS PAYABLE AND OTHER
(MILLIONS)
Accounts payable
Other liabilities
Total
The current and non-current balances of accounts payable and other liabilities are as follows:
(MILLIONS)
Current
Non-current
Total
$
2014
650
(66)
5
—
39
(18)
610
$
2013
135
129
(10)
37
(10)
(1)
280
$
$
Dec. 31, 2014
Dec. 31, 2013
$
$
$
4,510
5,898
5,244
5,072
10,408
$
10,316
Dec. 31, 2014
Dec. 31, 2013
$
$
6,054
$
4,354
5,994
4,322
10,408
$
10,316
2014 ANNUAL REPORT 131
18. CORPORATE BORROWINGS
Maturity
Annual Rate
Currency
Dec. 31, 2014
Dec. 31, 2013
(MILLIONS)
Term debt
Public – Canadian
Public – U.S.
Public – Canadian
Public – Canadian
Public – Canadian
Public – Canadian
Public – Canadian
Public – Canadian
Public – U.S.
Public – Canadian
Sept. 8, 2016
Apr. 25, 2017
Apr. 25, 2017
Apr. 9, 2019
Mar. 1, 2021
Mar. 31, 2023
Mar. 8, 2024
Jan. 28, 2026
Mar. 1, 2033
Jun. 14, 2035
5.20%
5.80%
5.29%
3.95%
5.30%
4.54%
5.04%
4.82%
7.38%
5.95%
C$
$
US$
C$
C$
C$
C$
C$
C$
US$
C$
$
258
239
216
519
301
519
431
430
250
362
3,525
574
(24)
282
239
235
568
330
568
472
—
250
396
3,340
662
(27)
Commercial paper and bank borrowings
Deferred financing costs1
Total
1.19%
US$/C$
$
4,075
$
3,975
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 4.6% (2013 – 4.5%), and include $3,428 million
(2013 – $3,356 million) repayable in Canadian dollars of C$3,982 million (2013 – C$3,565 million).
On January 15, 2015, the company issued US$500 million of 4.0%, 10 year notes.
19. 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)
Property
Energy
Infrastructure
Equity
Development
Activities
Activities
Renewable
Private
Residential
Service
Corporate
$
2,487 $
246
$
80
$
157
$
$
27 $
— $
80
269
4
3
239
823
516
143
33
12
4
—
—
—
—
—
27
Total
3,820
5,624
7,189
3,643
2,898
17,190
—
—
—
—
—
$
— $
40,364
271 $
106 $
35,495
Dec. 31, 2014
Dec. 31, 2013
$
$
3,820
$
36,544
40,364
$
6,288
29,207
35,495
2015
2016
2017
2018
2019
4,098
5,659
2,469
2,579
532
885
886
179
398
233
251
125
Thereafter
8,251
3,263
5,433
Total – Dec. 31, 2014
Total – Dec. 31, 2013
$
$
25,543 $
5,991 $
6,520 $
21,577 $
4,907 $
6,078 $
752 $
342 $
1,531 $
2,214 $
The current and non-current balances of property-specific mortgages are as follows:
(MILLIONS)
Current
Non-current
Total
132 BROOKFIELD ASSET MANAGEMENT
Property-specific mortgages by currency include the following:
(MILLIONS)
U.S. dollars
Canadian dollars
Australian dollars
British pounds
Brazilian reais
Chilean unidad de fomento
European Union euros
Indian rupee
Colombian pesos
New Zealand dollars
Total
b)
Subsidiary Borrowings
Dec. 31, 2014
Local Currency
Dec. 31, 2013
$
25,193
US$
25,193
$
20,205
Local Currency
US$
20,205
4,839
3,865
2,208
2,123
898
877
193
168
—
C$
A$
£
R$
UF$
5,622
4,729
1,418
5,626
22
€$
725
₨ 12,123
COP$
400,155
N$
—
5,217
3,708
2,447
2,988
689
2
—
207
32
C$
A$
£
R$
UF$
€$
₨
5,542
4,157
1,478
5,542
16
1
—
COP$
400,155
N$
39
$
40,364
$
35,495
Principal repayments on subsidiary borrowings due over the next five calendar years and thereafter are as follows:
Property
Renewable
Energy
Infrastructure
Private
Equity
Residential
Development
Services
Activities
$
504 $
— $
34 $
129 $
— $
295 $
(MILLIONS)
2015
2016
2017
2018
2019
Thereafter
2,304
227
990
—
—
258
—
172
401
856
12
370
14
259
30
4
354
36
—
4
Total – Dec. 31, 2014
Total – Dec. 31, 2013
$
$
4,025 $
3,075 $
1,687 $
1,717 $
719 $
435 $
527 $
899 $
The current and non-current balances of subsidiary borrowings are as follows:
—
—
—
—
1,076
1,076 $
1,266 $
—
—
—
—
—
295 $
— $
Total
962
2,578
951
1,212
660
1,966
8,329
7,392
(MILLIONS)
Current
Non-current
Total
Dec. 31, 2014
Dec. 31, 2013
$
$
962
$
7,367
8,329
$
1,854
5,538
7,392
Subsidiary borrowings by currency include the following:
