Brookfield Business
Partners L.P.
2 0 1 8 A N N U A L R E P O R T
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Table of Contents
INDEX TO FINANCIAL STATEMENTS
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
(Mark One)
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) or (g) OF THE
SECURITIES EXCHANGE ACT OF 1934
OR
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2018
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
OR
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number: 001-37775
Brookfield Business Partners L.P.
(Exact name of Registrant as specified in its charter)
N/A
Translation of Registrant's name into English)
Bermuda
(Jurisdiction of incorporation or organization)
73 Front Street Hamilton, HM 12 Bermuda
(Address of principal executive offices)
Brookfield Business Partners L.P.
73 Front Street
Hamilton, HM 12
Bermuda
Tel: +441-294-3309
(Name, Telephone, Email and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
Title of each class
Limited Partnership Units
Limited Partnership Units
Name of each exchange on which registered
New York Stock Exchange
Toronto Stock Exchange
Securities registered or to be registered pursuant to Section 12(g) of the Act.
None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
None
Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report:
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
No
66,185,798 Limited Partnership Units as of December 31, 2018.
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. Yes
No
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes
No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post
such files). Yes
No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See
definitions of "accelerated filer," "large accelerated filer," and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
Accelerated filer
Non-accelerated filer
Emerging growth company
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to
use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP
International Financial Reporting Standards as issued by the
International Accounting Standards Board
Other
If "Other" has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected
to follow. Item 17
Item 18
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
No
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Table of Contents
INTRODUCTION AND USE OF CERTAIN TERMS
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
PART I
ITEM 1.
ITEM 2.
ITEM 3.
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
OFFER STATISTICS AND EXPECTED TIMETABLE
KEY INFORMATION
3.A.
SELECTED FINANCIAL DATA
3.B.
3.C.
3.D.
CAPITALIZATION AND INDEBTEDNESS
REASONS FOR THE OFFER AND USE OF PROCEEDS
RISK FACTORS
ITEM 4.
INFORMATION ON OUR COMPANY
4.A.
HISTORY AND DEVELOPMENT OF OUR COMPANY
4.B.
4.C.
4.D.
BUSINESS OVERVIEW
ORGANIZATIONAL STRUCTURE
PROPERTY, PLANTS AND EQUIPMENT
UNRESOLVED STAFF COMMENTS
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
5.A.
OPERATING RESULTS
ITEM 4A.
ITEM 5.
5.B.
5.C.
5.D.
5.E.
5.F.
5.G.
LIQUIDITY AND CAPITAL RESOURCES
RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC.
TREND INFORMATION
OFF-BALANCE SHEET ARRANGEMENTS
TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS
SAFE HARBOR
ITEM 6.
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
6.A.
DIRECTORS AND SENIOR MANAGEMENT
6.B.
6.C.
6.D.
6.E.
COMPENSATION
BOARD PRACTICES
EMPLOYEES
SHARE OWNERSHIP
ITEM 7.
MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
7.A.
MAJOR SHAREHOLDERS
7.B.
7.C.
RELATED PARTY TRANSACTIONS
INTERESTS OF EXPERTS AND COUNSEL
ITEM 8.
ITEM 9.
FINANCIAL INFORMATION
8.A.
CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION
8.B.
SIGNIFICANT CHANGES
THE OFFER AND LISTING
9.A.
OFFER AND LISTING DETAILS
9.B.
9.C.
9.D.
9.E.
PLAN OF DISTRIBUTION
MARKETS
SELLING SHAREHOLDERS
DILUTION
Brookfield Business Partners
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9.F.
EXPENSES OF THE ISSUE
ITEM 10.
ADDITIONAL INFORMATION
10.A.
SHARE CAPITAL
10.B. MEMORANDUM AND ARTICLES OF ASSOCIATION
10.C. MATERIAL CONTRACTS
10.D.
10.E.
10.F.
10.G.
10.H.
10.I.
EXCHANGE CONTROLS
TAXATION
DIVIDENDS AND PAYING AGENTS
STATEMENT BY EXPERTS
DOCUMENTS ON DISPLAY
SUBSIDIARY INFORMATION
ITEM 11.
ITEM 12.
PART II
ITEM 13.
ITEM 14.
ITEM 15.
ITEM 16.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
PROCEEDS
CONTROLS AND PROCEDURES
16.A.
16.B.
16.C.
16.D.
16.E.
16.F.
16.G.
AUDIT COMMITTEE FINANCIAL EXPERT
CODE OF ETHICS
PRINCIPAL ACCOUNTANT FEES AND SERVICES
EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT
COMMITTEES
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
PURCHASERS
CHANGE IN REGISTRANT'S CERTIFYING ACCOUNTANT
CORPORATE GOVERNANCE
16.H. MINING SAFETY DISCLOSURE
PART III
ITEM 17.
ITEM 18.
ITEM 19.
SIGNATURES
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
EXHIBITS
INDEX TO FINANCIAL STATEMENTS
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Brookfield Business Partners
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INTRODUCTION AND USE OF CERTAIN TERMS
We have prepared this Form 20-F using a number of conventions, which you should consider when reading the information
contained herein. Unless otherwise indicated or the context otherwise requires, in this Form 20-F all financial information is presented
in accordance with International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board,
or IASB, other than certain non-IFRS financial measures which are defined under "Use of Non-IFRS Measures".
In this Form 20-F, unless the context suggests otherwise, references to "we", "us" and "our" are to our company, the
Holding LP, the Holding Entities and the operating businesses, each as defined below, taken together on a consolidated basis. Unless
the context suggests otherwise, in this Form 20-F references to:
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"assets under management" mean assets managed by us or by Brookfield on behalf of our third party investors, as well as
our own assets, and also include capital commitments that have not yet been drawn. Our calculation of assets under
management may differ from that employed by other asset managers and, as a result, this measure may not be comparable
to similar measures presented by other asset managers;
"attributable to the partnership" and "attributable to unitholders" means attributable to parent company prior to spin-off on
June 20, 2016 and to limited partner, general partner and redemption-exchange unitholders post spin-off. Post spin-off,
equity is also attributable to preferred shareholders and Special LP unitholders;
"Australia" means Australia and New Zealand;
"Backlog" represents an estimate of revenue to be recognized in future financial periods from contracts currently secured.
Backlog is not indicative of future revenue, as we cannot guarantee that the revenue projected in our backlog will be realized
or that it will exceed cost and generate profit. Projects may remain in our backlog for an extended period of time. Furthermore,
variations in projects may occur with respect to contracts included in our backlog that could reduce the dollar amount of
our backlog and the revenue and profits that we eventually realize;
"BBU General Partner" means Brookfield Business Partners Limited, a wholly-owned subsidiary of Brookfield Asset
Management;
"Bermuda Holdco" means Brookfield BBP Bermuda Holdings Limited;
"boe" or "BOE" means barrels of oil equivalent, with six thousand cubic feet of natural gas being equivalent to one barrel
of oil;
"boe/d" or "BOE/d" means barrels of oil equivalent per day;
"Brookfield" means Brookfield Asset Management and any subsidiary of Brookfield Asset Management, other than us;
"Brookfield Asset Management" means Brookfield Asset Management Inc.;
"CanHoldco" means Brookfield BBU Canada Holdings Inc.;
"CBCA" means the Canada Business Corporations Act;
"CDS" means Clearing and Depository Services Inc.;
"Company EBITDA" means Company FFO excluding the impact of realized disposition gains, interest expense, cash taxes,
and realized disposition gains, current income taxes and interest expense related to equity accounted investments;
"Company FFO" means funds from operations, which is calculated as net income excluding the impact of depreciation and
amortization, deferred income taxes, breakage and transaction costs, non-cash valuation gains or losses and other items;
"Consortium" means our company and the various institutional clients of Brookfield Asset Management;
"DTC" means the Depository Trust Company;
"EBITDA" means earnings before interest, taxes, depreciation and amortization;
"FATCA" means Foreign Account Tax Compliance provisions of the Hiring Incentives to Restore Employment Act of 2010;
"GP Units" means general partnership units in our company;
Brookfield Business Partners
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"GrafTech" means GrafTech International Ltd.;
"Healthscope" means Healthscope Limited;
"Holding Entities" means the primary holding subsidiaries of the Holding LP, from time to time, through which it indirectly
holds all of our interests in our operating businesses, including CanHoldo, US Holdco and Bermuda Holdco;
"Holding LP" means Brookfield Business L.P.;
"Holding LP Limited Partnership Agreement" means the amended and restated limited partnership agreement of the
Holding LP;
"IASB" means the International Accounting Standards Board;
"IFRS" means the International Financial Reporting Standards as issued by the IASB;
"incentive distribution" means the distribution payable to holders of Special LP Units as described under "Related Party
Transactions—Incentive Distributions";
“Johnson Controls” means Johnson Controls International Plc;
"LIBOR" means the London Interbank offered rate;
"Licensing Agreement" means the licensing agreement which our company and the Holding LP have entered into;
"limited partners" means the holders of our units;
"Limited Partnership Agreements" means our Limited Partnership Agreement and Holding LP Limited Partnership
Agreement;
"Managing General Partner Units" means the general partner interests in the Holding LP having the rights and obligations
specified in the Holding LP Limited Partnership Agreement;
"Master Services Agreement" means the master services agreement among the Service Recipients, the Service Providers,
and certain other subsidiaries of Brookfield Asset Management who are parties thereto;
"Mcf" means one thousand cubic feet;
"MI 61-101" means Multilateral Instrument 61-101—Protection of Minority Security Holders in Special Transactions;
"MMboe" means million barrels of oil equivalent;
"MMcf/d" means million cubic feet per day;
"NAREIT" means National Association of Real Estate Investment Trusts, Inc.;
"NI 51-102" means National Instrument 51-102—Continuous Disclosure Obligations;
"Non-Resident Subsidiaries" means the subsidiaries of Holding LP that are corporations and that are not resident or deemed
to be resident in Canada for purposes of the Tax Act;
"Non-U.S. Holder" means a beneficial owner of one or more units, other than a U.S. Holder or an entity classified as a
partnership or other fiscally transparent entity for U.S. federal tax purposes;
"NYSE" means the New York Stock Exchange;
"oil and gas" means crude oil and natural gas;
"operating businesses" means the businesses in which the Holding Entities hold interests and that directly or indirectly hold
our operations and assets other than entities in which the Holding Entities hold interests for investment purposes only of
less than 5% of the equity securities;
"our business" means our business of owning and operating business services and industrial operations, both directly and
through our Holding Entities and other intermediary entities;
"our company" or "our partnership" means Brookfield Business Partners L.P., a Bermuda exempted limited partnership;
"our Limited Partnership Agreement" means the amended and restated limited partnership agreement of our company;
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"our operations" means the business services and industrial operations we own;
"Ouro Verde" means Ouro Verde Locação e Seviços S.A.;
"parent company" means Brookfield Asset Management;
"Redemption-Exchange Mechanism" means the mechanism by which Brookfield may request redemption of its redemption-
exchange units in whole or in part in exchange for cash, subject to the right of our company to acquire such interests (in lieu
of such redemption) in exchange for units of our company;
"redemption-exchange units" means the non-voting limited partnership interests in the Holding LP that are redeemable for
cash, subject to the right of our company to acquire such interests (in lieu of such redemption) in exchange for units of our
company, pursuant to the Redemption-Exchange Mechanism;
"Relationship Agreement" means the agreement under which Brookfield Asset Management has agreed that we will serve
as the primary entity through which Brookfield will own and operate its business services and industrial operations;
"Sarbanes-Oxley Act" means the Sarbanes-Oxley Act of 2002;
"Schoeller Allibert" means Schoeller Allibert Group B.V.;
"SEC" means the U.S. Securities and Exchange Commission;
"Service Providers" means the affiliates of Brookfield that provide services to us pursuant to our Master Services Agreement,
which are expected to be Brookfield Asset Management (Barbados) Inc., Brookfield Asset Management Private Institutional
Capital Adviser (Private Equity), L.P., Brookfield Canadian Business Advisor L.P., Brookfield Canadian GP L.P. and
Brookfield Global Business Advisors Limited, which are wholly-owned subsidiaries of Brookfield Asset Management, and
unless the context otherwise requires, any other affiliate of Brookfield that is appointed by Brookfield Global Business
Advisor Limited from time to time to act as a Service Provider pursuant to our Master Services Agreement or to whom the
Service Providers have subcontracted for the provision of such services;
"Service Recipients" means our company, the Holding LP, the Holding Entities and, at the option of the Holding Entities,
any wholly-owned subsidiary of a Holding Entity excluding any operating business;
"Special LP Units" means special limited partnership units of the Holding LP;
"spin-off" means the special dividend of our units by Brookfield Asset Management completed on June 20, 2016;
"Tax Act" means the Income Tax Act (Canada), together with the regulation thereunder;
"TSX" means the Toronto Stock Exchange;
"unitholders" means the holders of our units;
"units" or "LP Units" means the non-voting limited partnership units in our company;
"US Holdco" means Brookfield BBP US Holdings LLC;
"U.S. Holder" means a beneficial owner of one or more of our units that is for U.S. federal tax purposes (i) an individual
citizen or resident of the United States; (ii) a corporation (or other entity treated as a corporation for U.S. federal income
tax purposes) created or organized in or under the laws of the United States, any state thereof or the District of Columbia,
(iii) an estate the income of which is subject to U.S. federal income taxation regardless of its source; or (iv) a trust (a) that
is subject to the primary supervision of a court within the United States and all substantial decisions of which one or more
U.S. persons have the authority to control or (b) that has a valid election in effect under applicable Treasury Regulations to
be treated as a U.S. person; and
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“Westinghouse” means Westinghouse Electric Company
Historical Performance and Market Data
This Form 20-F contains information relating to our business as well as historical performance and market data for Brookfield
Asset Management and certain of its operating platforms. When considering this data, you should bear in mind that historical results
and market data may not be indicative of the future results that you should expect from us.
Brookfield Business Partners
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Financial Information
The financial information contained in this Form 20-F is presented in United States dollars and, unless otherwise indicated,
has been prepared in accordance with IFRS. All figures are unaudited unless otherwise indicated. In this Form 20-F, all references
to "$" are to United States dollars, references to "A$" are to Australian dollars, references to "R$" are to Brazilian Reais, references
to "£" are to British Pounds, references to "€" are to Euro dollars, and references to "C$" are to Canadian dollars.
Use of Non-IFRS Measures
Our company evaluates its performance using net income attributable to parent company. In addition to this measure reported
in accordance with IFRS, we also use Company FFO and Company EBITDA (defined below) to evaluate our performance. When
determining Company FFO and Company EBITDA, we include our share of Company FFO and Company EBITDA of equity
accounted investments, respectively. We believe our presentation of Company FFO and Company EBITDA is useful to investors
because it supplements investors' understanding of our operating performance by providing information regarding our ongoing
performance that excludes items we believe do not directly affect our core operations. Our presentation of Company FFO and
Company EBITDA also gives investors comparability of our ongoing performance across periods.
We define Company FFO as net income excluding the impact of depreciation and amortization, deferred income taxes,
breakage and transaction costs, non-cash valuation gains or losses and other items. Company FFO is presented net to unitholders.
Our definition of Company FFO may differ from the definition of FFO used by other organizations, as well as the definition of funds
from operations used by the Real Property Association of Canada 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. Company FFO has limitations
as an analytical tool as it does not include depreciation and amortization expense, deferred income taxes and non-cash valuation
gains/losses and impairment charges.
We define Company EBITDA as Company FFO excluding the impact of realized disposition gains, interest expense, current
income taxes, and realized disposition gains, current income taxes and interest expense related to equity accounted investments.
Company EBITDA is presented net to unitholders. Company EBITDA has limitations as an analytical tool as it does not include
realized disposition gains, interest expense, and current income taxes, as well as depreciation and amortization expense, deferred
income taxes and non-cash valuation gains/losses and impairment charges.
Company FFO and Company EBITDA do not have a standard meaning prescribed by IFRS and therefore may not be
comparable to similar measures presented by other companies. Because Company FFO and Company EBITDA have these limitations,
Company FFO and Company EBITDA should not be considered as the sole measures of our performance and should not be considered
in isolation from, or as a substitute for, analysis of our results as reported under IFRS. However, Company FFO and Company
EBITDA are key measures that we use to evaluate the performance of our operations.
For a reconciliation of Company FFO and Company EBITDA to net income attributable to unitholders, see Item 5.A,
‘‘Operating Results" of this Form 20-F. We urge you to review the IFRS financial measures in this Form 20-F, including the financial
statements, the notes thereto, and the other financial information contained herein, and not to rely on any single financial measure
to evaluate our company.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Form 20-F contains “forward-looking information” and “forward-looking statements” within the meaning of applicable
securities laws, rules and regulations. Forward-looking statements include statements that are predictive in nature, depend upon or
refer to future events or conditions, include statements regarding our operations, business, financial condition, expected financial
results, performance, prospects, opportunities, priorities, targets, goals, ongoing objectives, strategies and outlook, 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”, “views”,
“potential”, “likely”, or negative versions thereof and other similar expressions, or future or conditional verbs such as “may”, “will”,
“should”, “would” and “could”.
Although these forward-looking statements and information are based upon our beliefs, assumptions and expectations that
we believe are reasonable, the reader should not place undue reliance on such 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
our actual results, performance or achievements 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:
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changes in the general economy;
general economic and business conditions that could impact our ability to access capital markets and credit markets;
the cyclical nature of most of our operations;
exploration and development may not result in commercially productive assets;
actions of competitors;
foreign currency risk;
our ability to complete previously announced acquisitions or other transactions, on the timeframe contemplated or at all;
risks associated with, and our ability to derive fully anticipated benefits from, future or existing acquisitions, joint ventures,
investments or dispositions;
actions or potential actions that could be taken by our co-venturers, partners, fund investors or co-tenants;
risks commonly associated with a separation of economic interest from control;
failure to maintain effective internal controls;
actions or potential actions that could be taken by our parent company, or its subsidiaries (other than the partnership);
the departure of some or all of Brookfield's key professionals;
pending or threatened litigation;
changes to legislation and regulations;
possible environmental liabilities and other contingent liabilities;
our ability to obtain adequate insurance at commercially reasonable rates;
our financial condition and liquidity;
alternative technologies could impact the demand for, or use of, the businesses and assets that we own and operate and
could impair or eliminate the competitive advantage of our businesses and assets;
downgrading of credit ratings and adverse conditions in the credit markets;
changes in financial markets, foreign currency exchange rates, interest rates or political conditions;
the impact of the potential break-up of political-economic unions (or the departure of a union member);
the general volatility of the capital markets and the market price of our limited partnership units; and
other risks and factors discussed in this Form 20-F in Item 3.D., "Risk Factors" and as detailed from time to time in other
documents we file with the securities regulators in Canada and the United States.
Statements relating to “reserves” are deemed to be forward-looking statements as they involve the implied assessment,
based on certain estimates and assumptions, that the reserves described herein can be profitably produced in the future. We qualify
any and all of our forward-looking statements by these cautionary factors.
We caution that the foregoing list of important factors that may affect future results is not exhaustive. When evaluating our
forward-looking statements or information, investors and others should carefully consider the foregoing factors and other uncertainties
and potential events. Except as required by law, we undertake 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.
Brookfield Business Partners
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ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
PART I
Not applicable.
ITEM 3. KEY INFORMATION
3.A. SELECTED FINANCIAL DATA
The following tables present selected financial data for our company as at and for the periods indicated:
(US$ Millions, except per unit amounts)
Statements of Operating Results Data
2018
2017
2016
2015
2014
Year Ended December 31,
Revenues
$
37,168
$
Direct operating costs
General and administrative expenses
Depreciation and amortization expense
Interest income (expense), net
Equity accounted income, net
Impairment expense, net
Gain on acquisitions/dispositions, net
Other income (expenses), net
Income (loss) before income tax
Current income tax expense
Deferred income tax (expense) recovery
Net income (loss)
Attributable to:
Limited partners
General partner
Brookfield Asset Management Inc. (1)
Non-controlling interests attributable to:
Redemption-Exchange Units held by
Brookfield Asset Management Inc. (2)
Special Limited Partners
Interest of others
Net income (loss)
Basic and diluted earnings per limited
partner unit (3) (4)
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$
$
$
$
(34,134)
(643)
(748)
(498)
10
(218)
500
(136)
1,301
(186)
88
1,203
74
—
—
70
278
781
$
$
1,203
1.11
$
$
$
22,823
(21,876)
(340)
(371)
(202)
69
(39)
267
(108)
223
(30)
22
215
$
(58) $
—
—
(60)
142
191
215
$
$
7,960
(7,386)
(269)
(286)
(90)
68
(261)
57
(11)
(218)
(25)
41
(202) $
$
6,753
(6,132)
(224)
(257)
(65)
4
(95)
269
70
323
(49)
(5)
269
$
3
$
— $
—
(35)
3
—
(173)
(202) $
—
208
—
—
61
269
$
4,622
(4,099)
(179)
(147)
(28)
26
(45)
—
13
163
(27)
9
145
—
—
93
—
—
52
145
(1.04) $
0.06
(1)
(2)
(3)
(4)
For the periods prior to June 20, 2016.
For the periods subsequent to June 20, 2016.
Comparative figures for the years ended December 31, 2015 and 2014 are not representative of performance, as units were spun out on June 20, 2016.
Average number of partnership units outstanding on a fully diluted time weighted average basis, assuming the exchange of redemption exchange units
held by Brookfield Asset Management for limited partnership units, for the year ended December 31, 2018 was 129.3 million (2017: 113.5 million, 2016:
92.9 million).
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(US$ Millions)
Statements of Financial Position Data
Cash and cash equivalents
Total assets
Corporate borrowings
Non-recourse borrowings in subsidiaries of Brookfield Business Partners
Equity Attributable to:
Limited partners
General partner
Brookfield Asset Management Inc.
Non-controlling interests attributable to:
Redemption-Exchange Units, Preferred Shares and Special Limited
Partnership Units held by Brookfield Asset Management Inc
Interests of others in operating subsidiaries
$
$
$
$
$
December 31,
2018
December 31,
2017
December 31,
2016
1,949
$
27,318
$
— $
$
10,866
1,106
15,804
$
$
— $
3,265
$
$
1,548
$
1,585
—
—
1,415
3,531
—
—
1,453
3,026
1,050
8,193
—
1,551
1,206
—
—
1,295
1,537
4,038
Total equity
$
6,494
$
6,064
$
3.B. CAPITALIZATION AND INDEBTEDNESS
Not applicable.
3.C. REASONS FOR THE OFFER AND USE OF PROCEEDS
Not applicable.
3.D. RISK FACTORS
Your holding of units of our company involves substantial risks. You should carefully consider the following factors in
addition to the other information set forth in this Form 20-F. If any of the following risks actually occur, our business, financial
condition and results of operations and the value of your units would likely suffer.
Risks Relating to Our Operations
Risks Relating to our Operations Generally
Our company has a limited operating history and the historical financial information included herein does not fully
reflect the operating results we would have achieved during the periods presented, and therefore may not be a reliable indicator
of our future financial performance.
Our company was formed on January 18, 2016 and completed its separation from Brookfield on June 20, 2016, and
accordingly has a limited operating history as a standalone company. Our limited operating history makes it difficult to assess our
ability to operate profitably and make distributions to unitholders. Although most of our assets and operating businesses have been
under Brookfield's control prior to the formation of our company, their combined results as reflected in the historical financial
statements included in this Form 20-F may not be indicative of our future financial condition or operating results. We urge you to
carefully consider the basis on which the historical financial information included herein was prepared and presented.
The completion of new acquisitions can have the effect of significantly increasing the scale and scope of our operations,
including operations in new geographic areas and industry sectors, and the Service Providers may have difficulty managing these
additional operations. In addition, acquisitions involve risks to our business.
A key part of our company's strategy involves seeking acquisition opportunities. For example, a number of our current
operations have only recently been acquired. We have also recently announced additional acquisitions, such as our proposed
acquisitions of Ouro Verde, Healthscope and the power solutions business of Johnson Controls. Acquisitions may increase the scale,
scope and diversity of our operating businesses. We depend on the diligence and skill of Brookfield's and our professionals to
effectively manage us, integrating acquired businesses with our existing operations. These individuals may have difficulty managing
additional acquired businesses and may have other responsibilities within Brookfield's asset management business. If any such
acquired businesses are not effectively integrated and managed, our existing business, financial condition and results of operations
may be adversely affected.
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Future acquisitions, which may include Ouro Verde, Healthscope and the power solutions business of Johnson Controls,
will likely involve some or all of the following risks, which could materially and adversely affect our business, financial condition
or results of operations: the difficulty of integrating the acquired operations and personnel into our current operations; potential
disruption of our current operations; diversion of resources, including Brookfield's time and attention; the difficulty of managing the
growth of a larger organization; the risk of entering markets and/or industries in which we have little experience; the risk of becoming
involved in labour, commercial or regulatory disputes or litigation related to the new enterprise; risk of environmental or other
liabilities associated with the acquired business; and the risk of a change of control resulting from an acquisition triggering rights of
third parties or government agencies under contracts with, or authorizations held by the operating business being acquired. While it
is our practice to conduct extensive due diligence investigations into businesses being acquired, it is possible that due diligence may
fail to uncover all material risks in the business being acquired, or to identify a change of control trigger in a material contract or
authorization, or that a contractual counterparty or government agency may take a different view on the interpretation of such a
provision to that taken by us, thereby resulting in a dispute.
We may acquire distressed companies and these acquisitions may subject us to increased risks, including the incurrence
of additional legal or other expenses.
As part of our acquisition strategy, we may acquire distressed companies. This could involve acquisitions of securities of
companies in event-driven special situations, such as acquisitions, tender offers, bankruptcies, recapitalizations, spinoffs, corporate
and financial restructurings, litigation or other liability impairments, turnarounds, management changes, consolidating industries
and other catalyst-oriented situations. Acquisitions of distressed companies involve substantial financial and business risks that can
result in substantial or total losses. Among the problems involved in assessing and making acquisitions in troubled companies is the
fact that it frequently may be difficult to obtain information as to the condition of such company. If, during the diligence process,
we fail to identify issues specific to a company or the environment in which we operate, we may be forced to later write down or
write off assets, restructure our operations, or incur impairment or other charges that may result in other reporting losses.
As a consequence of our company's role as an acquirer of distressed companies, we may be subject to increased risk of
incurring additional legal, indemnification or other expenses, even if we are not named in any action. In distressed situations, litigation
often follows when disgruntled shareholders, creditors and other parties seek to recover losses from poorly performing investments.
The enhanced litigation risk for distressed companies is further elevated by the potential that Brookfield or our company may have
controlling or influential positions in these companies.
We operate in a highly competitive market for acquisition opportunities.
Our acquisition strategy is dependent to a significant extent on Brookfield's ability to identify acquisition opportunities that
are suitable for us. We face competition for acquisitions primarily from investment funds, operating companies acting as strategic
buyers, commercial and investment banks and commercial finance companies. Many of these competitors are substantially larger
and have considerably greater financial, technical and marketing resources than are available to us. Some of these competitors may
also have higher risk tolerances or different risk assessments, which could allow them to consider a wider variety of acquisitions and
to offer terms that we are unable or unwilling to match. To finance our acquisitions, we compete for equity capital from institutional
investors and other equity providers, including Brookfield, and our ability to consummate acquisitions will be dependent on such
capital continuing to be available. Increases in interest rates could also make it more difficult to consummate acquisitions because
our competitors may have a lower cost of capital, which may enable them to bid higher prices for assets. In addition, because of our
affiliation with Brookfield, there is a higher risk that when we participate with Brookfield and others in joint ventures, partnerships
and consortiums on acquisitions, we may become subject to antitrust or competition laws that we would not be subject to if we were
acting alone. These factors may create competitive disadvantages for us with respect to acquisition opportunities.
We cannot provide any assurance that the competitive pressures we face will not have a material adverse effect on our
business, financial condition and results of operations or that Brookfield will be able to identify and make acquisitions on our behalf
that are consistent with our objectives or that generate attractive returns for our unitholders. We may lose acquisition opportunities
in the future if we do not match prices, structures and terms offered by competitors, if we are unable to access sources of equity or
obtain indebtedness at attractive rates or if we become subject to antitrust or competition laws. Alternatively, we may experience
decreased rates of return and increased risks of loss if we match prices, structures and terms offered by competitors.
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We may not be able to complete proposed acquisitions on our anticipated timeframe, or at all.
We can provide no assurance that we will be able to complete our previously announced acquisitions on our anticipated
timeframe, or at all. We regularly enter into agreements to make acquisitions, which are often subject to a number of closing conditions.
These conditions may include: financing conditions (which may require access to credit and/or capital markets); third party consents;
and/or antitrust regulatory approval and other industry-specific regulatory approvals. If we are unable to satisfy these conditions in
the manner or in the timeframe contemplated, our proposed acquisitions may be delayed, and we may also be required to modify
the terms of our acquisitions. These delays and/or modifications may be significant and could have a material adverse impact on
our business, operating results and financial condition.
In addition, if we are unable to satisfy one or more closing conditions, we may not be able to complete the acquisition at
all, and in certain circumstances, we or the target company may elect to terminate the acquisition agreement voluntarily, which may
result in the payment of substantial termination or “break-up” fees. Any such termination of a proposed acquisition could have a
material adverse impact on our business, operating results and financial condition.
For example, we have recently entered in to agreements to acquire Ouro Verde, Healthscope and the power solutions business
of Johnson Controls. The closings of these acquisitions are subject to a number of customary, transaction and industry-specific closing
conditions, and will likely require us to obtain significant financing. While we currently anticipate that these acquisitions will close
by the end of the first half of 2019, we can provide no assurance that they will be completed in that timeframe, or at all.
We use leverage and such indebtedness may result in our company, the Holding LP or our operating businesses being
subject to certain covenants which restrict our ability to engage in certain types of activities or to make distributions to equity.
Many of our Holding Entities and operating businesses have entered into credit facilities or have incurred other forms of
debt, including for acquisitions. The total quantum of exposure to debt within our company is significant, and we may become more
leveraged in the future.
Leveraged assets are more sensitive to declines in revenues, increases in expenses and interest rates and adverse economic,
market and industry developments. A leveraged company's income and net assets also tend to increase or decrease at a greater rate
than would otherwise be the case if money had not been borrowed. As a result, the risk of loss associated with a leveraged company,
all other things being equal, is generally greater than for companies with comparatively less debt. In addition, the use of indebtedness
in connection with an acquisition may give rise to negative tax consequences to certain investors. Leverage may also result in a
requirement for short-term liquidity, which may force the sale of assets at times of low demand and/or prices for such assets. This
may mean that we are unable to realize fair value for the assets in a sale.
Our credit facilities also contain, and will contain in the future, covenants applicable to the relevant borrower and events
of default. Covenants can relate to matters including limitations on financial indebtedness, dividends, acquisitions, or minimum
amounts for interest coverage, adjusted EBITDA, cash flow or net worth. If an event of default occurs, or minimum covenant
requirements are not satisfied, this can result in a requirement to immediately repay any drawn amounts or the imposition of other
restrictions including a prohibition on the payment of distributions to equity.
We may not be able to access the credit and capital markets at the times and in the amounts needed to satisfy capital
expenditure requirements, to fund new acquisitions or otherwise.
General economic and business conditions that impact the debt or equity markets could impact the availability and cost of
credit for us. We have revolving credit facilities and other short-term borrowings. The amount of interest charged on these will
fluctuate based on changes in short-term interest rates. Any economic event that affects interest rates or the ability to refinance
borrowings could materially adversely impact our financial condition.
Some of our operations require significant capital expenditures, and proposed acquisitions often require significant financing.
If we are unable to generate enough cash to finance necessary capital expenditures and to fund acquisitions through existing liquidity
and/or operating cash flow, then we may be required to issue additional equity or incur additional indebtedness. The issue of additional
equity would be dilutive to existing unitholders at the time. Any additional indebtedness would increase our leverage and debt
payment obligations, and may negatively impact our business, financial condition and results of operations.
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In addition, Brookfield owns approximately 63 million redemption-exchange units. Brookfield has the right to require the
Holding LP to redeem all or a portion of its redemption-exchange units for cash, subject to our company's right to acquire such
interests (in lieu of redemption) in exchange for our units. Although the decision to exercise the exchange right and deliver units
(or not to do so) is a decision that will be made solely by a majority of our independent directors, and therefore Brookfield will not
be able to prevent us from delivering units in satisfaction of the redemption request, if our independent directors did not determine
to satisfy the redemption request by delivering our units, we would be required to satisfy such redemption request using cash. To the
extent we were unable to fund such cash payment from operating cash flow, we may be required to incur indebtedness or otherwise
access the capital markets, including through the issuance of our units, to satisfy any shortfall which will depend on several factors,
some of which are out of our control, including, among other things, general economic conditions, our results of operations and
financial condition, restrictions imposed by the terms of any indebtedness that is incurred to finance our operations or to fund liquidity
needs, levels of operating and other expenses and contingent liabilities.
Our business relies on continued access to capital to fund new acquisitions and capital projects. While we aim to prudently
manage our capital requirements and ensure access to capital is always available, it is possible we may overcommit ourselves or
misjudge the requirement for capital or the availability of capital. Such a misjudgment could result in negative financial consequences
or, in extreme cases, bankruptcy.
Changes in our credit ratings may have an adverse effect on our financial position and ability to raise capital.
We cannot assure you that any credit rating assigned to us or any of our subsidiaries or their debt securities will remain in
effect for any given period of time or that any rating will not be lowered or withdrawn entirely by the relevant rating agency. A
lowering or withdrawal of such ratings may have an adverse effect on our financial position and ability to raise capital.
All of our operating businesses are highly cyclical and subject to general economic conditions and risks relating to
the economy.
Many industries, including the industries in which we operate, are impacted by adverse events in the broader economy and/
or financial markets. A slowdown in the financial markets and/or the global economy or the local economies of the regions in which
we operate, including, but not limited to, new home construction, employment rates, business conditions, inflation, fuel and energy
costs, commodity prices, lack of available credit, the state of the financial markets, interest rates and tax rates may adversely affect
our growth and profitability. For example, a worldwide recession, a period of below-trend growth in developed countries, a slowdown
in emerging markets or significant declines in commodity factors could have a material adverse effect on our business, financial
condition and results of operations, if such increased levels of volatility and market turmoil were to persist for an extended duration.
These and other unforeseen adverse events in the global economy could negatively impact our operations and the trading price of
our units could be further adversely impacted.
The demand for products and services provided by our operating businesses is, in part, dependent upon and correlated to
general economic conditions and economic growth of the regions applicable to the relevant asset. Poor economic conditions or lower
economic growth in a region or regions may, either directly or indirectly, reduce demand for the products and/or services provided
by our operating businesses. In particular, the sectors in which we operate are highly cyclical, and we are subject to cyclical fluctuations
in global economic conditions and end-use markets. We are unable to predict the future course of industry variables or the strength,
pace or sustainability of the global economic recovery and the effects of government intervention. Negative economic conditions,
such as an economic downturn, a prolonged recovery period or disruptions in the financial markets, could have a material adverse
effect on our business, financial condition or results or operations.
Alternative technologies could impact the demand for, or use of, the businesses and assets that we own and operate and
could impair or eliminate the competitive advantage of our businesses and assets.
There are alternative technologies that may impact the demand for, or use of, the businesses and assets that we own and
operate. While some such alternative technologies are in earlier stages of development, ongoing research and development activities
may improve such alternative technologies. For example, development of electric vehicles may reduce the need and demand for road
fuel distribution, and if new technologies emerge that are able to deliver real estate services at lower prices, more efficiently or more
conveniently, such technologies could adversely impact our ability to compete. If this were to happen, the competitive advantage of
our businesses and assets may be significantly impaired or eliminated and our business, financial condition, results of operations
and cash flow could be materially and adversely affected as a result.
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All of our operating businesses are subject to changes in government policy and legislation.
Our operations are located in many different jurisdictions, each with its own government and legal system. Our financial
condition and results of operations could be affected by changes in fiscal or other government policies, changes in monetary policy,
as well as by regulatory changes or administrative practices, or other political or economic developments in the jurisdictions in which
we operate, such as: interest rates; benchmark interest rate reforms, including changes to the administration of LIBOR; currency
fluctuations; exchange controls and restrictions; inflation; tariffs; liquidity of domestic financial and capital markets; policies relating
to climate change or policies relating to tax; and other political, social, economic and environmental and occupational health and
safety developments that may occur in or affect the countries in which our operating businesses are located or conduct business or
the countries in which the customers of our operating businesses are located or conduct business or both.
In the case of our industrial operations, we cannot predict the impact of future economic conditions, energy conservation
measures, alternative energy requirements or governmental regulation, all of which could reduce the demand for the products and
services provided by such businesses or the availability of commodities we rely upon to conduct our operations. It is difficult to
predict government policies and what form of laws and regulations will be adopted or how they will be construed by the relevant
courts, or to the extent which any changes may adversely affect us.
The Financial Conduct Authority in the U.K. has announced that it will cease to compel banks to participate in LIBOR after
2021. This change to the administration of LIBOR, and any other reforms to benchmark interest rates, could create significant risks
and challenges for us and our operating businesses. The discontinuance of, or changes to, benchmark interest rates may require
adjustments to agreements to which we and other market participants are parties, as well as to related systems and processes.
Political instability and unfamiliar cultural factors could adversely impact the value of our investments.
We are subject to geographical uncertainties in all jurisdictions in which we operate, including North America. We also
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 adjust to 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 comply with our 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 managed entities. There are risks of political instability in several of our
major markets and in other parts of the world in which we conduct business, including, for example, the Korean Peninsula, from
factors such as political conflict, income inequality, refugee migration, terrorism, the potential break-up of political or economic
unions (or the departure of a union member - e.g., Brexit) and political corruption; the materialization of one or more of these risks
could negatively affect our financial performance. For example, although the long-term impact on economic conditions is uncertain,
Brexit may have an adverse effect on the rate of economic growth in the U.K. and continental Europe.
Unforeseen political events in markets where we own and operate assets and may look to for further growth of our businesses,
such as the U.S., Brazil, European and Asian markets, may create economic uncertainty that has a negative impact on our financial
performance. Such uncertainty could cause disruptions to our businesses, including affecting the business of and/or our relationships
with our customers and suppliers, as well as altering the relationship among tariffs and currencies, including the value of the British
pound and the Euro relative to the U.S. dollar. Disruptions and uncertainties could adversely affect our financial condition, operating
results and cash flows. In addition, political outcomes in the markets in which we operate may also result in legal uncertainty and
potentially divergent national laws and regulations, which can contribute to general economic uncertainty. Economic uncertainty
impacting us and our managed entities could be exacerbated by near-term political events, including those in the U.S., Brazil, Europe,
Asia and elsewhere.
We are subject to foreign currency risk and our use of or failure to use derivatives to hedge certain financial positions
may adversely affect the performance of our operations.
A significant portion of our current operations are in countries where the U.S. dollar is not the functional currency. These
operating businesses pay distributions in currencies other than the U.S. dollar, which we must convert to U.S. dollars prior to making
distributions, and certain of our operating businesses have revenues denominated in currencies different from U.S. dollars, which is
utilized in our financial reporting, thus exposing us to currency risk. Fluctuations in currency exchange rates or a significant
depreciation in the value of certain foreign currencies (for example, the Brazilian real) could reduce the value of cash flows generated
by our operating businesses or could make it more expensive for our customers to purchase our services, and could have a material
adverse effect on our business, financial condition and results of operations.
Brookfield Business Partners
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When managing our exposure to such market risks, we may use forward contracts, options, swaps, caps, collars and floors
or pursue other strategies or use other forms of derivative instruments. However, a significant portion of this risk may remain
unhedged. We may also choose to establish unhedged positions in the ordinary course of business. The success of any hedging or
other derivative transactions that we enter into generally will depend on our ability to structure contracts that appropriately offset
our risk position. As a result, while we may enter into such transactions in order to reduce our exposure to market risks, unanticipated
market changes may result in poorer overall investment performance than if the derivative transaction had not been executed. Such
transactions may also limit the opportunity for gain if the value of a hedged position increases.
The Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act, and similar laws in other
jurisdictions impose rules and regulations governing federal and other governmental oversight of the over-the-counter derivatives
market and its participants. These regulations may impose additional costs and regulatory scrutiny on our company. 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.
It can be very difficult or expensive to obtain the insurance we need for our business operations.
We maintain insurance both as a corporate risk management strategy and in some cases to satisfy the requirements of
contracts entered into in the course of our operations. Although in the past we have generally been able to cover our insurance needs,
there can be no assurances that we can secure all necessary or appropriate insurance in the future, or that such insurance can be
economically secured. We monitor the financial health of the insurance companies from which we procure insurance, but if any of
our third party insurers fail, abruptly cancel our coverage or otherwise cannot satisfy their insurance requirements to us, then our
overall risk exposure and operational expenses could be increased and some of our business operations could be interrupted.
Performance of our operating businesses may be harmed by future labour disruptions and economically unfavourable
collective bargaining agreements.
Several of our current operations have workforces that are unionized or that in the future may become unionized and, as a
result, are or will be required to negotiate the wages, benefits and other terms with many of their employees collectively. If an
operating business were unable to negotiate acceptable contracts with any of its unions as existing agreements expire, it could
experience a significant disruption of its operations, higher ongoing labour costs and restrictions on its ability to maximize the
efficiency of its operations, which could have the potential to adversely impact our financial condition.
In addition, in some jurisdictions where we operate, labour forces have a legal right to strike which may have an impact on
our operations, either directly or indirectly, for example if a critical upstream or downstream counterparty was itself subject to a
labour disruption which impacted our business.
Our operations are exposed to occupational health and safety and accident risks.
Our operations are highly exposed to the risk of accidents that may give rise to personal injury, loss of life, disruption to
service and economic loss, including, for example, resulting from related litigation. Some of the tasks undertaken by employees and
contractors are inherently dangerous and have the potential to result in serious injury or death.
We are subject to increasingly stringent laws and regulations governing health and safety matters. Occupational health and
safety legislation and regulations differ in each jurisdiction. Any breach of these obligations, or serious accidents involving our
employees, contractors or members of the public could expose us or our operating businesses to adverse regulatory consequences,
including the forfeit or suspension of operating licenses, potential litigation, claims for material financial compensation, reputational
damage, fines or other legislative sanction, which have the potential to adversely impact our financial condition. Furthermore, where
we do not control a business, we have a limited ability to influence their health and safety practices and outcomes.
We are subject to litigation risks that could result in significant liabilities that could adversely affect our operations.
We are at risk of becoming involved in disputes and possible litigation, the extent of which cannot be ascertained. Any
material or costly dispute or litigation could adversely affect the value of our assets or our future financial performance. We could
be subject to various legal proceedings concerning disputes of a commercial nature, or to claims in the event of bodily injury or
material damage. The final outcome of any proceeding could have a negative impact on the business, financial condition or results
of operations of our company.
In addition, under certain circumstances, we may ourselves commence litigation. There can be no assurance that litigation,
once begun, would be resolved in our favour.
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We will also be exposed to risk of litigation by third parties or government regulators if our management is alleged to have
committed an act or acts of gross negligence, willful misconduct or dishonesty or breach of contract or organizational documents or
to violate applicable law. In such actions, we would likely be obligated to bear legal, settlement and other costs (which may exceed
our available insurance coverage).
We may have operations in jurisdictions with less developed legal systems, which could create potential difficulties in
obtaining effective legal redress.
Some of our operations are located in jurisdictions with less developed legal systems than those in more established
economies. In these jurisdictions, our company could be faced with potential difficulties in obtaining effective legal redress; a higher
degree of discretion on the part of governmental authorities; a lack of judicial or administrative guidance on interpreting applicable
rules and regulations; inconsistencies or conflicts between and within various laws, regulations, decrees, orders and resolutions; and
relative inexperience of the judiciary and courts in such matters.