(MILLIONS)
U.S. dollars
Canadian dollars
Australian dollars
Brazilian reais
British pounds
Total
Dec. 31, 2014
Local Currency
Dec. 31, 2013
Local Currency
$
5,429
2,596
163
114
27
US$
5,429 $
C$
A$
R$
£
3,015
200
303
17
4,346
2,283
696
59
8
US$
C$
A$
R$
£
4,346
2,421
780
139
5
$
8,329
$
7,392
2014 ANNUAL REPORT 133
20. SUBSIDIARY EQUITY OBLIGATIONS
Subsidiary equity obligations consist of the following:
(MILLIONS)
Subsidiary preferred equity units
Limited-life funds and redeemable fund units
Subsidiary preferred shares
Corporate preferred shares
Total
a)
Subsidiary Preferred Equity Units
Note
(a)
(b)
(c)
Dec. 31, 2014
Dec. 31, 2013
$
1,535
$
1,423
583
—
—
1,086
628
163
$
3,541
$
1,877
BPY issued $1,800 million of exchangeable preferred equity units in three $600 million tranches redeemable in 2021, 2024
and 2026, respectively. The preferred equity units are exchangeable into equity units of BPY at $25.70 per unit, at the option
of the holder, at any time up to and including the maturity date. BPY may redeem the preferred equity units after specified
periods if the BPY equity unit price exceeds predetermined amounts. At maturity, the preferred equity units will be converted
into BPY equity units at the lower of $25.70 or the then market price of a BPY equity unit. The preferred equity units represent
compound financial instruments and the value of the liability and equity conversion option was determined to be $1,535 million
and $265 million, respectively, at the time of issuance. Brookfield Asset Management Inc. (the “Corporation”) is required under
certain circumstances to purchase the preferred equity units at their redemption value in equal amounts in 2021 and 2024 and
may be required to purchase the 2026 tranche, as further described in Note 31(a).
(MILLIONS, EXCEPT SHARE INFORMATION)
Series 1
Series 2
Series 3
Total
b)
Subsidiary Preferred Shares
Shares
Outstanding
Cumulative
Dividend Rate
24,000,000
24,000,000
24,000,000
6.25%
6.50%
6.75%
Currency
Dec. 31, 2014
Dec. 31, 2013
US$
US$
US$
$
$
$
524
510
501
1,535
$
—
—
—
—
Preferred shares are classified as liabilities if 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 equity of the issuer 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,
2014, the balance are obligations of BPY and its subsidiaries.
(MILLIONS, EXCEPT SHARE INFORMATION)
BPO Class AAA preferred shares
Series G
Series H
Series J
Series K
Brookfield Property Split Corp
(“BOP Split”) senior
preferred shares
Series 1
Series 2
Series 3
Series 4
Total
Shares
Outstanding
Cumulative
Dividend Rate
Currency
Dec. 31, 2014
Dec. 31, 2013
3,350,000
7,000,000
7,000,000
4,980,000
1,000,000
1,000,000
1,000,000
1,000,000
5.25%
5.75%
5.00%
5.20%
5.25%
5.75%
5.00%
5.20%
US$
$
C$
C$
C$
US$
C$
C$
C$
$
85
150
150
107
25
22
22
22
$
583
$
110
188
188
142
—
—
—
—
628
134 BROOKFIELD ASSET MANAGEMENT
The BPO Class AAA preferred shares and BOP Split senior preferred shares are redeemable at the option of either the issuer or
the holder, at any time after the following dates:
BPO Class AAA preferred shares
Series G
Series H
Series J
Series K
BOP Split senior preferred shares
Series 1
Series 2
Series 3
Series 4
c)
Corporate Preferred Shares
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, 2014
Dec. 31, 2014
Jun. 30, 2014
Dec. 31, 2015
Jun. 30, 2011
Dec. 31, 2011
Jun. 30, 2010
Dec. 31, 2012
Jun. 30, 2014
Dec. 31, 2014
Jun. 30, 2014
Dec. 31, 2015
Sept. 30, 2015
Dec. 31, 2015
Dec. 31, 2014
Dec. 31, 2016
Sept. 30, 2015
Dec. 31, 2015
Dec. 31, 2014
Dec. 31, 2016
On April 6, 2014, the company redeemed all of its outstanding Class A Series 12 preferred shares for cash.