In addition, in some jurisdictions, the commitment of local business people, government officials and agencies and the
judicial system to abide by legal requirements and negotiated agreements could be uncertain, creating particular concerns with respect
to permits, approvals and licenses required or desirable for, or agreements entered into in connection with, businesses in any such
jurisdiction. These may be susceptible to revision or cancellation and legal redress may be uncertain or delayed. There can be no
assurance that joint ventures, licenses, permits or approvals (or applications for licenses, permits or approvals) or other legal
arrangements will not be adversely affected by the actions of government authorities or others and the effectiveness of and enforcement
of such arrangements in these jurisdictions cannot be assured.
We do not control all of the businesses in which we own interests and therefore we may not be able to realize some or
all of the benefits that we expect to realize from those interests.
We do not have control of certain of the businesses in which we own interests and we may take non-controlling positions
in other businesses in the future. Such businesses may make financial or other decisions that we do not agree with. Because we do
not have the ability to exercise control over such businesses, we may not be able to realize some or all of the benefits that we expect
to realize from our ownership interests in them, including, for example, expected distributions. In addition, we must rely on the
internal controls and financial reporting controls of such businesses and their failure to maintain effective controls or comply with
applicable standards may adversely affect us.
From time to time, we may have significant interests in public companies, and changes in the market prices of the stock
of such public companies, particularly during times of increased market volatility, could have a negative impact on our financial
condition and results of operations.
From time to time, we may hold significant interests in public companies, and changes in the market prices of the stock of
such public companies could have a material impact on our financial condition and results of operations. Global securities markets
have been highly volatile, and continued volatility may have a material negative impact on our consolidated financial position and
results of operations.
We are exposed to the risk of environmental damage and costs associated with compliance with environmental laws.
Certain of our operating businesses are involved in using, handling or transporting substances that are toxic, radioactive
combustible or otherwise hazardous to the environment and may be in close proximity to environmentally sensitive areas or densely
populated communities. If a leak, spill or other environmental incident occurred, it could pose a health risk to humans or wildlife,
cause property damage, or result in substantial fines or penalties being imposed by regulatory authorities, revocation of licenses or
permits required to operate the business or the imposition of more stringent conditions in those licenses or permits, or legal claims
for compensation (including punitive damages) by affected stakeholders. For example, such risks are present in our nuclear services
operations and our Brazilian operations, which include the largest private water and sewage treatment operations in Brazil. In addition,
some of our operating businesses may be subject to regulations or rulings made by environmental agencies that conflict with existing
obligations we have under concession or other permitting agreements. Resolution of such conflicts may lead to uncertainty and
increased risk of delays or cost overruns on projects. In addition to fines, these laws and regulations sometimes require evaluation
and registration or the installation of costly pollution control or safety equipment or costly changes in operations to limit pollution
or decrease the likelihood of injuries. Certain of our current industrial manufacturing operations are also subject to increasingly
stringent environmental laws and regulations relating to our current and former properties, neighboring properties and our current
raw materials, products and operations. For example, governmental requirements relating to the protection of the environment,
including solid waste management, air quality, water quality, the decontamination and decommissioning of nuclear manufacturing
and processing facilities and cleanup of contaminated sites could have an impact on our operations. All of these risks could require
us to incur costs or become the basis of new or increased liabilities that could be material and could have the potential to significantly
impact our value or financial performance.
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We are exposed to the risk of increasingly onerous environmental legislation and the broader impacts of climate change.
With an increasing global focus and public sensitivity to environmental sustainability and environmental regulation becoming
more stringent, we could be subject to further environmental related responsibilities and associated liability. For example, many
jurisdictions in which our company operates and invests are considering implementing, or have implemented, schemes relating to
the regulation of carbon emissions. As a result, there is a risk that demand for some of the commodities supplied by certain of our
operations will be reduced. The nature and extent of future regulation in the various jurisdictions in which our operations are situated
is uncertain, but is expected to become more complex and stringent.
Environmental legislation and permitting requirements are likely to evolve in a manner which will require stricter standards
and enforcement, increased fines and penalties for non-compliance, more stringent environmental assessments of proposed projects
and a heightened degree of responsibility for companies and their directors and employees.
It is difficult to assess the impact of any such changes on our company. These changes may result in increased costs to our
operations that may not be able to be passed onto customers and may have an adverse impact on prospects for growth of some of
our businesses. To the extent such regimes (such as carbon emissions schemes or other carbon emissions regulations) become
applicable to our operations (and the costs of such regulations are not able to be fully passed on to consumers), our financial
performance may be impacted due to costs applied to carbon emissions and increased compliance costs.
We are also subject to a wide range of laws and regulations relating to the protection of the environment and pollution.
Standards are set by these laws and regulations regarding certain aspects of environmental quality and reporting, provide for penalties
and other liabilities for the violation of such standards, and establish, in certain circumstances, obligations to remediate and rehabilitate
current and former facilities and locations where our operations are, or were, conducted. These laws and regulations may have a
detrimental impact on our company's financial performance through increased compliance costs or otherwise. Any breach of these
obligations, or even incidents relating to the environment that do not amount to a breach, could adversely affect the results of our
operating businesses and their reputations and expose them to claims for financial compensation or adverse regulatory consequences.
Our operations may also be exposed directly or indirectly to the broader impacts of climate change, including extreme
weather events, export constraints on commodities, increased resource prices and restrictions on energy and water usage.
Some of our current operations are structured as joint ventures, partnerships and consortium arrangements, and we
intend to continue to operate in this manner in the future, which will reduce Brookfield's and our control over our operations
and may subject us to additional obligations.
An integral part of our strategy is to participate with institutional investors in Brookfield-sponsored or co-sponsored
consortiums for single asset acquisitions and as a partner in or alongside Brookfield-sponsored or co-sponsored partnerships that
target acquisitions that suit our profile. Such arrangements involve risks not present where a third party is not involved, including
the possibility that partners or co-venturers might become bankrupt or otherwise fail to fund their share of required capital
contributions. Additionally, partners or co-venturers might at any time have economic or other business interests or goals different
from us and Brookfield. We generally owe fiduciary duties to our partners in our joint venture and partnership arrangements.
Joint ventures, partnerships and consortium investments generally provide for a reduced level of control over an acquired
company because governance rights are shared with others. Accordingly, decisions relating to the underlying operations, including
decisions relating to the management and operation and the timing and nature of any exit, are often made by a majority vote of the
investors or by separate agreements that are reached with respect to individual decisions. For example, when we participate with
institutional investors in Brookfield-sponsored or co-sponsored consortiums for asset acquisitions and as a partner in or alongside
Brookfield-sponsored or co-sponsored partnerships, there is often a finite term to the investment, which could lead to the business
being sold prior to the date we would otherwise choose. In addition, such operations may be subject to the risk that business, financial
or management decisions are made with which we do not agree or the management of the operating business at issue may take risks
or otherwise act in a manner that does not serve our interests. Because we may not have the ability to exercise sole control over such
operations, we may not be able to realize some or all of the benefits that we believe will be created from our and Brookfield's
involvement. If any of the foregoing were to occur, our business, financial condition and results of operations could suffer as a result.
In addition, because some of our current operations are structured as joint ventures, partnerships or consortium arrangements,
the sale or transfer of interests in some of our operations are subject to rights of first refusal or first offer, tag along rights or drag
along rights and some agreements provide for buy-sell or similar arrangements, any of which could be exercised outside of our
control and accordingly could have an adverse impact on us.
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We rely on the use of technology, which may not be able to accommodate our growth or may increase in cost, and may
become subject to cyber-terrorism or other compromises and shut-downs.
We operate in businesses that are dependent on information systems and other technology, such as computer systems used
for information storage, processing, administrative and commercial functions as well as the machinery and other equipment used in
certain parts of our operations. In addition, our businesses rely on telecommunication services to interface with their business networks
and customers. The information and embedded systems of key business partners and regulatory agencies are also important to our
operations. We rely on this technology functioning as intended. 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 heavily on our financial, accounting, communications and other data processing systems. Our information technology
systems may be subject to cyber-terrorism or other compromises and shut-downs, which may result in unauthorized access to our
proprietary information, destruction of our data or disability, degradation or sabotage of our systems, often through the introduction
of computer viruses, cyber-attacks and other means, and could originate from a wide variety of sources, including internal or unknown
third parties. We cannot predict what effects such cyber-attacks or compromises or shut-downs may have on our business, and the
consequences could be material. Cyber incidents may remain undetected for an extended period, which could exacerbate these
consequences. Further, machinery and equipment used by our operating businesses may fail due to wear and tear, latent defect, design
or operator errors or early obsolescence, among other things.
If our information systems and other technology are compromised, do not operate or are disabled, such could have a material
adverse effect on our business prospects, financial condition, results of operations and cash flow.
We may suffer a significant loss resulting from fraud, bribery, corruption or other illegal acts, inadequate or failed
internal processes or systems, or from external events.
Brookfield, our company and our operating businesses 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
of 1977 and similar laws in non-U.S. jurisdictions, such as the U.K. Bribery Act 2010 and the Canadian Corruption of Foreign Public
Officials Act.
Different laws that are applicable to us and our operating businesses 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, 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 our operating businesses.
Risks Relating to Our Business Services Operations
There are risks associated with our construction operations.
Our construction operations are vulnerable to the cyclical nature of the construction market.
The demand for our construction services is dependent upon the existence of projects with engineering, procurement,
construction and management needs. For example, a substantial portion of the revenues from our construction operations derives
from residential, commercial and office projects in Australia, the United Kingdom, Canada, India and the Middle East. Capital
expenditures by our clients may be influenced by factors such as prevailing economic conditions and expectations about economic
trends, technological advances, consumer confidence, domestic and international political, military, regulatory and economic
conditions and other similar factors.
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Our revenue and earnings from our construction operations are largely dependent on the award of new contracts which
we do not directly control.
A substantial portion of the revenue and earnings of our construction operations is generated from large-scale project awards.
The timing of project awards is unpredictable and outside of our control. Awards often involve complex and lengthy negotiations
and competitive bidding processes. These processes can be impacted by a wide variety of factors including a client's decision to not
proceed with the development of a project, governmental approvals, financing contingencies and overall market and economic
conditions. We may not win contracts that we have bid upon due to price, a client's perception of our ability to perform and/or
perceived technology advantages held by others. Many of our competitors may be inclined to take greater or unusual risks or agree
to terms and conditions in a contract that we might not deem acceptable. Because a significant portion of our revenue is generated
from large projects, the results of our construction operations can fluctuate quarterly and annually depending on whether and when
large project awards occur and the commencement and progress of work under large contracts already awarded. As a result, we are
subject to the risk of losing new awards to competitors or the risk that revenue may not be derived from awarded projects as quickly
as anticipated.
We may experience reduced profits or losses under contracts if costs increase above estimates.
Generally, our construction operations are performed under contracts that include cost and schedule estimates in relation
to our services. Inaccuracies in these estimates may lead to cost overruns that may not be paid by our clients, thereby resulting in
reduced profits or in losses. If a contract is significant or there are one or more events that impact a contract or multiple contracts,
cost overruns could have a material impact on our reputation or our financial results, negatively impacting the financial condition,
results of operations or cash flow of our construction operations. A portion of our ongoing construction projects are in fixed-price
contracts, where we bear a significant portion of the risk for cost overruns. Reimbursable contract types, such as those that include
negotiated hourly billing rates, may restrict the kinds or amounts of costs that are reimbursable, therefore exposing us to risk that
we may incur certain costs in executing these contracts that are above our estimates and not recoverable from our clients. If we fail
to accurately estimate the resources and time necessary for these types of contracts, or fail to complete these contracts within the
timeframes and costs we have agreed upon, there could be a material impact on the financial results as well as reputation of our
construction operations. Risks under our construction contracts which could result in cost overruns, project delays or other problems
can also include:
•
•
•
•
•
•
•
•
difficulties related to the performance of our clients, partners, subcontractors, suppliers or other third parties;
changes in local laws or difficulties or delays in obtaining permits, rights of way or approvals;
unanticipated technical problems, including design or engineering issues;
insufficient or inadequate project execution tools and systems needed to record, track, forecast and control cost and schedule;
unforeseen increases in, or failures to, properly estimate the cost of raw materials, components, equipment, labour or the
inability to timely obtain them;
delays or productivity issues caused by weather conditions;
incorrect assumptions related to productivity, scheduling estimates or future economic conditions; and
project modifications creating unanticipated costs or delays.
These risks tend to be exacerbated for longer-term contracts because there is an increased risk that the circumstances under
which we based our original cost estimates or project schedules will change with a resulting increase in costs. In many of these
contracts, we may not be able to obtain compensation for additional work performed or expenses incurred, and if a project is not
executed on schedule, we may be required to pay liquidated damages. In addition, these losses may be material and can, in some
circumstances, equal or exceed the full value of the contract. In such circumstances, the financial condition, results of operations
and cash flow of our construction operations could be negatively impacted.
We enter into performance guarantees which may result in future payments.
In the ordinary course of our construction operations, we enter into various agreements providing performance assurances
and guarantees to clients on behalf of certain unconsolidated and consolidated partnerships, joint ventures and other jointly executed
contracts. These agreements are entered into primarily to support the project execution commitments of these entities. The performance
guarantees have various expiration dates ranging from mechanical completion of the project being constructed to a period extending
beyond contract completion in certain circumstances. Any future payments under a performance guarantee could negatively impact
the financial condition, results of operations and cash flow of our construction business.
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There are risks associated with the residential real estate industry in Canada and the United States.
The performance of our residential real estate brokerage services is dependent upon receipt of royalties, which in turn is
dependent on the level of residential real estate transactions. The real estate industry is affected by all of the factors that affect the
economy in general, and in addition may be affected by the aging network of real estate agents and brokers across Canada and the
United States. In addition, there is pressure on the rate of commissions charged to the consumer and internet use by real estate
consumers has led to a questioning of the value of traditional residential real estate services. Finally, changes to mortgage and lending
rules in Canada that are implemented or contemplated from time to time have the potential to negatively impact residential housing
prices and/or the number of residential real estate transactions in Canada, either or both of which could in turn reduce commissions
and therefore royalties.
There are risks associated with our facilities management operations.
A general decline in the value and performance of commercial real estate and rental rates can lead to a reduction in
management fees, a significant portion of which are generally based on the value of and revenue produced by the properties to which
we provide services. Moreover, there is significant competition on an international, regional and local level for the provision of
facilities management services. Depending on the service, we face competition from other residential real estate service providers,
institutional lenders, insurance companies, investment banking firms, accounting firms, technology firms, consulting firms, firms
providing outsourcing of various types and companies that self-provide their residential real estate services with in-house capabilities.
Finally, our ability to conduct our facilities management services may be adversely impacted by disruptions to the infrastructure that
supports our business and the communities in which they are located. Such disruptions could include disruptions to electrical,
communications, information technology, transportation or other services used in the course of providing our facilities management
services.
There are risks associated with our financial advisory services business.
The performance of our financial advisory services business is directly related to the quantum and size of transactions in
which we participate. Market downturns that affect the frequency and magnitude of capital raising and other transactions will likely
have a negative impact on our financial advisory services business. In addition, our financial advisory services business may be
adversely affected by other factors, such as (i) intensified competition from peers as a result of the increasing pressures on financial
services companies (ii) reductions in infrastructure spending by governments, (iii) increased regulation and the cost of compliance
with such regulation, and (iv) the bankruptcy or other failure of companies for which we have performed investment banking services.
It is difficult to predict how long current financial market and economic conditions will continue, whether they will deteriorate and
if they do, how our business will be adversely affected. If one or more of the foregoing risks occur, revenues from our financial
advisory services business will likely decline.
There are risks associated with our road fuel distribution business.
Fluctuations in fuel product prices or a significant decrease in demand for road fuel in the areas we serve could significantly
reduce our revenues and, therefore, could adversely affect our business, results of operations and financial condition. Our road fuel
distribution business is dependent on various trends, such as trends in automobile and commercial truck traffic, travel and tourism
in our areas of operation, and these trends can change. Furthermore, seasonal fluctuations, alternative technological advancements
or regulatory action, including government-imposed fuel efficiency standards, may affect demand for motor fuel. Because certain
of our operating costs and expenses, such as our general and administrative costs, are fixed and do not vary with the volumes of road
fuel we distribute, our costs and expenses might not decrease ratably or at all should we experience a reduction in our volumes
distributed. As a result, if our fuel distribution volumes decrease or if there is an event which significantly interrupts the supply of
fuel to our customers, our business, reputation, results of operations and financial condition could be adversely affected.
Furthermore, there are dangers inherent in storage and processing of fuel products and the movement of fuel products by
ship, train and truck, including deliveries to customer sites, that could cause disruptions in our operations or expose our business to
potentially significant losses, costs or liabilities. These activities bring us into contact with members of the public and with the
environment. Road fuel is stored in underground and above ground storage tanks at sites that we own or operate and at consignment
sites where we retain title to the road fuel that we sell. Our operations are subject to significant hazards and risks inherent in storing
motor fuel. These hazards and risks include, but are not limited to, fires, explosions, spills, discharges and other releases, any of
which could result in distribution difficulties and disruptions, environmental pollution, governmentally-imposed fines or clean-up
obligations, personal injury or wrongful death claims and other damage to our properties and the properties of others. Any such event
could significantly disrupt our operations or expose us to significant liabilities, to the extent such liabilities are not covered by
insurance. Therefore, the occurrence of such an event could adversely affect the operations and financial condition of our business.
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There are risks associated with our gaming business.
The operations of our gaming business are conducted pursuant to operational services agreements with provincial lottery
and gaming corporations. Although the agreements are renewable, there is no guarantee that we will continue to satisfy the conditions
required for renewal. Additionally, when the renewal term expires, we may not be able to enter into new agreements that are the
same as those historically, which may result in decreased revenues, increased operating costs or closure of an operation. Under the
operational services agreements, the lottery and gaming corporations have the ability to suspend or terminate our right to provide
services under the agreements for certain specified reasons. If we operate gaming in a manner inconsistent with the Criminal Code
of Canada or applicable anti-money laundering legislation, violate provincial gaming laws or prejudice the integrity of gaming, the
provincial lottery corporations may terminate one or more of our operational services agreements. If one or more of the operational
services agreements are terminated, this will seriously impact the business.
Furthermore, the operations of our gaming business are contingent upon obtaining and maintaining all necessary licenses,
permits, approvals, registrations, findings of suitability, orders and authorizations. The laws, regulations and ordinances requiring
these licenses, permits and other approvals generally relate to the responsibility, financial stability and character of the owners and
managers of gaming operations, as well as persons financially interested or involved in gaming operations.
Regulatory authorities have broad powers to request detailed financial and other information, to limit, condition, suspend
or revoke a registration, gaming license or related approvals to approve changes in our operations, and to levy fines or require
forfeiture of assets for violations of gaming laws or regulations. Complying with gaming laws, regulations and license requirements
is costly. Any change in the laws, regulations or licenses applicable to our business or a violation of any current or future laws or
regulations applicable to our business or gaming licenses could require us to make substantial expenditures or forfeit assets, and
would negatively affect our gaming operations.
Risks Relating to Our Infrastructure Services Operations
We and our customers operate in a politically sensitive environment, and the public perception of nuclear power and
radioactive materials can affect our customers and us.
Our infrastructure services business includes operations in the nuclear power generation industry, which is a politically
sensitive environment. Opposition by third parties to particular projects, including in connection with any incident involving the
potential discharge of radioactive materials, could affect our customers and our infrastructure services business. Adverse public
reaction could also lead to increased regulation, limitations on the activities of our customers, more onerous operating requirements
or other conditions that could have a material adverse impact on our customers’ and our infrastructure services business.
Nuclear power plant operations are also potentially subject to disruption by a nuclear accident. A future accident at a nuclear
reactor anywhere in the world could result in the shutdown of existing plants or impact the continued acceptance by the public and
regulatory authorities of nuclear energy and the future prospects for nuclear generators, each of which could have a material adverse
impact on us.
Furthermore, accidents, terrorism, natural disasters or other incidents occurring at nuclear facilities or involving shipments
of nuclear materials or technological changes could reduce the demand for nuclear services.
Nuclear power plants, and the products and services our infrastructure services business provides are highly sophisticated
and specialized, and a major product failure or similar event could adversely affect our business, reputation, financial position
and results of operations.
Our infrastructure services business produces highly sophisticated products and provides specialized services that
incorporate or use complex or leading-edge technology, including both hardware and software. Many of our products and services
involve complex industrial machinery or infrastructure projects, such as nuclear power generation and the manufacture of nuclear
fuel rods, and accordingly a catastrophic product failure or similar event could have a significant impact on our infrastructure services
business. While our products and services meet rigorous quality standards, there can be no assurance that we or our customers or
other third parties will not experience operational process or product failures and other problems, including as a result of outdated
technology, or through manufacturing or design defects, process or other failures of contractors or third-party suppliers, cyber-attacks
or other intentional acts, that could result in potential product, safety, regulatory or environmental risks.
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A failure of the nuclear power industry to expand could adversely affect our infrastructure services business.
The expansion of nuclear power depends on the pace of deployment and there are substantial uncertainties about the pace
of these deployments. In addition, nuclear energy competes with other sources of energy, including natural gas, coal and
hydroelectricity. These other energy sources are to some extent interchangeable with nuclear energy, particularly over the longer
term. Sustained lower prices of natural gas, coal and hydro-electricity, as well as the possibility of developing other low cost sources
for energy, may result in lower demand for nuclear energy.
If the nuclear power industry fails to expand, or if there is a reduction in demand by electric utilities for nuclear fuel rods
for any reason, it would adversely affect our infrastructure services business and its results of operations, financial condition and
prospects and could impact the market price of the units.
We may experience increased costs and decreased cash flows due to compliance with regulations related to nuclear
services regulations.
Risks associated with nuclear projects, due to their size, construction duration and complexity, may be increased by new
and modified permit, licensing and regulatory approvals and requirements that can be even more stringent and time consuming than
similar processes for conventional construction projects. Our infrastructure services business and its customers are subject to numerous
regulations, including the applicable U.S. regulatory bodies, such as the U.S. Nuclear Regulatory Commission, and non-U.S.
regulatory bodies, such as the International Atomic Energy Agency and the EU, which can have a substantial effect on our infrastructure
services business. Delays in receiving necessary approvals, permits or licenses, failure to maintain sufficient compliance programs,
or other problems encountered during construction (including changes to such regulatory requirements) could significantly increase
our costs and have an adverse effect on our results of operations, financial position and cash flows. In the event of non-compliance,
regulatory agencies may increase regulatory oversight, impose fines or shut down our operations, depending upon the assessment
of the severity of the situation. Revised security and safety requirements promulgated by these bodies could necessitate substantial
capital and other expenditures.
If we do not have adequate indemnification for our nuclear services, it could adversely affect our infrastructure services
business and financial condition.
The Price-Anderson Nuclear Industries Indemnity Act, commonly called the Price-Anderson Act (“PAA”), is a U.S. federal
law, which, among other things, regulates radioactive materials and the nuclear energy industry, including liability and compensation
in the event of nuclear related incidents. The PAA provides certain protections and indemnification to nuclear energy plant operators
and U.S. Department of Energy contractors. The PAA protections and indemnification apply to us as part of our services to the U.S.
nuclear industry. We also offer similar services in other jurisdictions outside the U.S. For those jurisdictions, varying levels of nuclear
liability protection is provided by international treaties, and/or domestic laws. If an incident or evacuation is not covered under PAA
indemnification, international treaties and/or domestic laws, we could be held liable for damages, regardless of fault. Although we
expect to have insurance coverage for such liabilities, such coverage may not be sufficient, and accordingly such liabilities could
have an adverse effect on our results of operations and financial condition.
We offer similar services in other jurisdictions outside the U.S. For those jurisdictions, varying levels of nuclear liability
protection is provided by international treaties, and/or domestic laws.
Growth of our marine transportation and offshore oil production-related services business depends on continued growth
in global and regional demands for such services.
Our marine transportation and offshore oil production-related services business depends on continued growth in global and
regional demands for such services, which could be negatively affected by a number of factors, including:
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decreases in the actual or projected price of oil, which could lead to a reduction in or termination of production of oil at
certain fields we service or a reduction in exploration for or development of new offshore oil fields;
increases in the production of oil in areas linked by pipelines to consuming areas, the extension of existing, or the development
of new, pipeline systems in markets we may serve, the conversion of existing non-oil pipelines to oil pipelines in those
markets, or the termination of production or abandonment of an oil field;
decreases in the consumption of oil due to increases in its price relative to other energy sources, other factors making
consumption of oil less attractive, or energy conservation measures;
significant installment payments for acquisitions of newbuilding vessels or for the conversion of existing vessels prior to
their delivery and generation of revenue;
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reliance on a limited number of customers for a substantial majority of our revenues and on joint venture partners to assist
us in operating our businesses and competing in our markets;
availability of new, alternative energy sources; and
negative global or regional economic or political conditions, particularly in oil consuming regions, which could reduce
energy consumption or its growth. Reduced demand for offshore marine transportation, processing, storage services, offshore
accommodation or towing and offshore installation services would have a material adverse effect on our future growth and
could harm our business, results of operations and financial condition.
Marine transportation and oil production is inherently risky, particularly in the extreme conditions in which many of
our vessels operate. An incident involving significant loss of product or environmental contamination by any of our vessels could
harm our reputation and business.
Vessels and their cargoes and oil production facilities we service are at risk of being damaged or lost because of events such
as:
• marine disasters;
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bad weather;
• mechanical failures;
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grounding, capsizing, fire, explosions and collisions;
piracy;
human error; and
• war and terrorism.
A portion of our shuttle tanker fleet and our towage fleet, an FSO unit, and the Voyageur Spirit and Petrojarl Knarr FPSO
units operate in the North Sea. Harsh weather conditions in this region and other regions in which our vessels operate may increase
the risk of collisions, oil spills, or mechanical failures.
An accident involving any of our vessels could result in any of the following:
death or injury to persons, loss of property or damage to the environment and natural resources;
delays in the delivery of cargo;
loss of revenues from charters or contracts of affreightment;
liabilities or costs to recover any spilled oil or other petroleum products and to restore the eco-system affected by the spill;
governmental fines, penalties or restrictions on conducting business;
higher insurance rates; and
damage to our reputation and customer relationships generally.
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Any of these results could have a material adverse effect on our business, financial condition and operating results. In
addition, any damage to, or environmental contamination involving, oil production facilities serviced could suspend that service and
result in loss of revenues.
Our recontracting of existing vessels and our future growth depends on our ability to expand relationships with existing
customers and obtain new customers, for which we expect to face substantial competition.
One of our principal objectives is to enter into additional long-term, fixed-rate time charters and contracts of affreightment,
including the redeployment of our assets as their current charter contracts expire. The process of obtaining new long-term time
charters and contracts of affreightment is highly competitive and generally involves an intensive screening process and competitive
bids, and often extends for several months. Shuttle tanker, FSO, FPSO, towing and offshore installation vessel and UMS contracts
are awarded based upon a variety of factors relating to the vessel operator, including:
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industry relationships and reputation for customer service and safety;
experience and quality of ship operations;
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quality, experience and technical capability of the crew;
relationships with shipyards and the ability to get suitable berths;
construction management experience, including the ability to obtain on-time delivery of new vessels or conversions
according to customer specifications;
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• willingness to accept operational risks pursuant to the charter, such as allowing termination of the charter for force majeure
events; and
•
competitiveness of the bid in terms of overall price.
We expect competition for providing services for potential offshore projects from other experienced companies, including
state-sponsored entities. Our competitors may have greater financial resources than us. This increased competition may cause greater
price competition for charters. As a result of these factors, we may be unable to expand our relationships with existing customers or
to obtain new customers on a profitable basis, if at all, which would have a material adverse effect on our business, results of operations
and financial condition.
Risks Relating to Our Industrial Operations
Substantial declines in the prices of the resources we produce have reduced the revenues of our industrial operations,
and sustained prices at those or lower levels would reduce our revenue and adversely affect the operating results and cash flows
of our industrial operations.
The results of our industrial operations are substantially dependent upon the prices we receive for the resources we produce.
Those prices depend on factors beyond our control. In recent years, commodity prices have declined significantly. Sustained depressed
levels or future declines of the price of resources such as oil and gas, may adversely affect the operating results and cash flows of
our energy operations.
Our derivative risk management activities could result in financial losses.
In the past, commodity prices have been extremely volatile, and we expect this volatility to continue. To mitigate the effect
of commodity price volatility on the results of our industrial operations, our strategy is to enter into derivative arrangements covering
a portion of our resource production. These derivative arrangements are subject to mark-to-market accounting treatment, and the
changes in fair value of the contracts will be reported in our statements of operations each quarter, which may result in significant
non-cash gains or losses. These derivative contracts may also expose us to risk of financial loss in certain circumstances, including
when production is less than the contracted derivative volumes, the counterparty to the derivative contract defaults on its contract
obligations or the derivative contracts limit the benefit our industrial operations would otherwise receive from increases in commodity
prices.
Our oil and gas operations are subject to all the risks normally incidental to oil and gas exploration, development
and production.
Our oil and gas operations are subject to all the risks normally incidental to oil and gas development and production,
including:
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blowouts, cratering, explosions and fires;
adverse weather effects;
environmental hazards such as gas leaks, oil spills, pipeline and vessel ruptures and unauthorized discharges of gasses,
brine, well stimulation and completion fluids or other pollutants into the surface and subsurface environment;
high costs, shortages or delivery delays of equipment, labour or other services or water and sand for hydraulic fracturing;
facility or equipment malfunctions, failures or accidents;
title problems;
pipe or cement failures or casing collapses;
compliance with environmental and other governmental requirements;
lost or damaged oilfield workover and service tools;
unusual or unexpected geological formations or pressure or irregularities in formations;
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natural disasters; and
the availability of critical materials, equipment and skilled labour.
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Our exposure to risks related to our oil and gas operations may increase as our drilling activity expands and we seek to
directly provide fracture stimulation, water distribution and disposal and other services internally. Any of these risks could result in
substantial losses to our company due to injury or loss of life, damage to or destruction of wells, production facilities or other property,
environmental damage, regulatory investigations and penalties and suspension of operations.
Drilling for oil and gas also involves numerous risks, including the risk that we will not encounter commercially productive
oil or gas reservoirs. The wells we participate in may not be productive and we may not recover all or any portion of our investment
in those wells. The costs of drilling, completing and operating wells are often uncertain, and drilling operations may be curtailed,
delayed or canceled as a result of a variety of factors including, but not limited to:
•
•
•
•
unexpected drilling conditions;
pressure or irregularities in formations;
equipment failures or accidents;
fires, explosions, blow-outs and surface cratering;
• marine risks such as capsizing, collisions and hurricanes;
•
•
other adverse weather conditions; and
increase in cost of, or shortages or delays in the delivery of equipment.
Future drilling activities may not be successful and, if unsuccessful, this failure could have an adverse effect on our future
results of operations and financial condition. While all drilling, whether developmental or exploratory, involves these risks, exploratory
drilling involves greater risks of dry holes or failure to find commercial quantities of hydrocarbons.
The marketability of our oil and gas production is dependent upon compressors, gathering lines, pipelines and other
facilities, certain of which we do not control. When these facilities are unavailable, our operations can be interrupted and our
revenues reduced.
The marketability of our oil and gas production depends in part upon the availability, proximity and capacity of oil and gas
pipelines owned by third parties. In general, we do not control these transportation facilities and our access to them may be limited
or denied. A significant disruption in the availability of these transportation facilities or compression and other production facilities
could adversely impact our ability to deliver to market or produce our oil and gas and thereby result in our inability to realize the
full economic potential of our production. If, in the future, we are unable, for any sustained period, to implement acceptable delivery
or transportation arrangements or encounter compression or other production related difficulties, we will be required to shut in or
curtail production from the field. Any such shut in or curtailment, or an inability to obtain favorable terms for delivery of the oil and
gas produced from the field, would adversely affect our financial condition and results of operations.
If any of the third party pipelines and other facilities and service providers upon which we depend to move production to
market become partially or fully unavailable to transport or process our production, or if quality specifications or physical requirements
such as compression are altered by such third parties so as to restrict our ability to transport our production on those pipelines or
facilities, our revenues could be adversely affected. Restrictions on our ability to move our oil and gas to market may have several
other adverse effects, including fewer potential purchasers (thereby potentially resulting in a lower selling price) or, in the event we
were unable to market and sustain production from a particular lease for an extended time, possible loss of a lease due to lack
of production.
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There are risks associated with ownership and operation of water, wastewater and industrial water treatment businesses
in Brazil, any of which may adversely affect our financial condition.
In April 2017, together with institutional partners, we acquired a 70% controlling interest in the largest private water company
in Brazil, which has been rebranded BRK Ambiental. Our ownership of BRK Ambiental subjects us to the risks incidental to the
ownership and operation of water, wastewater and industrial water treatment businesses in Brazil, any of which may adversely affect
our financial condition, results of operations and cash flows, including the following risks:
• The government may impose restrictions on water usage as a response to regional or seasonal drought, which may result
in decreased use of water services, even if our water supplies are sufficient to serve our customers. Moreover, reductions
in water consumption, including changed consumer behaviour, may persist even after drought restrictions are repealed and
the drought has ended.
• The business will require significant capital expenditures and may suffer if we fail to secure appropriate funding to make
investments, or if we experience delays in completing major capital expenditure projects.
•
In the event that water contamination occurs, there may be injury, damage or loss of life to our customers, employees or
others, in addition to government enforcement actions, litigation, adverse publicity and reputational damage.
• Water and wastewater businesses may be subject to organized efforts to convert their assets to public ownership and operation
through exercise of the governmental power of eminent domain, or another similar authorized process. Moreover, there is
a risk that any efforts to resist may be costly, distracting or unsuccessful.
• Water related businesses are subject to extensive governmental economic regulation including with respect to the approval
of rates.
Exploration and development may not result in commercially productive assets.
Exploration and development involves numerous risks, including the risk that no commercially productive asset will result
from such activities. The cost of exploration and development is often uncertain and may depart from our expectations due to
unexpected geological conditions, equipment failures or accidents, adverse weather conditions, regulatory restrictions on access to
land and the cost and availability of personnel required to complete our exploration and development activities. The exploration and
development activities of our industrial operations may not be successful and, if unsuccessful, such failure could have an adverse
effect on our future results of operations and financial condition.
Our metals operations are subject to all the risks normally incidental to metals mining and processing.
Our metals operations are subject to all the risks normally incidental to metals mining and processing, including:
• metallurgical and other processing problems;
•
•
•
•
•
•
•
•
geotechnical problems;
unusual and unexpected rock formations;
ground or slope failures or underground cave-ins;
environmental contamination;
industrial accidents;
fires;
flooding and periodic interruptions due to inclement or hazardous weather conditions or other acts of nature;
organized labour disputes or work slow-downs;
• mechanical equipment failure and facility performance problems;
•
•
the availability of critical materials, equipment and skilled labour; and
effective management of tailings facilities.
Any of these risks could result in substantial losses to our company due to injury or loss of life, damage to or destruction
of properties or production facilities, environmental damage, regulatory investigations and penalties and suspension of operations.
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Our industrial manufacturing operations are dependent on supplies of raw materials and results of operations could
deteriorate if that supply is substantially disrupted for an extended period.
Raw material supply factors such as allocations, economic cyclicality, seasonality, pricing, quality, timeliness of delivery,
transportation and warehousing costs may affect the raw material sourcing decisions we make. In the event of significant unanticipated
increase in demand for our products, we may in the future be unable to manufacture certain products in a quantity sufficient to meet
customer demand in any particular period without an adequate supply of raw materials.
The various raw materials used in our industrial operations are sourced and traded throughout the world and are subject to
pricing volatility. Although we try to manage our exposure to raw material price volatility through the pricing of our products, there
can be no assurance that the industry dynamics will allow us to continue to reduce our exposure by passing on raw material price
increases to our customers.
Risks Relating to Our Relationship with Brookfield
Brookfield exercises substantial influence over us and we are highly dependent on the Service Providers.
Brookfield is the sole shareholder of the BBU General Partner. As a result of its ownership of the BBU General Partner,
Brookfield is able to control the appointment and removal of the BBU General Partner's directors and, accordingly, exercises
substantial influence over our company and over the Holding LP, for which our company is the managing general partner. In addition,
the Service Providers, being wholly-owned subsidiaries of Brookfield, provide management and administration services to us pursuant
to our Master Services Agreement. Our company and the Holding LP generally do not have any employees and depend on the
management and administration services provided by the Service Providers. Brookfield personnel and support staff that provide
services to us are not required to have as their primary responsibility the management and administration of our company or the
Holding LP, or to act exclusively for either of us. Any failure to effectively manage our current operations or to implement our
strategy could have a material adverse effect on our business, financial condition and results of operations.
Brookfield has no obligation to source acquisition opportunities for us and we may not have access to all acquisitions
that Brookfield identifies.
Our ability to grow depends on Brookfield's ability to identify and present us with acquisition opportunities. Brookfield
established our company to be Brookfield's flagship public company for its business services and industrial operations, but Brookfield
has no obligation to source acquisition opportunities for us. In addition, Brookfield has not agreed to commit to us any minimum
level of dedicated resources for the pursuit of acquisitions. There are a number of factors which could materially and adversely impact
the extent to which suitable acquisition opportunities are made available from Brookfield, including:
•
It is an integral part of Brookfield's (and our) strategy to pursue acquisitions through consortium arrangements with
institutional investors, strategic partners and/or financial sponsors and to form partnerships (including private funds, joint
ventures and similar arrangements) to pursue such acquisitions on a specialized or global basis. Although Brookfield has
agreed with us that it will not enter any such arrangements that are suitable for us without giving us an opportunity to
participate in them, there is no minimum level of participation to which we will be entitled;
• The same professionals within Brookfield's organization that are involved in sourcing acquisitions that are suitable for us
are responsible for sourcing opportunities for the vehicles, consortiums and partnerships referred to above, as well as having
other responsibilities within Brookfield's broader asset management business. Limits on the availability of such individuals
could result in a limitation on the number of acquisition opportunities sourced for us;
• Brookfield will only recommend acquisition opportunities that it believes are suitable and appropriate for us. Our focus is
on assets where we believe that our operations-oriented strategy can be deployed to create value in our business services
and industrial operations. Accordingly, opportunities where Brookfield cannot play an active role in influencing the
underlying business or managing the underlying assets may not be consistent with our acquisition strategy and, therefore
may not be suitable for us, even though they may be attractive from a purely financial perspective. Legal, regulatory, tax
and other commercial considerations will likewise be an important consideration in determining whether an opportunity is
suitable and/or appropriate for us and will limit our ability to participate in certain acquisitions; and
•
In addition to structural limitations, the question of whether a particular acquisition is suitable and/or appropriate is highly
subjective and is dependent on a number of portfolio construction and management factors including our liquidity position
at the relevant time, the expected risk-return profile of the opportunity, its fit with the balance of our investments and related
operations, other opportunities that we may be pursuing or otherwise considering at the relevant time, our interest in
preserving capital in order to secure other opportunities and/or to meet other obligations, and other factors. If Brookfield
determines that an opportunity is not suitable or appropriate for us, it may still pursue such opportunity on its own behalf,
or on behalf of a Brookfield-sponsored vehicle, consortium or partnership such as Brookfield Property Partners, Brookfield
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Infrastructure Partners, Brookfield Renewable Partners, and one or more Brookfield-sponsored private funds or other
investment vehicles or programs.
In making these determinations, Brookfield may be influenced by factors that result in a misalignment or conflict of interest.
See Item 7.B., "Related Party Transactions—Conflicts of Interest and Fiduciary Duties."
Among others, we may pursue acquisition opportunities indirectly through investments in Brookfield-sponsored vehicles,
consortiums and partnerships or directly (including by investing alongside such vehicles, consortiums and partnerships). Any
references in this Item 3.D.-"Risk Factors" to our acquisitions, investments, assets, expenses, portfolio companies or other terms
should be understood to mean such items held, incurred or undertaken directly by us or indirectly by us through our investment in
such Brookfield-sponsored vehicles, consortiums and partnerships.
We rely on related parties for a portion of our revenues, particularly in respect of our construction services operations.
We may enter into contracts for services or other engagements with related parties, including Brookfield. For example, our
construction services business provides construction services to properties owned and operated by Brookfield. We are subject to
risks as a result of our reliance on these related parties, including the risk that the business terms of our arrangements with them are
not as fair to us and that our management is subject to potential conflicts of interest that may not be resolved in our favor. In addition,
if our transactions with these related parties cease, it could have a material adverse effect on our business, financial condition and
results of operations.
The departure of some or all of Brookfield's professionals could prevent us from achieving our objectives.
We depend on the diligence, skill and business contacts of Brookfield's professionals and the information and opportunities
they generate during the normal course of their activities. Our future success will depend on the continued service of these individuals,
who are not obligated to remain employed with Brookfield. Brookfield has experienced departures of key professionals in the past
and may do so in the future, and we cannot predict the impact that any such departures will have on our ability to achieve our
objectives. The departure of a significant number of Brookfield's professionals for any reason, or the failure to appoint qualified or
effective successors in the event of such departures, could have a material adverse effect on our ability to achieve our objectives.
Our Limited Partnership Agreement and our Master Services Agreement do not require Brookfield to maintain the employment of
any of its professionals or to cause any particular professionals to provide services to us or on our behalf.
Control of our company and/or the BBU General Partner may be transferred to a third party without unitholder consent.
The BBU General Partner may transfer its general partnership interest to a third party in a merger or consolidation or in a
transfer of all or substantially all of its assets. Furthermore, at any time, the shareholder of the BBU General Partner may sell or
transfer all or part of its shares in the BBU General Partner. Unitholder consent will not be sought in either case. If a new owner
were to acquire ownership of the BBU General Partner and to appoint new directors or officers of its own choosing, it would be able
to exercise substantial influence over our policies and procedures and exercise substantial influence over our management and the
types of acquisitions that we make. Such changes could result in our capital being used to make acquisitions in which Brookfield
has no involvement or in making acquisitions that are substantially different from our targeted acquisitions. Additionally, we cannot
predict with any certainty the effect that any transfer in the control of our company or the BBU General Partner would have on the
trading price of our units or our ability to raise capital or make acquisitions in the future, because such matters would depend to a
large extent on the identity of the new owner and the new owner's intentions. As a result, our future would be uncertain and our
business, financial condition and results of operations may suffer.
Brookfield may increase its ownership of our company and the Holding LP relative to other unitholders.
Brookfield currently holds approximately 49% of the issued and outstanding interests in the Holding LP through Special
LP Units and redemption-exchange units. The redemption-exchange units are redeemable for cash or exchangeable for our units in
accordance with the Redemption-Exchange Mechanism, which could result in Brookfield eventually owning approximately 68% of
our issued and outstanding units (including other issued and outstanding units that Brookfield currently owns).
Brookfield may also reinvest incentive distributions in exchange for redemption-exchange units or our units. Additional
units of the Holding LP acquired, directly or indirectly, by Brookfield are redeemable for cash or exchangeable for our units in
accordance with the Redemption-Exchange Mechanism. See Item 10.B., "Description of the Holding LP Limited Partnership
Agreement—Redemption-Exchange Mechanism". Brookfield may also purchase additional units of our company in the market. Any
of these events may result in Brookfield increasing its ownership of our company.
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Our Master Services Agreement and our other arrangements with Brookfield do not impose on Brookfield any fiduciary
duties to act in the best interests of our unitholders.
Our Master Services Agreement and our other arrangements with Brookfield do not impose on Brookfield any duty (statutory
or otherwise) to act in the best interests of the Service Recipients, nor do they impose other duties that are fiduciary in nature. As a
result, the BBU General Partner, a wholly-owned subsidiary of Brookfield Asset Management, in its capacity as the BBU General
Partner, has sole authority to enforce the terms of such agreements and to consent to any waiver, modification or amendment of their
provisions, subject to approval by a majority of our independent directors in accordance with our conflicts protocol.