21. EQUITY
Equity is comprised of the following:
(MILLIONS)
Preferred equity
Non-controlling interests
Common equity
a)
Preferred Equity
Dec. 31, 2014
Dec. 31, 2013
$
3,549
$
29,545
20,153
$
53,247
$
3,098
26,647
17,781
47,526
Preferred equity includes perpetual preferred shares and rate-reset preferred shares and consist of the following:
AS AT DECEMBER 31
(MILLIONS)
Perpetual preferred shares
Floating rate
Fixed rate
Fixed rate-reset preferred shares
Average Rate
2014
2013
2014
2013
2.11%
4.82%
4.59%
4.31%
2.13% $
4.82%
5.00%
4.51% $
480
753
1,233
2,316
3,549
$
$
480
753
1,233
1,865
3,098
2014 ANNUAL REPORT 135
Further details on each series of preferred shares are as follows:
(MILLIONS, EXCEPT SHARE INFORMATION)
Class A preferred shares
Perpetual preferred shares
Series 2
Series 4
Series 8
Series 13
Series 15
Series 17
Series 18
Series 36
Series 37
Rate-reset preferred shares2
Series 9
Series 223
Series 24
Series 26
Series 28
Series 30
Series 32
Series 34
Series 384
Series 405
Series 426
Total
Issued and Outstanding
Rate
Dec. 31, 2014
Dec. 31, 2013
Dec. 31, 2014
Dec. 31, 2013
70% P
10,465,100
10,465,100
$
169
$
70% P/8.5%
Variable up to P
70% P
B.A. + 40 b.p.1
4.75%
4.75%
4.85%
4.90%
2,800,000
1,652,394
9,297,700
2,000,000
8,000,000
8,000,000
8,000,000
8,000,000
3.80%
2,347,606
7.00%
5.40%
4.50%
4.60%
4.80%
4.50%
4.20%
4.40%
4.50%
4.50%
—
11,000,000
10,000,000
9,400,000
10,000,000
12,000,000
10,000,000
8,000,000
12,000,000
12,000,000
2,800,000
1,652,394
9,297,700
2,000,000
8,000,000
8,000,000
8,000,000
8,000,000
2,347,606
12,000,000
11,000,000
10,000,000
9,400,000
10,000,000
12,000,000
10,000,000
—
—
—
45
29
195
42
174
181
201
197
169
45
29
195
42
174
181
201
197
1,233
1,233
35
—
269
245
235
247
304
256
181
275
269
35
274
269
245
235
247
304
256
—
—
—
2,316
3,549
$
1,865
3,098
$
1.
2.
Rate determined in a quarterly auction
Dividend rates are fixed for five to six years from the quarter end dates after issuance, June 30, 2011, March 31, 2012, June 30, 2012, December 31, 2012,
September 30, 2013, March 31, 2014, June 30, 2014 and December 31, 2014, respectively, and reset after five to six years to the 5-year Government of Canada bond rate
plus between 180 and 296 basis points
Redeemed on September 30, 2014
Issued on March 13, 2014
Issued on June 5, 2014
Issued on October 8, 2014
3.
4.
5.
6.
P – Prime Rate, B.A. – Bankers’ Acceptance Rate, b.p. – Basis Points
The company is authorized to issue an unlimited number of Class A preferred shares and an unlimited number of Class AA preferred
shares, issuable in series. No Class AA preferred shares have been issued.
The Class A preferred shares have preference over the Class AA preferred shares, which in turn are entitled to preference over
the Class A and Class B 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.
b)
Non-controlling Interests
Non-controlling interests represent the common and preferred equity in consolidated entities that are owned by other shareholders.
(MILLIONS)
Common equity
Preferred equity
Total
Dec. 31, 2014
Dec. 31, 2013
$
$
27,131
$
2,414
29,545
$
23,828
2,819
26,647
Further information on non-controlling interest is provided in Note 4, Subsidiaries.
136 BROOKFIELD ASSET MANAGEMENT
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 income1
Common equity
Dec. 31, 2014
Dec. 31, 2013
$
3,031
$
185
9,873
1,808
5,256
2,899
159
7,159
2,354
5,210
$
20,153
$
17,781
1.
Accumulated other comprehensive income is comprised of revaluation surplus, currency translation, available-for-sale securities, cash flow hedges, actuarial changes on
pension plans and equity accounted other comprehensive income, all of which are net of associated deferred income taxes
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 number of issued and outstanding common shares and unexercised options at December 31, 2014 and 2013 are as follows:
Class A shares1
Class B shares
Shares outstanding1
Unexercised options2
Total diluted shares
Dec. 31, 2014
Dec. 31, 2013
618,733,227
615,386,476
85,120
85,120
618,818,347
615,471,596
36,672,766
35,603,974
655,491,113
651,075,570
1.
2.
Net of 10,800,883 (2013 – 9,550,000) Class A shares held by the company to satisfy long-term compensation agreements
Includes management share option plan and escrowed stock plan
The authorized common share capital consists of an unlimited number of 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
1.
2.
Net of 10,800,883 (2013 – 9,550,000) Class A shares held by the company to satisfy long-term compensation agreements
Includes management share option plan, escrowed stock plan and restricted stock plan
Dec. 31, 2014
Dec. 31, 2013
615,471,596
619,599,349
(1,440,418)
(8,772,646)
4,590,927
196,242
4,442,362
202,531
618,818,347
615,471,596
2014 ANNUAL REPORT 137
i.
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
2014
$
3,110
$
(154)
2,956
2
$
2,958
$
2013
2,120
(145)
1,975
13
1,988
1.
The Series 12 preferred shares were 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 12 preferred shares were redeemed by the company during 2014
(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, 2014
Dec. 31, 2013
616.7
15.7
1.2
633.6
616.1
12.8
7.9
636.8
1.
2.
The Series 12 preferred shares were 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 12 preferred shares were redeemed by the company during 2014
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
$
2014
59
265
324
(263)
61
$
2013
54
87
141
(77)
64
$
$
The share-based payment plans are described below. There have been no cancellations or modifications to any of the plans
during 2014 or 2013.
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.
The changes in the number of options during 2014 and 2013 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, 2014
17,813
C$
Granted
Exercised
Cancelled
—
(3,624)
—
Outstanding at December 31, 2014
14,189
C$
1.
2.