In addition, the Bermuda Limited Partnership Act of 1883, or the Bermuda Partnership Act, under which our company and
the Holding LP were established, does not impose statutory fiduciary duties on a general partner of a limited partnership in the same
manner that certain corporate statutes, such as the CBCA or the Delaware Revised Uniform Limited Partnership Act, impose fiduciary
duties on directors of a corporation. In general, under applicable Bermudian legislation, a general partner has certain limited duties
to its limited partners, such as the duty to render accounts, account for private profits and not compete with the partnership in business.
In addition, Bermudian common law recognizes that a general partner owes a duty of utmost good faith to its limited partners. These
duties are, in most respects, similar to duties imposed on a general partner of a limited partnership under U.S. and Canadian law.
However, to the extent that the BBU General Partner owes any such fiduciary duties to our company and unitholders, these duties
have been modified pursuant to our Limited Partnership Agreement as a matter of contract law, with the exception of the duty of our
General Partner to act in good faith, which cannot be modified. We have been advised by Bermudian counsel that such modifications
are not prohibited under Bermudian law, subject to typical qualifications as to enforceability of contractual provisions, such as the
application of general equitable principles. This is similar to Delaware law which expressly permits modifications to the fiduciary
duties owed to partners, other than an implied contractual covenant of good faith and fair dealing.
Our Limited Partnership Agreement contains various provisions that modify the fiduciary duties that might otherwise be
owed to our company and our unitholders, including when conflicts of interest arise. Specifically, our Limited Partnership Agreement
states that no breach of our Limited Partnership Agreement or a breach of any duty, including fiduciary duties, may be found for any
matter that has been approved by a majority of the independent directors of the BBU General Partner. In addition, when resolving
conflicts of interest, our Limited Partnership Agreement does not impose any limitations on the discretion of the independent directors
or the factors which they may consider in resolving any such conflicts. The independent directors of the BBU General Partner can
therefore take into account the interests of third parties, including Brookfield and, where applicable, any Brookfield managed vehicle,
consortium or partnership, when resolving conflicts of interest and may owe fiduciary duties to such third parties, or Brookfield
managed vehicle, consortium or partnership. Additionally, any fiduciary duty that is imposed under any applicable law or agreement
is modified, waived or limited to the extent required to permit the BBU General Partner to undertake any affirmative conduct or to
make any decisions, so long as such action is reasonably believed to be in, or not inconsistent with, the best interests of our company.
In addition, our Limited Partnership Agreement provides that the BBU General Partner and its affiliates do not have any
obligation under our Limited Partnership Agreement, or as a result of any duties stated or implied by law or equity, including fiduciary
duties, to present business or acquisition opportunities to our company, the Holding LP, any Holding Entity or any other holding
entity established by us. They also allow affiliates of the BBU General Partner to engage in activities that may compete with us or
our activities. Additionally, any failure by the BBU General Partner to consent to any merger, consolidation or combination will not
result in a breach of our Limited Partnership Agreement or any other provision of law. Our Limited Partnership Agreement prohibits
our limited partners from advancing claims that otherwise might raise issues as to compliance with fiduciary duties or applicable
law. These modifications to the fiduciary duties are detrimental to our unitholders because they restrict the remedies available for
actions that might otherwise constitute a breach of fiduciary duty and permit conflicts of interest to be resolved in a manner that may
not be or is not in the best interests of our company or the best interests of our unitholders. See Item 7.B., "Related Party Transactions
—Conflicts of Interest and Fiduciary Duties".
Our organizational and ownership structure may create significant conflicts of interest that may be resolved in a manner
that is not in our best interests or the best interests of our unitholders.
Our organizational and ownership structure involves a number of relationships that may give rise to conflicts of interest
between us and our unitholders, on the one hand, and Brookfield, on the other hand. In certain instances, the interests of Brookfield
may differ from our interests and our unitholders, including with respect to the types of acquisitions made, the timing and amount
of distributions by our company, the redeployment of returns generated by our operations, the use of leverage when making acquisitions
and the appointment of outside advisors and service providers, including as a result of the reasons described under Item 7.B., "Related
Party Transactions—Conflicts of Interest and Fiduciary Duties".
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In addition, the Service Providers, affiliates of Brookfield, provide management services to us pursuant to our Master
Services Agreement. Pursuant to our Master Services Agreement, we pay a quarterly base management fee to the Service Providers
equal to 0.3125% (1.25% annually) of the total capitalization of our company. For purposes of calculating the base management fee,
the total capitalization of our company is equal to the quarterly volume-weighted average trading price of a unit on the principal
stock exchange for our units (based on trading volumes) multiplied by the number of units outstanding at the end of the quarter
(assuming full conversion of the redemption-exchange units into units), plus the value of securities of the other Service Recipients
that are not held by us, plus all outstanding third party debt with recourse to a Service Recipient, less all cash held by such entities.
This relationship may give rise to conflicts of interest between us and our unitholders, on the one hand, and Brookfield, on the other,
as Brookfield's interests may differ from our interests and those of our unitholders.
The arrangements we have with Brookfield may create an incentive for Brookfield to take actions which would have the
effect of increasing distributions and fees payable to it, which may be to the detriment of us and our unitholders. For example, because
the base management fee is calculated based on our market value, it may create an incentive for Brookfield to increase or maintain
our market value over the near-term when other actions may be more favourable to us or our unitholders. Similarly, Brookfield may
take actions to decrease distributions on our units or defer acquisitions in order to increase our market value in the near-term when
making such distributions or acquisitions may be more favourable to us or our unitholders.
Our arrangements with Brookfield were negotiated in the context of an affiliated relationship and may contain terms
that are less favourable than those which otherwise might have been obtained from unrelated parties.
The terms of our arrangements with Brookfield were effectively determined by Brookfield in the context of the spin-off.
While the BBU General Partner's independent directors are aware of the terms of these arrangements and have approved the
arrangements on our behalf, they did not negotiate the terms. These terms, including terms relating to compensation, contractual and
fiduciary duties, conflicts of interest and Brookfield's ability to engage in outside activities, including activities that compete with
us, our activities and limitations on liability and indemnification, may be less favourable than otherwise might have resulted if the
negotiations had involved unrelated parties. Under our Limited Partnership Agreement, persons who acquire our units and their
transferees will be deemed to have agreed that none of those arrangements constitutes a breach of any duty that may be owed to them
under our Limited Partnership Agreement or any duty stated or implied by law or equity.
The BBU General Partner may be unable or unwilling to terminate our Master Services Agreement.
Our Master Services Agreement provides that the Service Recipients may terminate the agreement only if: (i) the Service
Providers default in the performance or observance of any material term, condition or covenant contained in the agreement in a
manner that results in material harm to the Service Recipients and the default continues unremedied for a period of 30 days after
written notice of the breach is given to the Service Providers; (ii) the Service Providers engage in any act of fraud, misappropriation
of funds or embezzlement against any Service Recipient that results in material harm to the Service Recipients; (iii) the Service
Providers are grossly negligent in the performance of their duties under the agreement and such negligence results in material harm
to the Service Recipients; or (iv) upon the happening of certain events relating to the bankruptcy or insolvency of the Service Providers.
The BBU General Partner cannot terminate the agreement for any other reason, including if the Service Providers or Brookfield
experience a change of control, and there is no fixed term to the agreement. In addition, because the BBU General Partner is an
affiliate of Brookfield, it likely will be unwilling to terminate our Master Services Agreement, even in the case of a default. If the
Service Providers' performance does not meet the expectations of investors, and the BBU General Partner is unable or unwilling to
terminate our Master Services Agreement, the market price of our units could suffer. Furthermore, the termination of our Master
Services Agreement would terminate our company's rights under the Relationship Agreement and our Licensing Agreement. See
Item 7.B., "Related Party Transactions—Relationship Agreement" and "Related Party Transactions—Licensing Agreement".
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The liability of the Service Providers is limited under our arrangements with them and we have agreed to indemnify the
Service Providers against claims that they may face in connection with such arrangements, which may lead them to assume
greater risks when making decisions relating to us than they otherwise would if acting solely for their own account.
Under our Master Services Agreement, the Service Providers have not assumed any responsibility other than to provide or
arrange for the provision of the services described in our Master Services Agreement in good faith and will not be responsible for
any action that the BBU General Partner takes in following or declining to follow its advice or recommendations. In addition, under
our Limited Partnership Agreement, the liability of the BBU General Partner and its affiliates, including the Service Providers, is
limited to the fullest extent permitted by law to conduct involving bad faith, fraud or willful misconduct or, in the case of a criminal
matter, action that was known to have been unlawful. The liability of the Service Providers under our Master Services Agreement
is similarly limited, except that the Service Providers are also liable for liabilities arising from gross negligence. In addition, we have
agreed to indemnify the Service Providers to the fullest extent permitted by law from and against any claims, liabilities, losses,
damages, costs or expenses incurred by them or threatened in connection with our business, investments and activities or in respect
of or arising from our Master Services Agreement or the services provided by the Service Providers, except to the extent that such
claims, liabilities, losses, damages, costs or expenses are determined to have resulted from the conduct in respect of which such
persons have liability as described above. These protections may result in the Service Providers tolerating greater risks when making
decisions than otherwise would be the case, including when determining whether to use and the extent of leverage in connection
with acquisitions. The indemnification arrangements to which the Service Providers are a party may also give rise to legal claims
for indemnification that are adverse to us and our unitholders.
Risks Relating to Our Structure
Our company is a holding entity and currently we rely on the Holding LP and, indirectly, the Holding Entities and our
operating businesses to provide us with the funds necessary to meet our financial obligations.
Our company is a holding entity and its material assets consist solely of interests in the Holding Entities, through which we
hold all of our interests in our operating businesses. Our company has no independent means of generating revenue. As a result, we
depend on distributions and other payments from the Holding LP and, indirectly, the Holding Entities and our operating businesses
to provide us with the funds necessary to meet our financial obligations at the partnership level. The Holding LP, the Holding Entities
and our operating businesses are legally distinct from us and some of them are or may become restricted in their ability to pay
dividends and distributions or otherwise make funds available to us pursuant to local law, regulatory requirements and their contractual
agreements, including agreements governing their financing arrangements. Any other entities through which we may conduct
operations in the future will also be legally distinct from us and may be similarly restricted in their ability to pay dividends and
distributions or otherwise make funds available to us under certain conditions. The Holding LP, the Holding Entities and our operating
businesses will generally be required to service their debt obligations before making distributions to us or their parent entities, as
applicable, thereby reducing the amount of our cash flow available to our company to meet our financial obligations.
We anticipate that the only distributions that we will receive in respect of our company's managing general partnership
interests in the Holding LP will consist of amounts that are intended to assist our company to pay expenses as they become due and
to make distributions to our unitholders in accordance with our company's distribution policy.
We may be subject to the risks commonly associated with a separation of economic interest from control or the incurrence
of debt at multiple levels within an organizational structure.
Our ownership and organizational structure is similar to structures whereby one company controls another company which
in turn holds controlling interests in other companies; thereby, the company at the top of the chain may control the company at the
bottom of the chain even if its effective equity position in the bottom company is less than a controlling interest. Brookfield is the
sole shareholder of the BBU General Partner and, as a result of such ownership of the BBU General Partner, Brookfield is able to
control the appointment and removal of the BBU General Partner's directors and, accordingly, exercises substantial influence over
us. In turn, we often have a majority controlling interest or a significant influence in our operating businesses. Although Brookfield
currently has an effective equity interest in our business of approximately 68% as a result of ownership of our units, general partnership
units, redemption-exchange units and Special LP Units, over time Brookfield may reduce this interest while still maintaining its
controlling interest, and, therefore, Brookfield may use its control rights in a manner that conflicts with the interests of our other
unitholders. For example, despite the fact that we have a conflicts protocol in place, which addresses the requirement for independent
approval and other requirements for transactions in which there is greater potential for a conflict of interest to arise, including
transactions with affiliates of Brookfield, because Brookfield will be able to exert substantial influence over us, there is a greater
risk of transfer of assets at non-arm's length values to Brookfield and its affiliates. In addition, debt incurred at multiple levels within
the chain of control could exacerbate the separation of economic interest from controlling interest at such levels, thereby creating
an incentive to increase our leverage. Any such increase in debt would also make us more sensitive to declines in revenues, increases
in expenses and interest rates and adverse market conditions. The servicing of any such debt would also reduce the amount of funds
available to pay distributions to us and ultimately to our unitholders and could reduce total returns to unitholders.
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Our company is not, and does not intend to become, regulated as an investment company under the U.S. Investment
Company Act of 1940, or the Investment Company Act, (and similar legislation in other jurisdictions), and, if our company were
deemed an "investment company" under the Investment Company Act, applicable restrictions could make it impractical for us
to operate as contemplated.
The Investment Company Act (and similar legislation in other jurisdictions) provides certain protections to investors and
imposes certain restrictions on companies that are required to be regulated as investment companies. Among other things, such rules
limit or prohibit transactions with affiliates, impose limitations on the issuance of debt and equity securities and impose certain
governance requirements. Our company has not been and does not intend to become regulated as an investment company and our
company intends to conduct its activities so it will not be deemed to be an investment company under the Investment Company Act
(and similar legislation in other jurisdictions). In order to ensure that we are not deemed to be an investment company, we may be
required to materially restrict or limit the scope of our operations or plans. We will be limited in the types of acquisitions that we
may make, and we may need to modify our organizational structure or dispose of assets which we would not otherwise dispose.
Moreover, if anything were to happen which causes our company to be deemed an investment company under the Investment
Company Act, it would be impractical for us to operate as contemplated. Agreements and arrangements between and among us and
Brookfield would be impaired, the type and number of acquisitions that we would be able to make as a principal would be limited
and our business, financial condition and results of operations would be materially adversely affected. Accordingly, we would be
required to take extraordinary steps to address the situation, such as the amendment or termination of our Master Services Agreement,
the restructuring of our company and the Holding Entities, the amendment of our Limited Partnership Agreement or the dissolution
of our company, any of which could materially adversely affect the value of our units. In addition, if our company were deemed to
be an investment company under the Investment Company Act, it would be taxable as a corporation for U.S. federal income tax
purposes, and such treatment could materially adversely affect the value of our units.
Our company is an "SEC foreign issuer" under Canadian securities regulations and a "foreign private issuer" under
U.S. securities law. Therefore, we are exempt from certain requirements of Canadian securities laws and from requirements
applicable to U.S. domestic registrants listed on the NYSE.
Although our company is a reporting issuer in Canada, we are an "SEC foreign issuer" and exempt from certain Canadian
securities laws relating to disclosure obligations and proxy solicitation, subject to certain conditions. Therefore, there may be less
publicly available information in Canada about our company than would be available if we were a typical Canadian reporting issuer.
Although we are subject to the periodic reporting requirement of the U.S. Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder, or the Exchange Act, the periodic disclosure required of foreign private issuers
under the Exchange Act is different from periodic disclosure required of U.S. domestic registrants. Therefore, there may be less
publicly available information about our company than is regularly published by or about other public limited partnerships in the
United States. Our company is exempt from certain other sections of the Exchange Act to which U.S. domestic issuers are subject,
including the requirement to provide our unitholders with information statements or proxy statements that comply with the Exchange
Act. In addition, insiders and large unitholders of our company are not obligated to file reports under Section 16 of the Exchange
Act, and we will be permitted to follow certain home country corporate governance practices instead of those otherwise required
under the NYSE Listed Company Manual for domestic issuers. We currently intend to follow the same corporate practices as would
be applicable to U.S. domestic limited partnerships. However, we may in the future elect to follow our home country law for certain
of our corporate governance practices, as permitted by the rules of the NYSE, in which case our unitholders would not be afforded
the same protection as provided under NYSE corporate governance standards. Following our home country governance practices as
opposed to the requirements that would otherwise apply to a U.S. domestic limited partnership listed on the NYSE may provide less
protection than is accorded to investors of U.S. domestic issuers.
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Our failure to maintain effective internal controls could have a material adverse effect on our business in the future and
the price of our units.
As a public company, we are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, and stock
exchange rules promulgated in response to the Sarbanes-Oxley Act. A number of our current operating subsidiaries are and potential
future acquisitions will be private companies and their systems of internal controls over financial reporting may be less developed
as compared to public company requirements. In addition, we routinely exclude recently acquired companies from our evaluation
of internal controls. For example, for our fiscal year ended December 31, 2018, we excluded Schoeller Allibert Group B.V.,
Westinghouse Electric Company and Teekay Offshore Partners L.P., which collectively represented 45% of our total assets, 43% of
our net assets, 8% of our revenue and 21% of our net income for the year. Any failure to maintain adequate internal controls over
financial reporting or to implement required, new or improved controls, or difficulties encountered in their implementation, could
cause material weaknesses or significant deficiencies in our internal controls over financial reporting and could result in errors or
misstatements in our consolidated financial statements that could be material. If we or our independent registered public accounting
firm were to conclude that our internal controls over financial reporting were not effective, investors could lose confidence in our
reported financial information and the price of our units could decline. Our failure to achieve and maintain effective internal controls
could have a material adverse effect on our business, our ability to access capital markets and investors' perception of us. In addition,
material weaknesses in our internal controls could require significant expense and management time to remediate.
Risks Relating to Our Units
Our unitholders do not have a right to vote on company matters or to take part in the management of our company.
Under our Limited Partnership Agreement, our unitholders are not entitled to vote on matters relating to our company, such
as acquisitions, dispositions or financing, or to participate in the management or control of our company. In particular, our unitholders
do not have the right to remove the BBU General Partner, to cause the BBU General Partner to withdraw from our company, to cause
a new general partner to be admitted to our company, to appoint new directors to the BBU General Partner's board of directors, to
remove existing directors from the BBU General Partner's board of directors or to prevent a change of control of the BBU General
Partner. In addition, except for certain fundamental matters and related party transactions, our unitholders' consent rights apply only
with respect to certain amendments to our Limited Partnership Agreement as described in Item 10.B., "Memorandum and Articles
of Association—Description of our Units and our Limited Partnership Agreement". As a result, unlike holders of common stock of
a corporation, our unitholders are not able to influence the direction of our company, including its policies and procedures, or to
cause a change in its management, even if they are unsatisfied with the performance of our company. Consequently, our unitholders
may be deprived of an opportunity to receive a premium for their units in the future through a sale of our company and the trading
price of our units may be adversely affected by the absence or a reduction of a takeover premium in the trading price.
The market price of our units may be volatile.
The market price of our units may be highly volatile and could be subject to wide fluctuations. Some of the factors that
could negatively affect the price of our units include: general market and economic conditions, including disruptions, downgrades,
credit events and perceived problems in the credit markets; actual or anticipated variations in our quarterly operating results or
distributions on our units; actual or anticipated variations or trends in market interest rates; changes in our operating businesses or
asset composition; write-downs or perceived credit or liquidity issues affecting our assets; market perception of our company, our
business and our assets, including investor sentiment regarding diversified holding companies such as our company; our level of
indebtedness and/or adverse market reaction to any indebtedness we incur in the future; our ability to raise capital on favourable
terms or at all; loss of any major funding source; the termination of our Master Services Agreement or additions or departures of our
or Brookfield's key personnel; changes in market valuations of similar companies and partnerships; speculation in the press or
investment community regarding us or Brookfield; and changes in U.S. tax laws that make it impractical or impossible for our
company to continue to be taxable as a partnership for U.S. federal income tax purposes. Securities markets in general have experienced
extreme volatility that has often been unrelated to the operating performance of particular companies or partnerships. Any broad
market fluctuations may adversely affect the trading price of our units.
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We may issue additional units in the future, including in lieu of incurring indebtedness, which may dilute existing holders
of our units. We may also issue securities that have rights and privileges that are more favourable than the rights and privileges
accorded to our unitholders.
Under our Limited Partnership Agreement, subject to the terms of any of our securities then outstanding, we may issue
additional partnership securities, including units, preferred units and options, rights, warrants and appreciation rights relating to
partnership securities for any purpose and for such consideration and on such terms and conditions as the BBU General Partner may
determine. Subject to the terms of any of our securities then outstanding, the BBU General Partner's board of directors will be able
to determine the class, designations, preferences, rights, powers and duties of any additional partnership securities, including any
rights to share in our profits, losses and distributions, any rights to receive partnership assets upon our dissolution or liquidation and
any redemption, conversion and exchange rights. Subject to the terms of any of our securities then outstanding, the BBU General
Partner may use such authority to issue such additional securities. The sale or issuance of a substantial number of our units or other
equity related securities of our company in the public markets, or the perception that such sales or issuances could occur, could
depress the market price of our units and impair our ability to raise capital through the sale of additional units. Brookfield has the
right to require the Holding LP to redeem all or a portion of its redemption-exchange units for cash, subject to our company's right
to acquire such interests (in lieu of redemption) in exchange for the issuance of our units to Brookfield. We cannot predict the effect
that future sales or issuances of our units or other equity-related securities would have on the market price of our units. Subject to
the terms of any of our securities then outstanding, holders of units will not have any pre-emptive right or any right to consent to or
otherwise approve the issuance of any securities or the terms on which any such securities may be issued.
A unitholder who elects to receive our distributions in Canadian dollars is subject to foreign currency risk associated
with our company's distributions.
A significant number of our unitholders will reside in countries where the U.S. dollar is not the functional currency. We
intend to declare our distributions in U.S. dollars, but unitholders may, at their option, elect settlement in Canadian dollars. For
unitholders who so elect, the value received in Canadian dollars from the distribution will be determined based on the exchange rate
between the U.S. dollar and the Canadian dollar at the time of payment. As such, if the U.S. dollar depreciates significantly against
the Canadian dollar, the value received by a unitholder who elects to receive our distributions in Canadian dollars will be adversely
affected.
U.S. investors in our units may find it difficult or impossible to enforce service of process and enforcement of judgments
against us and directors and officers of the BBU General Partner and the Service Providers.
We were established under the laws of Bermuda, and most of our subsidiaries are organized in jurisdictions outside of the
United States. In addition, certain of our executive officers are located outside of the United States. Certain of the directors and
officers of the BBU General Partner and the Service Providers reside outside of the United States. A substantial portion of our assets
are, and the assets of the directors and officers of the BBU General Partner and the Service Providers may be, located outside of the
United States. It may not be possible for investors to effect service of process within the United States upon the directors and officers
of the BBU General Partner and the Service Providers. It may also not be possible to enforce against us or the directors and officers
of the BBU General Partner and the Service Providers, judgments obtained in U.S. courts predicated upon the civil liability provisions
of applicable securities law in the United States.
Canadian investors in our units may find it difficult or impossible to enforce service of process and enforcement of
judgments against us and the directors and officers of the BBU General Partner and the Service Providers.
We were established under the laws of Bermuda, and most of our subsidiaries are organized in jurisdictions outside of
Canada. In addition, certain of our executive officers are located outside of Canada. Certain of the directors and officers of the BBU
General Partner and the Service Providers reside outside of Canada. A substantial portion of our assets are, and the assets of the
directors and officers of the BBU General Partner and the Service Providers may be, located outside of Canada. It may not be possible
for investors to effect service of process within Canada upon the directors and officers of the BBU General Partner and the Service
Providers. It may also not be possible to enforce against us or the directors and officers of the BBU General Partner and the Service
Providers judgments obtained in Canadian courts predicated upon the civil liability provisions of applicable securities laws in Canada.
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Risks Related to Taxation
General
Changes in tax law and practice may have a material adverse effect on the operations of our company, the Holding
Entities and the operating businesses and, as a consequence, the value of our assets and the net amount of distributions payable
to our unitholders.
Our structure, including the structure of the Holding Entities and the operating businesses, is based on prevailing taxation
law and practice in the local jurisdictions in which we operate. Any change in tax legislation (including in relation to taxation rates)
and practice in these jurisdictions could adversely affect these entities, as well as the net amount of distributions payable to our
unitholders. Taxes and other constraints that would apply to our operating businesses 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 such acquisitions.
Our company's ability to make distributions depends on it receiving sufficient cash distributions from its underlying
operations, and we cannot assure our unitholders that our company will be able to make cash distributions to them in amounts
that are sufficient to fund their tax liabilities.
Our Holding Entities and operating businesses may be subject to local taxes in each of the relevant territories and jurisdictions
in which they operate, including taxes on income, profits or gains and withholding taxes. As a result, our company's cash available
for distribution is indirectly reduced by such taxes, and the post-tax return to our unitholders is similarly reduced by such taxes. We
intend for future acquisitions to be assessed on a case-by-case basis and, where possible and commercially viable, structured so as
to minimize any adverse tax consequences to our unitholders as a result of making such acquisitions.
In general, a unitholder that is subject to income tax in Canada or the United States must include in income its allocable
share of our company's items of income, gain, loss and deduction (including, so long as it is treated as a partnership for tax purposes,
our company's allocable share of those items of the Holding LP) for each of our company's fiscal years ending with or within such
unitholder's tax year. See Item 10.E., "Taxation—Certain Material Canadian Federal Income Tax Considerations" and Taxation—
Certain Material U.S. Federal Income Tax Considerations". However, the cash distributed to a unitholder may not be sufficient to
pay the full amount of such unitholder's tax liability in respect of its investment in our company, because each unitholder's tax liability
depends on such unitholder's particular tax situation and the tax treatment of the underlying activities or assets of our company. If
our company is unable to distribute cash in amounts that are sufficient to fund our unitholders' tax liabilities, each of our unitholders
will still be required to pay income taxes on its share of our company's taxable income.
Our unitholders may be subject to non-U.S., state and local taxes and return filing requirements as a result of owning
our units.
Based on our expected method of operation and the ownership of our operating businesses indirectly through corporate
Holding Entities, we do not expect any unitholder, solely as a result of owning our units, to be subject to any additional income taxes
imposed on a net basis or additional tax return filing requirements in any jurisdiction in which we conduct activities or own property.
However, our method of operation and current structure may change, and there can be no assurance that our unitholders, solely as a
result of owning our units, will not be subject to certain taxes, including non-U.S., state and local income taxes, unincorporated
business taxes and estate, inheritance or intangible taxes imposed by the various jurisdictions in which we do business or own property
now or in the future, even if our unitholders do not reside in any of these jurisdictions. Consequently, our unitholders may also be
required to file non-U.S., state and local income tax returns in some or all of these jurisdictions. Further, our unitholders may be
subject to penalties for failure to comply with these requirements. It is the responsibility of each unitholder to file all U.S. federal,
non-U.S., state and local tax returns that may be required of such unitholder.
Our unitholders may be exposed to transfer pricing risks.
To the extent that our company, the Holding LP, the Holding Entities or the operating businesses enter into transactions or
arrangements with parties with whom they do not deal at arm's length, including Brookfield, the relevant tax authorities may seek
to adjust the quantum or nature of the amounts received or paid by such entities if they consider that the terms and conditions of
such transactions or arrangements differ from those that would have been made between persons dealing at arm's length. This could
result in more tax (and penalties and interest) being paid by such entities, and therefore the return to investors could be reduced. For
Canadian tax purposes, a transfer pricing adjustment may in certain circumstances result in additional income being allocated to a
unitholder with no corresponding cash distribution or in a dividend being deemed to be paid by a Canadian-resident to a non-arm's
length non-resident, which deemed dividend is subject to Canadian withholding tax.
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The BBU General Partner believes that the base management fee and any other amount that is paid to the Service Providers
will be commensurate with the value of the services being provided by the Service Providers and comparable to the fees or other
amounts that would be agreed to in an arm's-length arrangement. However, no assurance can be given in this regard. If the relevant
tax authority were to assert that an adjustment should be made under the transfer pricing rules to an amount that is relevant to the
computation of the income of the Holding LP or our company, such assertion could result in adjustments to amounts of income
(or loss) allocated to our unitholders by our company for tax purposes. In addition, we might also be liable for transfer pricing
penalties in respect of transfer pricing adjustments unless reasonable efforts were made to determine, and use, arm's-length transfer
prices. Generally, reasonable efforts in this regard are only considered to be made if contemporaneous documentation has been
prepared in respect of such transactions or arrangements that support the transfer pricing methodology.
The U.S. Internal Revenue Service, or IRS, or Canada Revenue Agency, or CRA, may not agree with certain assumptions
and conventions that our company uses in order to comply with applicable U.S. and Canadian federal income tax laws or that
our company uses to report income, gain, loss, deduction and credit to our unitholders.
Our company will apply certain assumptions and conventions in order to comply with applicable tax laws and to report
income, gain, deduction, loss and credit to a unitholder in a manner that reflects such unitholder's beneficial ownership of partnership
items, taking into account variation in ownership interests during each taxable year because of trading activity. However, these
assumptions and conventions may not be in compliance with all aspects of the applicable tax requirements. A successful IRS or CRA
challenge to such assumptions or conventions could adversely affect the amount of tax benefits available to our unitholders and could
require that items of income, gain, deduction, loss, or credit, including interest deductions, be adjusted, reallocated or disallowed in
a manner that adversely affects our unitholders. See Item 10.E., "Taxation—Certain Material Canadian Federal Income Tax
Considerations" and "Taxation—Certain Material U.S. Federal Income Tax Considerations."
United States
If our company or the Holding LP were to be treated as a corporation for U.S. federal income tax purposes, the value
of our units might be adversely affected.
The value of our units to unitholders will depend in part on the treatment of our company and the Holding LP as partnerships
for U.S. federal income tax purposes. However, in order for our company to be treated as a partnership for U.S. federal income tax
purposes, 90% or more of our company's gross income for every taxable year must consist of qualifying income, as defined in
Section 7704 of the U.S. Internal Revenue Code of 1986, as amended, or the U.S. Internal Revenue Code, and our company must
not be required to register, if it were a U.S. corporation, as an investment company under the Investment Company Act and related
rules. Although the BBU General Partner intends to manage our company's affairs so that our company will not need to be registered
as an investment company if it were a U.S. corporation and so that it will meet the 90% test described above in each taxable year,
our company may not meet these requirements, or current law may change so as to cause, in either event, our company to be treated
as a corporation for U.S. federal income tax purposes. If our company (or the Holding LP) were treated as a corporation for U.S. federal
income tax purposes, adverse U.S. federal income tax consequences could result for our unitholders and our company (or the
Holding LP, as applicable), as described in greater detail in Item 10.E., "Taxation—Certain Material U.S. Federal Income Tax
Considerations—Partnership Status of Our Company and the Holding LP."
We may be subject to U.S. backup withholding tax or other U.S. withholding taxes if any unitholder fails to comply with
U.S. tax reporting rules or if the IRS or other applicable state or local taxing authority does not accept our withholding methodology,
and such excess withholding tax cost will be an expense borne by our company and, therefore, by all of our unitholders on a
pro rata basis.
We may become subject to U.S. "backup" withholding tax or other U.S. withholding taxes with respect to any unitholder
who fails to timely provide our company (or the applicable clearing agent or other intermediary) with an IRS Form W-9 or IRS
Form W-8, as the case may be, or if the withholding methodology we use is not accepted by the IRS or other applicable state or local
taxing authority. See Item 10.E., "Taxation—Certain Material U.S. Federal Income Tax Considerations—Administrative Matters—
Withholding and Backup Withholding". To the extent that any unitholder fails to timely provide the applicable form (or such form
is not properly completed), or should the IRS or other applicable state or local taxing authority not accept our withholding methodology,
our company might treat such U.S. backup withholding taxes or other U.S. withholding taxes as an expense, which would be borne
indirectly by all of our unitholders on a pro rata basis. As a result, our unitholders that fully comply with their U.S. tax reporting
obligations may bear a share of such burden created by other unitholders that do not comply with the U.S. tax reporting rules.
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Tax-exempt organizations may face certain adverse U.S. tax consequences from owning our units.
The BBU General Partner intends to use commercially reasonable efforts to structure the activities of our company and the
Holding LP, respectively, to avoid generating income connected with the conduct of a trade or business (which income generally
would constitute "unrelated business taxable income", or UBTI, to the extent allocated to a tax-exempt organization). However,
neither our company nor the Holding LP is prohibited from incurring indebtedness, and no assurance can be provided that neither
our company nor the Holding LP will generate UBTI attributable to debt-financed property in the future. In particular, UBTI includes
income attributable to debt-financed property, and neither our company nor the Holding LP is prohibited from financing the acquisition
of property with debt. The potential for income to be characterized as UBTI could make our units an unsuitable investment for a tax-
exempt organization. Each tax-exempt organization should consult its own tax adviser to determine the U.S. federal income tax
consequences of an investment in our units.
If our company were engaged in a U.S. trade or business, non-U.S. persons would face certain adverse U.S. tax
consequences from owning our units.
The BBU General Partner intends to use commercially reasonable efforts to structure the activities of our company and the
Holding LP to avoid generating income treated as effectively connected with a U.S. trade or business, including effectively connected
income attributable to the sale of a "United States real property interest", as defined in the U.S. Internal Revenue Code. If our company
were deemed to be engaged in a U.S. trade or business, or to realize gain from the sale or other disposition of a U.S. real property
interest, Non-U.S. Holders (as defined in Item 10.E., "Taxation—Certain Material U.S. Federal Income Tax Considerations")
generally would be required to file U.S. federal income tax returns and could be subject to U.S. federal withholding tax at the highest
marginal U.S. federal income tax rates applicable to ordinary income. If, contrary to expectation, our company were engaged in a
U.S. trade or business, then gain or loss from the sale of our units by a Non-U.S. Holder would be treated as effectively connected
with such trade or business to the extent that such Non-U.S. Holder would have had effectively connected gain or loss had our
company sold all of its assets at their fair market value as of the date of such sale. In such case, any such effectively connected gain
generally would be taxable at the regular graduated U.S. federal income tax rates, and the amount realized from such sale generally
would be subject to a 10% U.S. federal withholding tax. See Item 10.E., "Taxation—Certain Material U.S. Federal Income Tax
Considerations—Consequences to Non-U.S. Holders".
To meet U.S. federal income tax and other objectives, our company and the Holding LP may acquire assets through U.S.
and non-U.S. Holding Entities that are treated as corporations for U.S. federal income tax purposes, and such Holding Entities
may be subject to corporate income tax.
To meet U.S. federal income tax and other objectives, our company and the Holding LP may acquire assets through U.S.
and non-U.S. Holding Entities that are treated as corporations for U.S. federal income tax purposes, and such Holding Entities may
be subject to corporate income tax. Consequently, items of income, gain, loss, deduction or credit realized in the first instance by
the operating businesses will not flow, for U.S. federal income tax purposes, directly to the Holding LP, our company or our unitholders,
and any such income or gain may be subject to a corporate income tax, in the United States or other jurisdictions, at the level of the
Holding Entity. Any such additional taxes may adversely affect our company's ability to maximize its cash flow.
Our unitholders taxable in the United States may be viewed as holding an indirect interest in an entity classified as a
"passive foreign investment company" for U.S. federal income tax purposes.
U.S. Holders may face adverse U.S. tax consequences arising from the ownership of a direct or indirect interest in a "passive
foreign investment company", or PFIC. See Item 10.E., "Taxation—Certain Material U.S. Federal Income Tax Considerations—
Consequences to U.S. Holders—Passive Foreign Investment Companies". Based on our organizational structure, as well as our
expected income and assets, the BBU General Partner currently believes that a U.S. Holder is unlikely to be regarded as owning an
interest in a PFIC solely by reason of owning our units for the taxable year ending December 31, 2019. However, there can be no
assurance that a future entity in which our company acquires an interest will not be classified as a PFIC with respect to a U.S. Holder,
because PFIC status is a factual determination that depends on the assets and income of a given entity and must be made on an annual
basis. Each U.S. Holder should consult its own tax adviser regarding the implication of the PFIC rules for an investment in our units.
Tax gain or loss from the disposition of our units could be more or less than expected.
If a U.S. Holder sells units that it holds, then it generally will recognize gain or loss for U.S. federal income tax purposes
equal to the difference between the amount realized and its adjusted tax basis in such units. Prior distributions to a unitholder in
excess of the total net taxable income allocated to such unitholder will have decreased such unitholder's tax basis in our units.
Therefore, such excess distributions will increase a unitholder's taxable gain or decrease such unitholder's taxable loss when our
units are sold, and may result in a taxable gain even if the sale price is less than the original cost. A portion of the amount realized,
whether or not representing gain, could be ordinary income to such unitholder.
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Our company structure involves complex provisions of U.S. federal income tax law for which no clear precedent or
authority may be available. The tax characterization of our company structure is also subject to potential legislative, judicial, or
administrative change and differing interpretations, possibly on a retroactive basis.
The U.S. federal income tax treatment of our unitholders depends in some instances on determinations of fact and
interpretations of complex provisions of U.S. federal income tax law for which no clear precedent or authority may be available.
Unitholders should be aware that the U.S. federal income tax rules, particularly those applicable to partnerships, are constantly under
review by the Congressional tax-writing committees and other persons involved in the legislative process, the IRS, the Treasury
Department and the courts, frequently resulting in changes which could adversely affect the value of our units or cause our company
to change the way it conducts its activities. For example, changes to the U.S. federal tax laws and interpretations thereof could make
it more difficult or impossible for our company to be treated as a partnership that is not taxable as a corporation for U.S. federal
income tax purposes, change the character or treatment of portions of our company's income, reduce the net amount of distributions
available to our unitholders or otherwise affect the tax considerations of owning our units. In addition, our company's organizational
documents and agreements permit the BBU General Partner to modify our limited partnership agreement, without the consent of our
unitholders, to address such changes. These modifications could have a material adverse impact on our unitholders. See Item 10.E.,
"Taxation—Certain Material U.S. Federal
Income Tax Considerations—Administrative Matters—New Legislation or
Administrative or Judicial Action".
Our company's delivery of required tax information for a taxable year may be subject to delay, which could require a
unitholder who is a U.S. taxpayer to request an extension of the due date for such unitholder's income tax return.
Our company has agreed to use commercially reasonable efforts to provide U.S. tax information (including IRS Schedule K-1
information needed to determine a unitholder's allocable share of our company's income, gain, losses and deductions) no later than
90 days after the close of each calendar year. However, providing this U.S. tax information to our unitholders will be subject to delay
in the event of, among other reasons, the late receipt of any necessary tax information from lower-tier entities. It is therefore possible
that, in any taxable year, a unitholder will need to apply for an extension of time to file such unitholder's tax returns. In addition,
unitholders that do not ordinarily have U.S. federal tax filing requirements will not receive a Schedule K-1 and related information
unless such unitholders request it within 60 days after the close of each calendar year. See Item 10.E., "Taxation—Certain Material
U.S. Federal Income Tax Considerations—Administrative Matters—Information Returns and Audit Procedures".
If the IRS makes an audit adjustment to our income tax returns, it may assess and collect any taxes (including penalties
and interest) resulting from such audit adjustment directly from us, which could adversely affect our unitholders.
For taxable years beginning after December 31, 2017, if the IRS makes an audit adjustment to our income tax returns, it
may assess and collect any taxes (including penalties and interest) resulting from such audit adjustment directly from our company
instead of unitholders (as under prior law). We may be permitted to elect to have the BBU General Partner and our unitholders take
such audit adjustment into account in accordance with their interests in us during the taxable year under audit. However, there can
be no assurance that we will choose to make such election or that it will be available in all circumstances. If we do not make the
election, we may be required pay taxes, penalties or interest as a result of an audit adjustment. As a result, our current unitholders
might bear some or all of the cost of the tax liability resulting from such audit adjustment, even if our current unitholders did not
own our units during the taxable year under audit. The foregoing considerations also apply with respect to our company's interest in
the Holding LP.
Under the Foreign Account Tax Compliance provisions of the Hiring Incentives to Restore Employment Act of 2010, or
FATCA, certain payments made or received by our company may be subject to a 30% federal withholding tax, unless certain
requirements are met.
Under FATCA, a 30% withholding tax may apply to certain payments of U.S.-source income made to our company, the
Holding LP, the Holding Entities or the operating businesses, or by our company to a unitholder, unless certain requirements are met,
as described in greater detail in Item 10.E., "Taxation—Certain Material U.S. Federal Income Tax Considerations—Administrative
Matters—Foreign Account Tax Compliance". To ensure compliance with FATCA, information regarding certain unitholders'
ownership of our units may be reported to the IRS or to a non-U.S. governmental authority. Unitholders should consult their own
tax advisers regarding the consequences under FATCA of an investment in our units.
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The effect of comprehensive U.S. tax reform legislation on our company and unitholders, whether adverse or favorable,
is uncertain.
U.S. federal income tax reform legislation known as the "Tax Cuts and Jobs Act", which was signed into law on December
22, 2017, has resulted in fundamental changes to the U.S. Internal Revenue Code. Among such changes, the Tax Cuts and Jobs Act
reduces the marginal U.S. corporate income tax rate from 35% to 21%, limits the deduction for net interest expense, shifts the United
States toward a modified territorial tax system, and imposes new taxes to combat erosion of the U.S. federal income tax base. The
effect of the Tax Cuts and Jobs Act on our company, the Holding LP, the Holding Entities, the operating businesses, and unitholders,
whether adverse or favorable, is uncertain, and may not become evident for some period of time. Unitholders are urged to consult
their own tax advisers regarding the implications of the Tax Cuts and Jobs Act for an investment in our units.
Canada
If the subsidiaries that are corporations (the “Non-Resident Subsidiaries”) and that are not resident or deemed to be
resident in Canada for purposes of the Income Tax Act (Canada) (together with the regulations thereunder, the “Tax Act”) and
that are “controlled foreign affiliates” (as defined in the Tax Act and referred to herein as “CFAs”) in which the Holding LP
directly holds an equity interest earn income that is “foreign accrual property income" (as defined in the Tax Act and referred
to herein as “FAPI”), our unitholders may be required to include amounts allocated from our company in computing their income
for Canadian federal income tax purposes even though there may be no corresponding cash distribution.
Any of the Non-Resident Subsidiaries in which the Holding LP directly holds an equity interest are expected to be CFAs
of the Holding LP. If any CFA of the Holding LP or any direct or indirect subsidiary thereof that is itself a CFA of the Holding LP
(an "Indirect CFA"), earns income that is characterized as FAPI in a particular taxation year of the CFA or Indirect CFA, the FAPI
allocable to the Holding LP must be included in computing the income of the Holding LP for Canadian federal income tax purposes
for the fiscal period of the Holding LP in which the taxation year of that CFA or Indirect CFA ends, whether or not the Holding LP
actually receives a distribution of that FAPI. Our company will include its share of such FAPI of the Holding LP in computing its
income for Canadian federal income tax purposes and our unitholders will be required to include their proportionate share of such
FAPI allocated from our company in computing their income for Canadian federal income tax purposes. As a result, our unitholders
may be required to include amounts in their income for Canadian federal income tax purposes even though they have not and may
not receive an actual cash distribution of such amounts. The Tax Act contains anti-avoidance rules to address certain foreign tax
credit generator transactions (the "Foreign Tax Credit Generator Rules"). Under the Foreign Tax Credit Generator Rules, the
"foreign accrual tax", as defined in the Tax Act, applicable to a particular amount of FAPI included in the Holding LP's income in
respect of a particular "foreign affiliate", as defined in the Tax Act, of the Holding LP may be limited in certain specified circumstances.
See Item 10.E., "Taxation—Certain Material Canadian Federal Income Tax Considerations".
The Canadian federal income tax consequences to our unitholders could be materially different in certain respects from
those described in this Form 20-F if our company or the Holding LP is a "SIFT partnership" as defined in the Tax Act.
Under the rules in the Tax Act applicable to a "SIFT partnership" (the "SIFT Rules"), certain income and gains earned by
a "SIFT partnership" will be subject to income tax at the partnership level at a rate similar to a corporation, and allocations of such
income and gains to its partners will be taxed as a dividend from a "taxable Canadian corporation" as defined in the Tax Act. In
particular, a "SIFT partnership" will be required to pay a tax on the total of its income from businesses carried on in Canada, income
from "non-portfolio properties" as defined in the Tax Act other than taxable dividends, and taxable capital gains from dispositions
of "non-portfolio properties". "Non-portfolio properties" include, among other things, equity interests or debt of corporations, trusts
or partnerships that are resident in Canada, and of non-resident persons or partnerships the principal source of income of which is
one or any combination of sources in Canada (other than a "portfolio investment entity" as defined in the Tax Act), that are held by
the "SIFT partnership" and have a fair market value that is greater than 10% of the equity value of such entity, or that have, together
with debt or equity that the "SIFT partnership" holds of entities affiliated (within the meaning of the Tax Act) with such entity, an
aggregate fair market value that is greater than 50% of the equity value of the "SIFT partnership". The tax rate that is applied to the
above mentioned sources of income and gains is set at a rate equal to the "net corporate income tax rate", plus the "provincial SIFT
tax rate", each as defined in the Tax Act.