Options to acquire TSX listed Class A shares
Options to acquire NYSE listed Class A shares
24.56
—
23.78
—
24.75
16,809
US$
3,561
(820)
(209)
19,341
US$
29.27
40.15
29.35
33.92
31.22
138 BROOKFIELD ASSET MANAGEMENT
Outstanding at January 1, 2013
23,575
C$
22.40
14,128
US$
Number of
Options
(000’s)1
Weighted
Average
Exercise Price
Number of
Options
(000’s)2
Weighted
Average
Exercise Price
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 to restricted shares at maturity
—
17.79
20.85
11.47
24.56
3,586
(722)
(183)
—
26.90
37.82
24.96
30.78
—
16,809
US$
29.27
The cost of the options granted during the year was determined using the Black-Scholes valuation model, 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
%
%
%
%
2014
40.15
9.21
7.5
31.4
25.0
1.5
2.3
1.
Share price volatility was determined based on historical share prices over a similar period to the average term to exercise
At December 31, 2014, the following options to purchase Class A shares were outstanding:
Exercise Price
C$17.65
C$20.21 – C$30.22
C$31.62 – C$46.59
US$23.18
US$25.24 – US$35.06
US$37.8 – US$40.15
Options Outstanding (000’s)
Weighted Average
Remaining Life
Vested
Unvested
4.2 years
0.8 years
2.7 years
5.2 years
6.8 years
8.7 years
6,570
3,106
4,513
5,523
2,601
650
22,963
—
—
—
1,463
2,887
6,217
10,567
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
Options Outstanding (000’s)
Weighted Average
Remaining Life
Vested
Unvested
5.1 years
1.8 years
3.7 years
6.9 years
9.2 years
5,727
5,028
5,215
6,125
110
22,205
1,763
80
—
7,133
3,441
12,417
2013
37.82
7.87
7.5
31.2
25.0
1.5
1.3
Total
6,570
3,106
4,513
6,986
5,488
6,867
33,530
Total
7,490
5,108
5,215
13,258
3,551
34,622
2014 ANNUAL REPORT 139
b)
Escrowed Stock Plan
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 2014, 2.75 million Class A shares were purchased in respect of ES Shares granted to executives under the ES Plan
(2013 – 2.35 million Class A shares) during the year. For the year ended December 31, 2014, the total expense incurred with
respect to the ES Plan totalled $20.8 million (2013 – $14.0 million).
The cost of the escrowed shares granted during the year was determined using the Black-Scholes model of valuation with inputs
to the model as follows:
YEARS ENDED DECEMBER 31
Weighted average share price
Weighted average fair value per share
Average term to exercise
Share price volatility1
Liquidity discount
Weighted average annual dividend yield
Risk-free rate
Unit
US$
US$
Years
%
%
%
%
2014
40.15
8.59
7.5
31.4
30.0
1.5
2.3
2013
37.82
7.34
7.5
31.2
30.0
1.5
1.3
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 2014, Brookfield granted 319,680 Class A shares pursuant to the terms and conditions of the Restricted Stock Plan,
resulting in the recognition of $11.3 million (2013 – $10.6 million) of compensation expense.
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
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, 2014 was $732 million
(2013 – $508 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, 2014, including those of operating
subsidiaries, totalled $2 million (2013 – $19 million), net of the impact of hedging arrangements.
140 BROOKFIELD ASSET MANAGEMENT
The change in the number of DSUs and RSUs during 2014 and 2013 was as follows:
Outstanding at January 1, 2014
Granted and reinvested
Exercised and cancelled
Outstanding at December 31, 2014
Outstanding at January 1, 2013
Granted and reinvested
Exercised and cancelled
Outstanding at December 31, 2013
DSUs
RSUs
Number of Units
(000’s)
Number of Units
(000’s)
Weighted
Average
Exercise Price
9,071
320
(249)
9,142
7,280 C$
13.64
—
—
—
—
7,280 C$
13.64
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
The fair value of DSUs is equal to the traded price of the company’s common shares.
Share price on date of measurement
Share price on date of measurement
The fair value of RSUs was determined primarily using the following inputs:
Share price on date of measurement
Weighted average exercise price
Weighted average fair value of a unit
22. REvENUES
Unit
Dec. 31, 2014
Dec. 31, 2013
C$
U$
58.22
50.13
41.22
38.83
Unit
Dec. 31, 2014
Dec. 31, 2013
C$
C$
C$
58.22
13.64
39.23
41.22
13.64
24.18
Revenues include $12,338 million (2013 – $12,834 million) from the sale of goods, $5,277 million (2013 – $6,448 million) from
the rendering of services, of which $nil (2013 – $558 million) was received in kind, and $749 million (2013 – $811 million)
from other activities.
23. DiRECT COSTS
Direct costs include all attributable expenses except interest, depreciation and amortization, taxes and fair value changes and
primarily relate to cost of sales and compensation. The following table lists direct costs for 2014 and 2013 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 AND gAiNS
2014
$
9,381
$
1,557
1,010
1,170
2013
10,416
1,125
975
1,412
$
13,118
$
13,928
Other income and gains in 2013 includes a $525 million gain on the settlement of a long-dated interest rate swap contract as well
as a $664 million gain on the sale of a private equity investee company.
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.