A partnership will be a "SIFT partnership" throughout a taxation year if at any time in the taxation year (i) it is a "Canadian
resident partnership" as defined in the Tax Act, (ii) "investments", as defined in the Tax Act, in the partnership are listed or traded
on a stock exchange or other public market and (iii) it holds one or more "non-portfolio properties". For these purposes, a partnership
will be a "Canadian resident partnership" at a particular time if (a) it is a "Canadian partnership" as defined in the Tax Act at that
time, (b) it would, if it were a corporation, be resident in Canada (including, for greater certainty, a partnership that has its central
management and control located in Canada) or (c) it was formed under the laws of a province. A "Canadian partnership" for these
purposes is a partnership all of whose members are resident in Canada or are partnerships that are "Canadian partnerships".
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Under the SIFT Rules, our company and the Holding LP could each be a "SIFT partnership" if it is a "Canadian resident
partnership". However, the Holding LP would not be a "SIFT partnership" if our company is a "SIFT partnership" regardless of
whether the Holding LP is a "Canadian resident partnership" on the basis that the Holding LP would be an "excluded subsidiary
entity" as defined in the Tax Act. Our company and the Holding LP will be a "Canadian resident partnership" if the central management
and control of these partnerships is located in Canada. This determination is a question of fact and is expected to depend on where
the BBU General Partner is located and exercises central management and control of the respective partnerships. Based on the place
of its incorporation, governance and activities, the BBU General Partner does not expect that its central management and control
will be located in Canada such that the SIFT Rules should not apply to our company or to the Holding LP at any relevant time.
However, no assurance can be given in this regard. If our company or the Holding LP is a "SIFT partnership", the Canadian federal
income tax consequences to our unitholders could be materially different in certain respects from those described in Item 10.E.,
"Taxation—Certain Material Canadian Federal Income Tax Considerations". In addition, there can be no assurance that the SIFT
Rules will not be revised or amended in the future such that the SIFT Rules will apply.
Unitholders may be required to include imputed amounts in their income for Canadian federal income tax purposes in
accordance with section 94.1 of the Tax Act.
Section 94.1 of the Tax Act contains rules relating to interests in entities that are not resident or deemed to be resident in
Canada for purposes of the Tax Act or not situated in Canada, other than a CFA of the taxpayer (the "Non-Resident Entities"), that
could in certain circumstances cause income to be imputed to unitholders for Canadian federal income tax purposes, either directly
or by way of allocation of such income imputed to our company or to the Holding LP. See Item 10.E., "Taxation—Certain Material
Canadian Federal Income Tax Considerations."
Our units may or may not continue to be "qualified investments" under the Tax Act for registered plans.
Provided that our units are listed on a "designated stock exchange" as defined in the Tax Act (which currently includes the
NYSE and the TSX), our units will be "qualified investments" under the Tax Act for a trust governed by a registered retirement
savings plan ("RRSP"), deferred profit sharing plan, registered retirement income fund ("RRIF"), registered education savings plan
("RESP"), registered disability savings plan ("RDSP") and a tax-free savings account ("TFSA"), each as defined in the Tax Act.
However, there can be no assurance that our units will continue to be listed on a "designated stock exchange". There can also be no
assurance that tax laws relating to "qualified investments" will not be changed. Taxes may be imposed in respect of the acquisition
or holding of non-qualified investments by such registered plans and certain other taxpayers and with respect to the acquisition or
holding of "prohibited investments" as defined in the Tax Act by an RRSP, RRIF, TFSA, RDSP or RESP.
Generally, our units will not be a "prohibited investment" for a trust governed by an RRSP, RRIF, TFSA, RDSP or RESP,
provided that the annuitant under the RRSP or RRIF, the holder of the TFSA or RDSP or the subscriber of the RESP, as the case may
be, deals at arm's length with our company for purposes of the Tax Act and does not have a "significant interest", as defined in the
Tax Act for purposes of the prohibited investment rules, in our company. Unitholders who hold our units in an RRSP, RRIF, TFSA,
RDSP or RESP should consult with their own tax advisors regarding the application of the foregoing prohibited investment rules
having regard to their particular circumstances.
Unitholders' foreign tax credits for Canadian federal income tax purposes will be limited if the Foreign Tax Credit
Generator Rules apply in respect of the foreign "business-income tax" or "non-business-income tax", each as defined in the
Tax Act, paid by our company or the Holding LP to a foreign country.
Under the Foreign Tax Credit Generator Rules, the foreign "business-income tax" or "non-business-income tax" for Canadian
federal income tax purposes for any taxation year may be limited in certain circumstances. If the Foreign Tax Credit Generator Rules
apply, the allocation to a unitholder of foreign "business-income tax" or "non-business-income tax" paid by our company or the
Holding LP, and therefore, such unitholder's foreign tax credits for Canadian federal income tax purposes, will be limited. See
Item 10.E., "Taxation—Certain Material Canadian Federal Income Tax Considerations".
Unitholders who are not and are not deemed to be resident in Canada for purposes of the Tax Act and who do not use
or hold, and are not deemed to use or hold, their units of our company in connection with a business carried on in Canada (“Non-
Canadian Limited Partners”), may be subject to Canadian federal income tax with respect to any Canadian source business
income earned by our company or the Holding LP if our company or the Holding LP were considered to carry on business
in Canada.
If our company or the Holding LP were considered to carry on business in Canada for purposes of the Tax Act, Non-Canadian
Limited Partners would be subject to Canadian federal income tax on their proportionate share of any Canadian source business
income earned or considered to be earned by our company, subject to the potential application of the safe harbour rule in section 115.2
of the Tax Act and any relief that may be provided by any relevant income tax treaty or convention.
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The BBU General Partner intends to manage the affairs of our company and the Holding LP, to the extent possible, so that
they do not carry on business in Canada and are not considered or deemed to carry on business in Canada for purposes of the Tax Act.
Nevertheless, because the determination of whether our company or the Holding LP is carrying on business and, if so, whether that
business is carried on in Canada, is a question of fact that is dependent upon the surrounding circumstances, the CRA might contend
successfully that either or both of our company and the Holding LP carries on business in Canada for purposes of the Tax Act.
If our company or the Holding LP is considered to carry on business in Canada or is deemed to carry on business in Canada
for the purposes of the Tax Act, Non-Canadian Limited Partners that are corporations would be required to file a Canadian federal
income tax return for each taxation year in which they are a Non-Canadian Limited Partner regardless of whether relief from Canadian
taxation is available under an applicable income tax treaty or convention. Non-Canadian Limited Partners who are individuals would
only be required to file a Canadian federal income tax return for any taxation year in which they are allocated income from our
company from carrying on business in Canada that is not exempt from Canadian taxation under the terms of an applicable income
tax treaty or convention.
Non-Canadian Limited Partners may be subject to Canadian federal income tax on capital gains realized by our company
or the Holding LP on dispositions of "taxable Canadian property" as defined in the Tax Act.
A Non-Canadian Limited Partner will be subject to Canadian federal income tax on its proportionate share of capital gains
realized by our company or the Holding LP on the disposition of "taxable Canadian property" other than "treaty protected property"
as defined in the Tax Act. "Taxable Canadian property" includes, but is not limited to, property that is used or held in a business
carried on in Canada and shares of corporations that are not listed on a "designated stock exchange" if more than 50% of the fair
market value of the shares is derived from certain Canadian properties during the 60-month period immediately preceding the
particular time. Property of our company and the Holding LP generally will be "treaty-protected property" to a Non-Canadian Limited
Partner if the gain from the disposition of the property would, because of an applicable income tax treaty or convention, be exempt
from tax under the Tax Act. The BBU General Partner does not expect our company and the Holding LP to realize capital gains or
losses from dispositions of "taxable Canadian property". However, no assurance can be given in this regard. Non-Canadian Limited
Partners will be required to file a Canadian federal income tax return in respect of a disposition of "taxable Canadian property" by
our company or the Holding LP unless the disposition is an "excluded disposition" for the purposes of section 150 of the Tax Act.
However, Non-Canadian Limited Partners that are corporations will still be required to file a Canadian federal income tax return in
respect of a disposition of "taxable Canadian property" that is an "excluded disposition" for the purposes of section 150 of the Tax Act
if tax would otherwise be payable under Part I of the Tax Act by such Non-Canadian Limited Partners in respect of the disposition
but is not because of an applicable income tax treaty or convention (otherwise than in respect of a disposition of "taxable Canadian
property" that is "treaty-protected property" of the corporation). In general, an "excluded disposition" is a disposition of property by
a taxpayer in a taxation year where: (a) the taxpayer is a non-resident of Canada at the time of the disposition; (b) no tax is payable
by the taxpayer under Part I of the Tax Act for the taxation year; (c) the taxpayer is not liable to pay any amounts under the Tax Act
in respect of any previous taxation year (other than certain amounts for which the CRA holds adequate security); and (d) each "taxable
Canadian property" disposed of by the taxpayer in the taxation year is either: (i) "excluded property" as defined in subsection 116
(6) of the Tax Act; or (ii) property in respect of the disposition of which a certificate under subsection 116(2), (4) or (5.2) of the
Tax Act has been issued by the CRA. Non-Canadian Limited Partners should consult their own tax advisors with respect to the
requirements to file a Canadian federal income tax return in respect of a disposition of "taxable Canadian property" by our company
or the Holding LP.
Non-Canadian Limited Partners may be subject to Canadian federal income tax on capital gains realized on the
disposition of our units if our units are "taxable Canadian property".
Any capital gain arising from the disposition or deemed disposition of our units by a Non-Canadian Limited Partner will
be subject to taxation in Canada, if, at the time of the disposition or deemed disposition, our units are "taxable Canadian property"
of the Non-Canadian Limited Partner, unless our units are "treaty-protected property" to such Non-Canadian Limited Partner. In
general, our units will not constitute "taxable Canadian property" of any Non-Canadian Limited Partner at the time of disposition or
deemed disposition, unless (a) at any time in the 60-month period immediately preceding the disposition or deemed disposition,
more than 50% of the fair market value of our units was derived, directly or indirectly (excluding through a corporation, partnership
or trust, the shares or interests in which were not themselves "taxable Canadian property"), from one or any combination of: (i) real
or immovable property situated in Canada; (ii) "Canadian resource properties" as defined in the Tax Act; (iii) "timber resource
properties" as defined in the Tax Act; and (iv) options in respect of, or interests in, or for civil law rights in, such property, whether
or not such property exists, or (b) our units are otherwise deemed to be "taxable Canadian property". Since our company's assets will
consist principally of units of the Holding LP, our units would generally be "taxable Canadian property" at a particular time if the
units of the Holding LP held by our company derived, directly or indirectly (excluding through a corporation, partnership or trust,
the shares or interests in which were not themselves "taxable Canadian property"), more than 50% of their fair market value from
properties described in (i) to (iv) above, at any time in the 60-month period preceding the particular time. The BBU General Partner
does not expect our units to be "taxable Canadian property" of any Non-Canadian Limited Partner at any time but no assurance can
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be given in this regard. See Item 10.E., "Taxation—Certain Material Canadian Federal Income Tax Considerations". Even if our
units constitute "taxable Canadian property", units of our company will be "treaty protected property" if the gain on the disposition
of our units is exempt from tax under the Tax Act under the terms of an applicable income tax treaty or convention. If our units
constitute "taxable Canadian property", Non-Canadian Limited Partners will be required to file a Canadian federal income tax return
in respect of a disposition of our units unless the disposition is an "excluded disposition" (as discussed above). If our units constitute
"taxable Canadian property", Non-Canadian Limited Partners should consult their own tax advisors with respect to the requirement
to file a Canadian federal income tax return in respect of a disposition of our units.
Non-Canadian Limited Partners may be subject to Canadian federal income tax reporting and withholding tax
requirements on the disposition of "taxable Canadian property".
Non-Canadian Limited Partners who dispose of "taxable Canadian property", other than "excluded property" and certain
other property described in subsection 116(5.2) of the Tax Act, (or who are considered to have disposed of such property on the
disposition of such property by our company or the Holding LP), are obligated to comply with the procedures set out in section 116
of the Tax Act and obtain a certificate pursuant to the Tax Act. In order to obtain such certificate, the Non-Canadian Limited Partner
is required to report certain particulars relating to the transaction to CRA not later than 10 days after the disposition occurs. The BBU
General Partner does not expect our units to be "taxable Canadian property" of any Non-Canadian Limited Partner and does not
expect our company or the Holding LP to dispose of property that is "taxable Canadian property" but no assurance can be given in
these regards.
Payments of dividends or interest (other than interest not subject to Canadian federal withholding tax) by residents of
Canada to the Holding LP will be subject to Canadian federal withholding tax and we may be unable to apply a reduced rate
taking into account the residency or entitlement to relief under an applicable income tax treaty or convention of our unitholders.
Our company and the Holding LP will each be deemed to be a non-resident person in respect of certain amounts paid or
credited or deemed to be paid or credited to them by a person resident or deemed to be resident in Canada, including dividends or
interest. Dividends or interest (other than interest not subject to Canadian federal withholding tax) paid or deemed to be paid by a
person resident or deemed to be resident in Canada to the Holding LP will be subject to withholding tax under Part XIII of the Tax Act
at the rate of 25%. However, the CRA's administrative practice in similar circumstances is to permit the rate of Canadian federal
withholding tax applicable to such payments to be computed by looking through the partnership and taking into account the residency
of the partners (including partners who are resident in Canada) and any reduced rates of Canadian federal withholding tax that any
non-resident partners may be entitled to under an applicable income tax treaty or convention, provided that the residency status and
entitlement to treaty benefits can be established. In determining the rate of Canadian federal withholding tax applicable to amounts
paid by the Holding Entities to the Holding LP, the BBU General Partner expects the Holding Entities to look-through the Holding LP
and our company to the residency of the partners of our company (including partners who are resident in Canada) and to take into
account any reduced rates of Canadian federal withholding tax that non-resident partners may be entitled to under an applicable
income tax treaty or convention in order to determine the appropriate amount of Canadian federal withholding tax to withhold from
dividends or interest paid to the Holding LP. However, there can be no assurance that the CRA will apply its administrative practice
in this context. If the CRA's administrative practice is not applied and the Holding Entities withhold Canadian federal withholding
tax from applicable payments on a look-through basis, the Holding Entities may be liable for additional amounts of Canadian federal
withholding tax plus any associated interest and penalties. Under the Canada—United States Tax Convention (1980) (the "Treaty"),
a Canadian resident payer is required in certain circumstances to look-through fiscally transparent partnerships, such as our company
and the Holding LP, to the residency and Treaty entitlements of their partners and take into account the reduced rates of Canadian
federal withholding tax that such partners may be entitled to under the Treaty.
While the BBU General Partner expects the Holding Entities to look-through our company and the Holding LP in determining
the rate of Canadian federal withholding tax applicable to amounts paid or deemed to be paid by the Holding Entities to the Holding LP,
we may be unable to accurately or timely determine the residency of our unitholders for purposes of establishing the extent to which
Canadian federal withholding taxes apply or whether reduced rates of withholding tax apply to some or all of our unitholders. In
such a case, the Holding Entities will withhold Canadian federal withholding tax from all payments made to the Holding LP that are
subject to Canadian federal withholding tax at the rate of 25%. Canadian resident unitholders will be entitled to claim a credit for
such taxes against their Canadian federal income tax liability but Non-Canadian Limited Partners will need to take certain steps to
receive a refund or credit in respect of any such Canadian federal withholding taxes withheld equal to the difference between the
withholding tax at a rate of 25% and the withholding tax at the reduced rate they are entitled to under an applicable income tax treaty
or convention. See Item 10.E., "Taxation—Certain Material Canadian Federal Income Tax Considerations" for further detail.
Unitholders should consult their own tax advisors concerning all aspects of Canadian federal withholding taxes.
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ITEM 4. INFORMATION ON OUR COMPANY
4.A. HISTORY AND DEVELOPMENT OF OUR COMPANY
Our company was established on January 18, 2016 as a Bermuda exempted limited partnership registered under the Bermuda
Limited Partnership Act 1883, as amended, and the Bermuda Exempted Partnerships Act 1992, as amended. Our head and registered
office is 73 Front Street, 5th Floor, Hamilton HM 12, Bermuda, and our telephone number is +441 294 3309. Our units are listed on
the NYSE and the TSX under the symbols "BBU" and "BBU.UN", respectively.
We were established by Brookfield Asset Management as its primary vehicle to own and operate business services and
industrial operations on a global basis. On June 20, 2016, Brookfield Asset Management completed the spin-off of its business
services and industrial operations to our company, which was effected by way of a special dividend of units of our company to holders
of Brookfield Asset Management's Class A and B limited voting shares. Each holder of the shares received one unit for every 50 shares,
representing approximately 45% of our units, with Brookfield retaining the remaining units. Prior to the spin-off, Brookfield effected
a reorganization so that our then-current operations are held by the Holding Entities, the common shares of which are wholly-owned
by Holding LP. In consideration, Brookfield received a combination of our units, general partnership units, redemption-exchange
units of the Holding LP and Special LP Units. Brookfield currently owns 68% of our company on a fully exchanged basis. BBU
General Partner, our general partner, is an indirect wholly-owned subsidiary of Brookfield Asset Management. In addition, wholly-
owned subsidiaries of Brookfield Asset Management provide management services to us pursuant to our Master Services Agreement.
Recent Business Developments
The following table outlines significant transactions and events that transpired in our business during or after the year:
Date
January 2018
Segment
Business
Services
Event
On January 23, 2018, together with institutional partners, we closed our transaction with Ontario
Lottery and Gaming Corporation, in partnership with our gaming partner, to operate and manage
three entertainment facilities in the Greater Toronto Area ("One Toronto"). Our share of the equity
investment attributable to unitholders was approximately C$8 million for an approximate 13%
ownership interest in the business.
February
2018
Industrial
Operations
On February 15, 2018, our graphite electrode manufacturing business ("GrafTech") obtained $1.5
billion of senior secured term loan financing and used approximately $400 million of the proceeds
to pay down existing debt and distributed the balance of approximately $1.1 billion to its
shareholders. Approximately $380 million of the distribution was attributable to unitholders.
Business
Services
On February 1, 2018, through our facilities management business, BGIS, we completed a tuck-
in acquisition, acquiring an 85% interest in Critical Solutions Group and Critical Power Testing
and Maintenance for $4 million attributable to us.
April 2018
Industrial
Operations
In April 2018, GrafTech completed an initial public offering, including a partial exercise by the
underwriters of the over-allotment option for approximately 13% of the company at $15 per share.
The offering generated gross proceeds of $571 million, or $197 million attributable to unitholders.
Business
Services
In April 2018, we disposed of our 33% ownership interest in a joint venture of our real estate
brokerage services business which resulted in a net gain to the partnership of $46 million.
May 2018
Industrial
Operations
On May 15, 2018, together with institutional partners, we closed the acquisition of Schoeller
Allibert for a 70% controlling interest. Schoeller Allibert is a manufacturer of returnable plastic
packaging systems. The share of the equity investment attributable to unitholders was
approximately $45 million, representing an approximate 14% economic interest in the business.
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July 2018
Infrastructure
Services
August 2018
Infrastructure
Services
September
2018
Business
Services
In July 2018, Teekay Offshore completed a $500 million bond offering, enabling the company
to substantially extend its debt maturities. The partnership subscribed for $226 million of this
bond, utilizing cash on hand. Concurrently, we converted a $200 million promissory note ($84
million at our share) due to us from Teekay Offshore into the same series of bonds. This note was
bought by us for $140 million when we recapitalized Teekay Offshore.
On July 3, 2018, together with institutional partners, the partnership exercised its general partner
option to acquire control of Teekay Offshore GP. As a result, our interest in Teekay Offshore GP
increased from 49% to 51% and the partnership has consolidated Teekay Offshore GP and Teekay
Offshore. Prior to July 3, 2018, the partnership, together with institutional partners, owned a 60%
economic interest in Teekay Offshore which was accounted for using the equity method, and a
49% voting interest in Teekay Offshore GP.
On August 1, 2018, together with institutional partners, we closed the acquisition of Westinghouse
Electric Company ("Westinghouse") for a purchase price of approximately $4 billion. The
transaction was funded with approximately $920 million of equity, of which the partnership
funded approximately $405 million for a 44% ownership interest, and the balance of equity was
provided by institutional partners. The remaining capital was funded with approximately $3.1
billion of long-term financing.
On September 4, 2018, together with institutional partners, we reached an agreement to acquire
a 55% controlling interest in Ouro Verde Locação e Seviços S.A. ("Ouro Verde"), a leading
Brazilian heavy equipment and light vehicle fleet management company. The terms of the
agreement were amended in March 2019, whereby the partnership, together with institutional
partners agreed to acquire a 100% controlling interest in Ouro Verde. Closing of the transaction
remains subject to certain closing conditions and is expected to occur in the second quarter of
2019.
October 2018
Business
Services
On October 1, 2018, together with institutional partners, we closed the acquisition of a 50.1%
controlling interest in Imagine Communications Group Limited ("Imagine"), a provider of high
speed fixed wireless broadband in rural Ireland. The partnership will have a 30% ownership
interest.
Corporate
and Other
On October 19, 2018, together with institutional partners, we finalized a $240 million senior
secured term loan to Cardone Industries ("Cardone"), of which the partnership funded
approximately $30 million.
November
2018
Industrial
Operations
On November 13, 2018, together with institutional partners and Caisse de dépôt et placement du
Québec ("CDPQ"), we reached a definitive agreement to acquire 100% of Johnson Control's
Power Solutions business for approximately $13.2 billion. The transaction is expected to be funded
with approximately $3 billion of equity and approximately $10.2 billion of long-term financing.