2014 ANNUAL REPORT 141
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
Warrants in General Growth Properties
Investment in Canary Wharf
Forest products investment
Power contracts
Other private equity investments
Redeemable units
Impairments of goodwill and other1
2014
$
3,266
$
526
319
230
(13)
(31)
(283)
(340)
$
3,674
$
2013
1,031
53
89
—
(134)
(94)
(20)
(262)
663
1.
Other fair value changes includes $74 million (2013 – $33 million) of transaction costs associated with business combinations
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, 2014 and 2013 is as follows:
(MILLIONS)
Foreign exchange
Interest rates
Credit default swaps
Equity derivatives
Commodity instruments
Energy (GWh)
Natural gas (MMBtu – 000’s)
Note
Dec. 31, 2014
Dec. 31, 2013
(a)
(b)
(c)
(d)
$
13,861
$
13,747
848
2,197
11,194
16,757
800
1,633
(e)
Dec. 31, 2014
Dec. 31, 2013
36,499
3,808
102,331
12,764
142 BROOKFIELD ASSET MANAGEMENT
a)
Foreign Exchange
The company held the following foreign exchange contracts with notional amounts at December 31, 2014 and December 31, 2013:
(MILLIONS)
Foreign exchange contracts
British pounds
Australian dollars
Canadian dollars
European Union euros
Brazilian reais
Japanese yen
Cross currency interest rate swaps
Australian dollars
Canadian dollars
British pounds
Japanese yen
Foreign exchange options
Japanese yen
European Union euros
British pounds
Notional Amount
(U.S. Dollars)
Average Exchange Rate
Dec. 31, 2014
Dec. 31, 2013
Dec. 31, 2014
Dec. 31, 2013
$
$
3,283
3,667
1,838
1,040
305
190
1,685
1,107
313
—
183
251
—
$
2,782
1,932
1,387
922
702
1
1,333
654
300
98
548
413
123
$
1.60
0.85
0.89
1.29
2.63
113.0
0.95
0.85
1.49
—
110.0
1.25
—
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
Included in net income are unrealized net gains on foreign currency derivative contracts amounting to $174 million
(2013 – $48 million) and included in the cumulative translation adjustment account in other comprehensive income are gains
in respect of foreign currency contracts entered into for hedging purposes amounting to $492 million (2013 – net losses of
$71 million).
b)
Interest Rates
At December 31, 2014, the company held interest rate swap contracts having an aggregate notional amount of $nil
(2013 – $600 million), and interest rate swaptions with an aggregate notional amount of $1,699 million (2013 – $1,704 million).
The company’s subsidiaries held interest rate swap contracts with an aggregate notional amount of $7,828 million
(2013 – $8,654 million), and interest rate cap contracts with an aggregate notional amount of $4,219 million (2013 – $5,799 million).
c)
Credit Default Swaps
As at December 31, 2014, the company held credit default swap contracts with an aggregate notional amount of $848 million
(2013 – $800 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
(2013 – $800 million) of the notional amount and could be required to make payments in respect of $48 (2013 – $nil) of the
notional amount.
d)
Equity Derivatives
At December 31, 2014, the company and its subsidiaries held equity derivatives with a notional amount of $2,197 million
(2013 – $1,633 million) which includes $828 million (2013 – $765 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. The company has purchased 2,110,000 MMBtu’s of natural gas financial contracts and sold 1,698,000 MMBtu’s
natural gas financial contracts as part of its electricity sale price risk mitigation strategy.
2014 ANNUAL REPORT 143
Other Information Regarding Derivative Financial Instruments
The following table classifies derivatives elected for hedge accounting during the years ended December 31, 2014 and 2013 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
$
Notional
9,552
7,801
2014
2013
Effective
Portion
Ineffective
Portion
Notional
Effective
Portion
Ineffective
Portion
$
(224)
$
(60)
$
10,452
$
37
$
(141)
$
17,353
$
314
90
—
6,146
$
(60)
$
16,598
$
(58)
(21)
—
$
(141)
1.
Notional amount does not include 8,671 GWh and 42,199 GWh of commodity derivatives at December 31, 2014 and December 31, 2013, respectively
The following table presents the change in fair values of the company’s derivative positions during the years ended
December 31, 2014 and 2013, 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
Interest rate caps
Interest rate swaptions
Credit default swaps
Equity derivatives
Commodity derivatives
Unrealized
Gains
During 2014
Unrealized
Losses
During 2014
Net Change
During 2014
Net Change
During 2013
$
708
$
(124)
$
584
$
(26)
36
1
—
37
5
750
85
(394)
—
(32)
(426)
—
—
(182)
$
1,585
$
(732)
$
(358)
1
(32)
(389)
5
750
(97)
853
$
81
(1)
25
105
(2)
38
(154)
(39)
144 BROOKFIELD ASSET MANAGEMENT
The following table presents the notional amounts underlying the company’s derivative instruments by term to maturity as at
December 31, 2014 and the comparative notional amounts at December 31, 2013, 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, 2014
Dec. 31, 2013
< 1 year
1 to 5 years
> 5 years
Total Notional
Amount
Total Notional
Amount
Foreign exchange derivatives
$
2,123
$
1,171
$
— $
3,294
$
2,996
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
6
974
1,479
2,459
3
236
10,735
2,110
483
725
2,741
3,949
845
1,943
16,440
1,698
571
—
—
571
—
—
653
—
1,060
1,699
4,220
6,979
848
2,179
27,828
3,808
872
1,704
5,799
8,375
800
1,615
60,132
12,765
Foreign exchange derivatives
$
7,717
$
852
$
1,998
$
10,567
$
8,198
Interest rate derivatives
Interest rate swaps
Interest rate caps
Equity derivatives
Commodity instruments
Energy (GWh)
1,994
—
1,994
7
4,134
3,594
—
3,594
11
4,537
1,180
—
1,180
—
—
6,768
—
6,768
18
8,382
—
8,382
18
8,671
42,199
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
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.
2014 ANNUAL REPORT 145
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 $63 million (2013 – $41 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 are recorded in other comprehensive income. The impact of a 10 basis-
point parallel increase in the yield curve on the aforementioned financial instruments is estimated to result in a corresponding
increase in net income of $6 million (2013 – $2 million) and an increase in other comprehensive income of $23 million
(2013 – $37 million), before tax for the year ended December 31, 2014.
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 $16 million (2013 – $14 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 $78 million
(2013 – $82 million) as at December 31, 2014, 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 $193 million (2013 – $126 million)
and decreased other comprehensive income by $22 million (2013 – $13 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 $47 million (2013 – $36 million). This increase would be offset by a $47 million (2013 – $37 million) change in
value of the associated equity derivatives of which $46 million (2013 – $36 million) would offset the above mentioned increase
in compensation expense and the remaining $1 million (2013 – $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, 2014 by approximately $15 million (2013 – $49 million) and
decreased other comprehensive income by $20 million (2013 – $27 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 $848 million (2013 – $800 million) at
December 31, 2014. 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
(2013 – $2 million) for the year ended December 31, 2014, prior to taxes.
b)
Credit Risk
Credit risk is the risk of loss due to the failure of a borrower or counterparty to fulfill its contractual obligations. The company’s
exposure to credit risk in respect of financial instruments relates primarily to counterparty obligations regarding derivative
contracts, loans receivable and credit investments such as bonds and preferred shares.
The company assesses the credit worthiness of each counterparty before entering into contracts and ensures that counterparties
meet minimum credit quality requirements. Management evaluates and monitors counterparty credit risk for derivative financial
instruments and endeavours to minimize counterparty credit risk through diversification, collateral arrangements, and other
credit risk mitigation techniques. The credit risk of derivative financial instruments is generally limited to the positive fair value
of the instruments, which, in general, tends to be a relatively small proportion of the notional value. Substantially all of the
company’s derivative financial instruments involve either counterparties that are banks or other financial institutions in North
America, the United Kingdom and Australia, or arrangements that have embedded credit risk mitigation features. The company
does not expect to incur credit losses in respect of any of these counterparties. The maximum exposure in respect of loans
receivable and credit investments is equal to the carrying value.
146 BROOKFIELD ASSET MANAGEMENT
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 at December 31, 2014, the recorded values of these items in the company’s Consolidated Financial
Statements totalled $23.7 billion (2013 – $21.0 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 $4.1 billion based on carrying values at December 31, 2014 (2013 – $4.0 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, 2014
was 14% (2013 – 15%).
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, 2014 and 2013. 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 a decrease of $77 million (2013 – an increase of $26 million). The discount
rate used was 4% (2013 – 5%) with an increase in the rate of compensation of 3% (2013 – 3%) and an investment rate of 5%
(2013 – 5%).
(MILLIONS)
Plan assets
Less accrued benefit obligation:
Defined benefit pension plan
Other post-employment benefits
Net liability
Less: net actuarial (losses) gains
Accrued benefit liability
Dec. 31, 2014
Dec. 31, 2013
$
536
$
662
(627)
(89)
(180)
(16)
$
(196)
$
(796)
(36)
(170)
3
(167)
2014 ANNUAL REPORT 147
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 of 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, 2014
and 2013 was as follows:
YEARS ENDED DECEMBER 31
(MILLIONS)
Salaries, incentives and short-term benefits
Share-based payments
2014
2013
19
56
75
$
$
21
41
62
$
$
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, 2014 and 2013:
(MILLIONS)
Financial assets
Investment and other income, net of interest expense
Management fees received
Dec. 31, 2014
Dec. 31, 2013
$
1,394
$
526
29
868
25
43
In 2013, the Corporation entered into a $500 million three-year subordinated credit facility with wholly owned subsidiaries of
BPY, which was subsequently increased to a notional amount of $1.0 billion in 2014, of which $570 million was drawn on the
facility at year end. The terms of the facility, including the interest rate charged by the company, are consistent with market
practice given BPY’s credit worthiness and the subordination of this facility. All transactions related to this facility have been
approved by the independent directors of BPY.
31. OTHER INFORMATION
a)
Commitments, Guarantees and Contingencies
In the normal course of business, the company enters into contractual obligations which include commitments to provide
bridge financing, letters of credit, operating leases and guarantees provided in respect of power sales contracts and reinsurance
obligations. At the end of 2014, the company and its subsidiaries had $1,087 million (2013 – $868 million) of such commitments
outstanding.
In addition, the company executes 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.
148 BROOKFIELD ASSET MANAGEMENT
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, 2014 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.
The Corporation has entered into arrangements with respect to the $1.8 billion of exchangeable preferred equity units issued
by BPY discussed in note 20, which are redeemable in equal tranches of $600 million in 2021, 2024 and 2026, respectively.
The preferred equity units are exchangeable into equity units of BPY at $25.70 per unit, at the option of the holder, at any time
up to and including the maturity date. BPY may redeem the preferred equity units after specified periods if the BPY equity unit
price exceeds predetermined amounts. At maturity, the preferred equity units will be converted into BPY equity units at the
lower of $25.70 or the then market price of a BPY equity unit. In order to provide the purchaser with enhanced liquidity, the
Corporation has agreed to purchase the preferred equity units for cash at the option of the holder, for the initial purchase price
plus accrued and unpaid dividends. In order to decrease dilution risk to BPY, the Corporation has agreed with the holder and
BPY that if the price of a BPY equity unit is less than 80% of the exchange price of $25.70 at the redemption date of the 2021
and 2024 tranches, the Corporation will acquire the preferred equity units subject to redemption, at the redemption price, and to
exchange these preferred equity units for preferred equity units with similar terms and conditions, including redemption date,
as the 2026 tranche.
b)
Insurance
The company conducts insurance operations as part of its corporate activities. As at December 31, 2014, the company held
insurance assets of $130 million (2013 – $158 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 2014, net underwriting losses
on reinsurance operations were $31 million (2013 – $27 million) representing $5 million (2013 – $nil) of premium and other
revenues offset by $36 million (2013 – $27 million) of reserves and other expenses.
c)
Supplemental Cash Flow Information
Cash flow from operating activities includes cash taxes paid of $185 million (2013 – $293 million) and cash interest paid of
$2,645 million (2013 – $2,699 million). Sustaining capital expenditures in the company’s renewable energy operations were
$58 million (2013 – $79 million), in its property operations were $259 million (2013 – $215 million) and in its infrastructure
operations were $131 million (2013 – $129 million).
During the year, the company has capitalized $204 million (2013 – $197 million) of interest primarily to investment properties
and residential inventory under development.
2014 ANNUAL REPORT 149
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 ability to appropriately manage human capital;
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; governmental investigations;
litigation; changes in tax laws; ability to collect amounts owed; catastrophic events, such as earthquakes and hurricanes; the
possible impact of international conflicts and other developments including terrorist acts and cyberterrorism; 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.
150 BROOKFIELD ASSET MANAGEMENT
BROOKFIELD’S COMMITMENT TO CORPORATE SOCIAL RESPONSIBILITY
At Brookfield, we often invest with a view that we would be content to own an asset forever. That long-term approach dictates
both our investment strategy and our commitment to corporate social responsibility. We have always believed that the pursuit
of shareholder value and sustainable development are complementary goals. We know that 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. Accordingly,
the Board of Directors, the Corporation’s management and our employees strive for excellence in environmental sustainability,
community leadership and workplace safety in all our operations.
Our approach to corporate social responsibility is an ongoing process that is continually reviewed and improved. In all of
our businesses, we seek to meet or exceed the labour laws and standards of the jurisdictions in which we operate, offering
competitive wages to employees, providing safe work environments, and implementing age-appropriate and non-discriminatory
hiring practices. As we continue to grow and become increasingly 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 in property, renewable energy, infrastructure and
private equity, and has built an expertise in sustainable investing. Across our portfolio of long life, high-quality assets, there is a
commitment to reducing the energy we use and our greenhouse gas emissions. We also focus on water conservation, recycling,
wildlife preservation, erosion control and reforestation. We have consistently adopted best practices on sustainability developed
in one region to all our operations. We participate in surveys and studies that allow global benchmarking of our sustainability
initiatives.
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 principles 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 the retrofitting and redesign of existing properties; and
Support industry initiatives that foster energy- and resource-efficient property operations, and seek the highest standard of
environmental certification.
For our clients across our $117 billion property portfolio, sustainability is a priority and we strive to exceed their expectations
by constantly improving our properties. Innovations this year include the launch of a partnership with the Canadian Institute for
Energy Training that introduced an energy efficiency certification program for tenants and employees. Graduates of the fiveweek
course are rolling out innovative energy conservation strategies across our property portfolio.
In North America, the standard in environmental excellence is the Leadership in Energy & Environmental Design or LEED
designation. We received this certification on 11 buildings over the course of the year, with 49 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. In 2014, Brookfield also obtained BOMA (Building Owners and Managers Association) 360 designations for all of
its Canadian properties, certifying the highest environmental operating standards. 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 obtained 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.
Our influence reaches beyond assets that we own directly. Brookfield provides real estate services to office buildings, industrial
properties and multifamily homes. Our condominium services company, which manages 67,000 units, introduced programs last
year that lowered energy consumption and saved clients approximately $1 million annually.
2014 ANUAL REPORT 151
Renewable Energy
With approximately 204 hydro stations and 30 wind farms on three continents, Brookfield is one of the world’s largest suppliers
of renewable energy. In 2014, we made our first investment in biomass, agreeing to acquire a facility in Brazil that generates
electricity from the residue left after crushing sugar cane. In an average year, our $20 billion renewable energy portfolio provides
enough clean electricity to supply approximately three 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.
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.
Infrastructure
Our $25 billion infrastructure portfolio includes 3.8 million acres of timberlands under management and 580,000 acres of
farmland in North and South America. 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 three countries. Our timber
operations meet or exceed measures set under the U.S. Sustainable Forestry Initiative® (SFI 2010-2014 Standard). In Brazil, our
skills in forest management resulted in Brookfield being awarded responsibility for preserving the Tamboré Biological Reserve
near São Paulo, one of the country’s largest urban conservation areas.
Community Engagement
We encourage and support a culture of philanthropy and volunteerism among our employees around the world. Brookfield
and its people contribute to their communities. This commitment shows in everyday activities in support of charities, and in
exceptional contributions during times of need.
All of our employees are encouraged to participate in community activities and fundraising, and many of our executives
hold leadership positions on the boards and capital campaigns at major charities and public institutions, such as hospitals and
universities. Brookfield Partners Foundation supports health care, education and cultural initiatives. In many cases, the company
matches charitable donations by employees.
Among many noteworthy initiatives in 2014, a group of our European employees traveled to South Africa and participated in a
three-week project to build a ‘House of Hope’ to house children orphaned by HIV/AIDS. In Brazil, Brookfield partnered with
local government and banks on ‘Pineapple Project’ which provided land and training to farmers under a subsidized leasing
system. The initiative saw 72 rural families become fruit-growing entrepreneurs, with the tools and skills needed to make
a lasting impact in their communities. In Canada, Brookfield Partners Foundation founded an Institute for Innovation and
Entrepreneurship in the business school of a leading university.
Our arts and events program, Arts Brookfield, has been in operation for more than 25 years, and celebrated this anniversary with
a year-long program called “Arts Set Free”, which saw emerging, established and amateur artists submit original artworks in any
genre, style and medium for display at Brookfield properties around the world. Last year, Americans for the Arts, an independent
advocacy group, named Brookfield one of the 10 Best Business Partners with the Arts. Brookfield staged more than 400 events
in 2014, 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 we 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 and the Corporation’s management 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 diversity of perspectives, 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. The Board 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, as well as
the NYSE and TSX.
152 BROOKFIELD ASSET MANAGEMENT
The Board 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. Shareholders seeking to engage with the Chair of the Board or other Board
members can do so through the Corporate Secretary of the Corporation.
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 on our website the following documents that outline our approach to governance: 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,
the Code and our Corporate Disclosure Policy.
2014 ANUAL REPORT 153
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 2014 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 2015 Annual Meeting of Shareholders will be held at 11:30 a.m.
on Wednesday, May 6, 2015 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
Series 40
Series 42
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
Toronto
BAM.PF.F
Toronto
BAM.PF.G
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, 13, 17, 18, 24, 26,
28, 30, 32, 34, 36, 37, 38, 40 and 42
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.
3.
If the last day is not a business day, the Record Date will be the previous business day, beginning May 31, 2014
If the Payment Date is not a business day, the payment will be made on the next business day, beginning June 30, 2014
154 BROOKFIELD ASSET MANAGEMENT
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, c.m., 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
Chairman of Frontier Economics and
Strategic Advisor, TD Bank Group
David W. Kerr
Chairman, Halmont Properties Corp.
Lance Liebman
William S. Beinecke Professor of Law,
Columbia Law School
Philip B. Lind, c.m.
Co-Founder and Director,
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 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
Vice Chair,
Solera Capital LLC
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 Lawson
Richard Legault
Luiz Lopes
Cyrus Madon
Craig Noble
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 Lawson
Chief Financial Officer
A.J. Silber
Corporate Secretary
2014 ANUAL REPORT 155
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
F 212.417.7196
Toronto – Canada
Brookfield Place, Suite 300
Bay Wellington Tower
181 Bay Street, Box 762
Toronto, Ontario M5J 2T3
T 416.363.9491
F 416.365.9642
Dubai – UAE
Level 1, Al Manara Building
Sheikh Zayed Road
Dubai, UAE
T 971.4.3158.500
F 971.4.3158.600
Hong Kong
Suite 2302, Prosperity Tower
39 Queens Road Central
Central, Hong Kong
T 852.2143.3003
F 852.2537.6948
London – United Kingdom
99 Bishopsgate, 2nd Floor
London EC2M 3XD
United Kingdom
T 44 (0) 20.7659.3500
F 44 (0) 20.7659.3501
Mumbai – India
Unit 203, 2nd Floor
Tower A, Peninsula Business Park
Senapati Bapat Marg, Lower Parel
Mumbai - 400013
T 91 (22) 6600.0400
F 91 (22) 6600.0401
Rio de Janeiro – Brazil
Rua Lauro Müller 116, 21° andar,
Botafogo - Rio de Janeiro - Brasil
22290 - 160
CEP: 71.635.250
T 55 (21) 3527.7800
F 55 (21) 3527.7799
Shanghai – China
Tower 1 Kerry Center, Suite 805
1515 Nanjing Road West
Shanghai, China 200040
T 86.21.5298.6622
Singapore
Brookfield Singapore Pte Limited
#24-01, Income at Raffles
16 Collyer Quay
Singapore 049318
T 65.6750.4486
F 65.6532.0149
Sydney – Australia
Level 22
135 King Street
Sydney, NSW 2001
T 61.2.9322.2000
F 61.2.9322.2001