CDPQ has committed to fund approximately 30% of the equity on closing, and the balance will
be funded by other institutional partners. The partnership expects to fund approximately $750
million of the equity from existing liquidity. Prior to or following closing, a portion of the
partnership's commitment may be syndicated to other institutional investors. Closing of the
transaction remains subject to customary closing conditions and is expected to occur by June 30,
2019.
Industrial
Operations
On November 26, 2018, together with institutional partners, we completed the sale of Quadrant
Energy ("Quadrant") to Santos Limited for US$2.15 billion. The partnership's share of the net
proceeds from the sale was $130 million after taxes.
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January 2019
Business
Services
On January 31, 2019, together with institutional partners, we reached an agreement to acquire up
to 100% of Healthscope Limited ("Healthscope") for approximately US$4.1 billion. Healthscope
is the second largest private hospital operator in Australia and the largest pathology services
provider in New Zealand. The transaction will be funded with up to $1.0 billion of equity, $1.4
billion of long-term financing and $1.7 billion from the sale and long-term leaseback of 22 wholly-
owned freehold hospital properties. The partnership expects to fund approximately $250 million
of the equity, with the balance being funded by institutional partners. Prior to or following closing,
a portion of Brookfield Business Partners' commitment may be syndicated to other institutional
investors. Closing of the transaction remains subject to customary closing conditions including
regulatory approvals. Closing is expected to occur in the second quarter of 2019.
March 2019
Business
Services
On March 11, 2019, together with institutional partners, we announced an agreement to sell BGIS,
a leading global provider of facilities management services to CCMP Capital Advisors, LP for
approximately $1 billion. The partnership's share of the proceeds from the sale are approximately
$180 million, after taxes. Closing of the transaction remains subject to customary closing
conditions and is expected to occur in the second quarter of 2019.
Consistent with our company's strategy and in the normal course of business, we are engaged in discussions, and have in
place various binding and/or non-binding agreements, with respect to possible business acquisitions and dispositions. However, there
can be no assurance that these discussions or agreements will result in a transaction or, if they do, what the final terms or timing of
such transactions would be. Our company expects to continue current discussions and actively pursue these and other acquisitions
and disposition opportunities.
For a description of our principal capital expenditures in the last three fiscal years by segment, see Item 5.A, ‘‘Operating
Results’’.
4.B. BUSINESS OVERVIEW
Overview
We are a business services and industrials company, focused on owning and operating high-quality businesses that are either
low-cost producers and/or benefit from high barriers to entry. We are Brookfield's primary vehicle for business services and industrial
operations. Our principal business services include providing infrastructure services to the power generation industry and to the
offshore oil production industry, construction services, residential real estate services, facilities management, and road fuel distribution
and marketing. Our principal industrial operations are comprised of natural gas exploration and production, palladium and aggregates
mining, the production of graphite electrodes, and water and wastewater services.
We have four operating segments which are organized based on how management views business activities within particular
sectors:
i. Business services, including road fuel distribution and marketing, facilities management, residential real estate services,
logistics, financial advisory, entertainment, wireless broadband and construction services;
ii.
Infrastructure services, which includes a global provider of services to the power generation industry and a service provider
to the offshore oil production industry;
iii. Industrial operations, including mining, manufacturing, water and wastewater services, and natural gas exploration and
production; and
iv. Corporate and other, which includes corporate cash and liquidity management, and activities related to the management of
the partnership's relationship with Brookfield.
Periodically we review the organizational and governance structure of our businesses. In connection with the acquisition
of Westinghouse and the disposition of our Australian energy operation, we have realigned the organizational and governance structure
of our businesses and have changed how the partnership evaluates financial information for management decision making which
has resulted in a change in our operating segments, as detailed above.
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Our construction services segment and business services segment are presented as a single operating segment called business
services. Infrastructure services is a new operating segment, which includes our investments in Westinghouse and Teekay Offshore.
The energy segment has been eliminated and the remainder of our energy businesses are evaluated with and presented within our
industrial operations segment. The partnership has retrospectively applied these segment changes for all periods presented.
The tables below provide a breakdown of total assets of $27.3 billion as at December 31, 2018 and revenue of $37.2 billion for
the year ended December 31, 2018 by operating segment and region.
Operating Segments
(US$ Millions)
Business Services
Infrastructure Services
Industrial Operations
Corporate and Other
Total
Region
(US$ Millions)
Brazil
Canada
United Kingdom
Australia
United States of America
Europe
Middle East
Other
Total
Assets
As at
December 31, 2018
Revenue
For the year ended
December 31, 2018
7,613
$
11,640
7,650
415
27,318
$
30,847
2,418
3,896
7
37,168
Assets
As at
December 31, 2018
Revenue
For the year ended
December 31, 2018
4,743
$
4,277
4,611
1,178
5,704
5,140
923
742
27,318
$
1,736
4,691
21,983
2,961
1,772
2,909
443
673
37,168
$
$
$
$
We seek to build value through enhancing the cash flows of our businesses, pursuing an operations-oriented acquisition
strategy and opportunistically recycling capital generated from operations and dispositions into our existing platforms, new
acquisitions and investments. We look to ensure that each of our businesses has a clear, concise business strategy built on its competitive
advantages, while focusing on profitability, sustainable operating, product margins and cash flows.
We plan to grow by acquiring positions of control or significant influence in businesses at attractive valuations and by
enhancing earnings of the businesses we operate. In addition to pursuing accretive acquisitions within our current platforms, we will
opportunistically pursue transactions to build new platforms or make investments wherein our expertise, or the broader Brookfield
platforms, provide insight into global demand for goods to source acquisitions that are not available or obvious to competitors. We
may partner with others, primarily institutional capital, to make acquisitions that we may not otherwise be able to make on our own.
Accordingly, an integral part of our strategy is to participate with institutional investors in Brookfield-sponsored or co-sponsored
consortiums for single asset acquisitions and as a partner in or alongside Brookfield-sponsored or co-sponsored partnerships that
target acquisitions that suit our profile. Brookfield has a strong track record of leading such consortiums and partnerships and actively
managing underlying assets to improve performance. Brookfield has agreed that it will not sponsor such arrangements that are suitable
for us in the business services and industrial operations sectors unless we are given an opportunity to participate. See Item 7.B.
"Related Party Transactions—Relationship Agreement".
Brookfield Business Partners
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Business Services
Our business services principally provide services relating to facilities management, road fuel distribution and marketing,
residential real estate, logistics, financial advisory, entertainment, wireless broadband and construction services wherein the broader
Brookfield platform provides a competitive advantage. Our focus is on building high-quality platforms benefiting from barriers to
entry through scale and predictable, recurring cash flows and where quality of service and/or a global footprint are competitive
differentiators. In keeping with our overall strategy, we seek to pursue accretive acquisitions to grow our existing platforms and
create new ones and to opportunistically make investments where our operating footprint provides us with an advantage in doing so.
Our business services are typically defined by medium to long-term contracts, which include the services to be performed
and the margin to be earned to perform such services. While we still retain overall timing, volume of services and performance risks,
there is limited risk to the actual margin earned to provide the services. Some of our business services activities are seasonal in nature
and affected by the general level of economic activity and related volume of services purchased by our clients.
Many of our clients consist of corporations and government agencies. These customers are often large credit-worthy
counterparties thereby reducing risks to cash flow streams. The goodwill that we have created with our customers gives us the ability
to generate future business through the cross-selling of other services, particularly in connection with global clients, where consistency
of performance on a global basis is important.
The table below provides a breakdown of revenues for our business services segment by region:
(US$ Millions)
Brazil
Canada
United Kingdom
Australia
United States of America
Europe
Middle East
Other
Total
Year Ended December 31,
2018
2017
2016
$
679
$
672
$
3,797
21,764
2,937
482
706
434
48
2,453
13,626
2,884
451
—
590
198
1
1,102
1,439
2,490
500
—
732
129
$
30,847
$
20,874
$
6,393
Road Fuel Distribution and Marketing
We are a provider of road fuel distribution in the U.K. with significant import and storage infrastructure, an extensive
distribution network, and long-term diversified customer relationships. Included in the revenue and direct operating costs for this
business is a duty payable to the government of the U.K. which is recorded gross within revenues and direct costs, without impact
on the margin generated by the business. We also have a presence in Canada and Brazil where we import products into those markets
and are developing an infrastructure footprint. In addition, our fuel marketing business has strong customer loyalty through the PC
Optimum loyalty program and is one of the largest gas station networks in Canada, with 234 retail gas stations and associated
convenience kiosks.
Facilities Management
Our integrated facilities management ("IFM") business manages over 30,000 locations and over 300 million square feet
across North America, Australia, New Zealand and Asia with a goal of delivering services that drive sustainable cost reductions for
our clients.
Our facilities management business provides design and project management, professional services and strategic workplace
consulting to customers from sectors that range from government, military, financial institutions, utilities, industrial and corporate
offices. Our contract expirations range from month-to-month to 25 years. We seek to provide a cost effective outsourcing alternative
for IFM services to our customers by leveraging our scale, expertise and self-perform capabilities. We believe that we are differentiated
from our competitors as a result of 20 years of developed best practices in our core competency of being a "hard facilities management"
provider via our mobile fleet of technicians and in-house expertise and our integrated technology platform that allows customers to
obtain real time insight into all aspects of their facilities. Our IFM business benefits from high retention rates, which we believe
demonstrates our ability to add value to our customers.
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These businesses have largely been built on an "outsourcing" model—providing services that are often deemed non-core
to the operations of our customers' business. We believe that there is a growing trend wherein organizations are increasingly looking
to outsource their real estate facilities management services, which therefore provides several opportunities for new business
and expansion.
Subsequent to year-end, together with institutional partners, we announced an agreement to sell our facilities management
business to CCMP Capital Advisors, LP for approximately $1 billion. Closing of the transaction remains subject to customary closing
conditions and is expected to occur in the second quarter of 2019.
Residential Real Estate Services
We provide services to residential real estate brokers through franchise arrangements under a number of brands in Canada,
including the nationally recognized brand Royal Lepage. We also directly operate residential brokerages in select cities in Canada
and provide valuations and related analytic services to financial institutions in Canada where we process in excess of 160,000 property
appraisals per year.
We also provide condominium management services and are one of the largest condominium property management
companies in Canada with approximately 80,000 units under management.
Logistics
We are a full service provider of relocation and related consulting services to individuals and institutions on a global basis.
With offices in Asia, Europe, North America and South America, we have the expertise and resources to provide globally integrated,
customizable services to our clients. Client contracts are typically executed for three to seven year terms. We identify opportunities
from different sources, including through relationships with current and former clients, subscriber services, suppliers and other
partners within the industry and through internal business development. With the number of suppliers involved in an employee's
relocation or assignment, effective supply chain management is crucial to the overall success of a company's mobility program. We
maintain a large network of independent suppliers that enables us to support our clients and their transferred employees around the
world. Our dedicated supply chain management team is focused on supplier selection, training and performance and handles the
screening, selection, monitoring and managing of our supplier network. A portion of our business service activity is seasonal in nature
and is affected by the general level of economic activity and related volume of services purchased by our clients. For example, most
moves typically occur in the spring and summer months, during school year breaks and we also experience peaks in activity from
some government clients corresponding with the start of their fiscal year.
We also operate three high-quality, modern cold storage facilities in Canada with inventory management and customer
service capabilities.
Financial Advisory Services
Our financial advisory services business provides merger and acquisition advisory, debt placement, project finance, asset
brokerage and structured transaction services with expertise in real assets, particularly property, power and infrastructure. We operate
on a global basis, including offices in North America, South America, Europe, Asia and Australia.
Entertainment
In partnership with a leading Canadian operator, we operate three entertainment facilities in the Greater Toronto Area.
Currently these facilities have a combined total of over 4,900 slot machines, 160 table games and employ more than 2,900 staff.
Through a long-term contract with the Ontario Lottery and Gaming Corporation, we have the exclusive right to operate these facilities.
Through our partnership, we have undertaken a growth strategy whereby we plan to enhance the guest experience and transform
each of these sites into attractive, premier entertainment destinations. This modernization and development is intended to include
enhanced entertainment offerings and integrated property expansions that will incorporate leading world-class amenities such as
hotels, meeting and event facilities, performance venues, restaurants and retail shopping.
Wireless Broadband Services
On October 1, 2018, together with institutional partners, we closed the acquisition of a 50.1% controlling interest in Imagine,
a provider of high speed fixed wireless broadband in rural Ireland. Imagine is the only company to have acquired spectrum in Ireland's
recent 3.6GHz auction which is focused on fixed wireless access. The partnership will have a 30% ownership interest and will be
partnering with the founders of the company. The investment will be used to fund the capital expenditure required to expand and
develop the network.
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Construction Services
Our construction services business is a global contractor with a focus on high-quality construction, primarily on large-scale,
complex landmark buildings and social infrastructure. Construction projects are generally delivered through contracts whereby we
take responsibility for design, program, procurement and construction for a defined price. The majority of construction activities are
subcontracted to reputable specialists whose obligations mirror those contained within our main construction contract. A smaller part
of the business is construction management whereby we charge a fee for coordination of the sub-trades employed by the client.
Founded in Perth, Australia in 1962, our construction services business was acquired by Brookfield as part of the privatization of
Multiplex Group in 2007. Today, we operate in Australia, Europe and the Middle East across a broad range of sectors, including
office, residential, hospitality and leisure, social infrastructure, retail and mixed use properties. We are also strategically targeting
markets in Canada and India.
As a significant portion of our revenue is generated from large projects, the results of our construction operations can
fluctuate quarterly and annually depending on whether and when large project awards occur and the commencement and progress
of work under large contracts already awarded. However, we believe the financial strength and stability of our construction services
business and the mature and robust risk management processes we have adopted position us to effectively service our current client
base and attract new clients. Historically, approximately two thirds of our work have been competitively tendered, with the balance
being staged or direct negotiations. We identify opportunities from a number of different sources: for example, through invitations
to tender, direct request from clients and/or their consultants and internal business development. We review available contracts and
decide which contracts to pursue based on different factors including size, duration, experience, geographic location, margins and
risk associated with the contract and/or client. Generally, we are required to post between 5% and 10% of contract value as performance
security under our contracts. The guarantees and bonds issued to clients are typically secured by indemnities against subcontractors.
At December 31, 2018, our backlog of construction projects was approximately $8 billion, 85% in Australia and Europe, with an
overall weighted average remaining project life of 1.8 years.
The table below provides a breakdown of backlog for our construction services segment by sector:
(US$ Millions)
Residential
Office
Tourism and Leisure
Health and Aged Care
Education
Retail
Mixed Use and Other
Construction - Revenue backlog by Sector
Year Ended December 31,
2018
2017
$
3,649
$
2,718
763
238
143
382
3
3,619
2,609
785
468
370
124
735
$
7,896
$
8,710
Our clients benefit from our ability to share knowledge and resources across our business, as well as Brookfield's broader
platforms, applying international best-practice initiatives and our experience to their projects. In addition, we seek to execute each
project using a tailored approach that also includes our commitment to safety and quality and the benefit of a deep supplier and
subcontractor network. Our client base includes both private and public sector entities which, combined with our geographical spread,
provides some protection against market fluctuations driven by economic cycles.
Growth prospects differ from region to region. In Australia, we have strong market positions in Sydney, Melbourne and
Perth but have opportunities for growth in Brisbane and in other large regional centers. In Europe, we believe our most compelling
growth opportunity is to increase our market share in U.K. private sector work, primarily in the commercial and residential spaces
in London, as well as future opportunities in social infrastructure. In the Middle East, we proactively reduced the scale of our
operations, only contracting under strict terms and conditions for certain clients. The region is experiencing a period of economic
and political adjustment, with reduced liquidity for developers and as such we have adjusted our targets and forecasts in the region.
Other markets that we have been strategically targeting are Canada and India. Our first project in Canada was in 2010 and
since then we have secured other projects covering the commercial, hotel and residential sectors. We are now also leveraging our
global experience to assist local developers with how to best integrate construction considerations into early development plans. We
have a very small presence in the Indian market, and together with a local partner, we consider opportunities to pursue high-quality,
large, complex buildings projects for sophisticated private developers across India.
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Infrastructure Services
Our new infrastructure services segment is currently comprised of (i) a global provider of services to the power generation
industry, following our acquisition of Westinghouse in 2018 and (ii) a service provider to the offshore oil production industry,
following our investment in Teekay Offshore in 2017.
The table below provides a breakdown of revenues for our infrastructure services by region:
(US$ Millions)
Brazil
Canada
United Kingdom
Australia
United States of America
Europe
Middle East
Other
Total
Year Ended December 31,
2018
2017
2016
$
141
$
— $
58
120
9
802
902
2
384
$
2,418
$
—
—
—
—
—
—
3
3
$
—
—
—
—
—
—
—
—
—
Service Provider to Power Generation Industry
Westinghouse is a leading provider of mission-critical services to the global power generation industry. Westinghouse's
primary business lines include global products and services (“GPS”) and new projects. GPS includes the design, manufacture and
delivery of fuel, field services, engineering services, components manufacturing, instrumentation and controls, and decommissioning
services. A significant majority of the profitability from GPS is driven by regularly recurring refueling and maintenance outages.
The field services operations provide full-scope services during regularly recurring refueling and maintenance outages
including fuel change-out, component inspection and repair, engineered products installation and modifications. For the vast majority
of Westinghouse's customer base, these maintenance and fuel replenishments are carried out on an 18-month cycle. Westinghouse’s
original equipment manufacturer ("OEM") status, in tandem with its presence at customer sites during these outage periods, allows
the business to become intimately familiar with customer operations, resulting in the pull-through of additional opportunities to
provide engineering services and spare parts, as well as deliver upgrades and event-driven work within the operating plants.
Westinghouse's nuclear fuel business provides core design, fuel design and fabrication services for Light Water Reactors
("LWR"), including Pressurized Water Reactors ("PWR"), VVER reactors and Boiling Water Reactors ("BWR"), as well as British-
designed Advanced Gas-Cooled Reactors ("AGR"). Component manufacturing capabilities in the business include the manufacture
of critical nuclear components including steam generators, reactor vessel internals, control rod mechanisms, reactor coolant pumps,
fuel handling equipment and replacement parts. Westinghouse's engineering services business leverages its OEM status and know-
how, base of over 1,500 patents and over 900 U.S. Nuclear Regulatory Commission ("NRC") licensed topical reports to provide a
full suite of service offerings to enhance the safety, efficiency and reliability of the operating nuclear plant base.
The instrumentation and controls business provides safety and non-safety automation products including operating panels,
control systems, protection and monitoring services, software, simulator systems, licensed operator training and inspection services
to both the operating fleet and new plants. In addition, the decontamination, decommissioning and remediation ("DD&R") business
provides customers with waste management solutions through the plant life cycle, as well as planning, decontamination, dismantling
and segmentation services to assist in the safe shutdown of reactors at the end of their lifespan.
Through its new projects business Westinghouse engages in design, engineering, and procurement for new nuclear power
plants. Westinghouse has exited the nuclear plant construction business, but will continue to support design, engineering and
procurement, as well as provide components and instrumentation and control systems to new plants.
Westinghouse sells products and services globally through its direct sales force, all of whom are trained and educated on
all of the company’s offerings and technical knowledge base. We believe that the commercial nuclear industry has high barriers to
entry given the capital costs associated with constructing nuclear fuel manufacturing facilities, the substantial legal and regulatory
approvals required to provide goods and services to operating nuclear plants, as well as the OEM status and extensive intellectual
property and human capital that are required to be a successful participant in the industry.
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Service Provider to Offshore Oil Production Industry
In July 2018, we increased our ownership in Teekay Offshore GP L.L.C. ("Teekay Offshore GP"), from 49% to 51%, which
resulted in the acquisition of a controlling stake of Teekay Offshore Partners L.P. ("Teekay Offshore"), a service provider to the
offshore oil production industry business. Prior to July 3, 2018, the partnership, together with institutional partners, owned a 60%
economic interest in Teekay Offshore which was accounted for using the equity method, and a 49% voting interest in Teekay Offshore
GP.
Teekay Offshore is a leading global marine transportation, off-shore oil production, facility storage, long-distance towing
and offshore installation, maintenance and safety services provider to the oil industry. The business operates shuttle tankers (highly
specialized vessels used for offloading from offshore oil installations), FPSOs (floating production storage and offloading units),
FSOs (floating storage and offloading units) and long-haul towage vessels. The business operates in selected oil regions globally,
including the North Sea (Norway and United Kingdom), Brazil and Canada. As a fee-based business focused on critical services, it
has limited direct commodity exposure and the company has a substantial portfolio of medium to long-term, fixed-rate contracts
with high quality, primarily investment grade counterparties. In addition, most services the business provides have high switching
costs and are required for its customers to generate revenue.
Industrial Operations
Our industrial operations consist primarily of (i) specialty metal and aggregates mining operations in Canada, (ii) select
industrial manufacturing operations, comprised principally of the global production of graphite electrodes and the manufacturing of
infrastructure support products and returnable plastics packaging, (iii) water and wastewater services in Brazil, and (iv) natural gas
exploration and production.
The table below provides a breakdown of revenues for our industrial operations by region:
(US$ Millions)
Brazil
Canada
United Kingdom
Australia
United States of America
Europe
Middle East
Other
Total
Year Ended December 31,
2018
2017
2016
$
$
915
828
99
15
487
1,301
7
244
$
580
762
—
—
204
314
—
79
51
744
—
12
427
261
—
71
$
3,896
$
1,939
$
1,566
Specialty Metals and Aggregates Mining
Our mining operations currently consist of a limestone aggregates quarry located in northern Alberta, that supplies the
Alberta oil sands industry, and a palladium mining operation that has been operating the Lac des Iles mine, or LDI mine, located in
Ontario, Canada since 1993.
Our industrial minerals operations in Alberta are principally comprised of the operation and development of a limestone
mine located in the heart of the Athabasca oil sands region approximately 60 km north of Fort McMurray, Alberta. Current operations
are focused on the sale of limestone aggregates to large oil sands customers that require significant quantities of aggregates to build
out roads, bridges, lay down areas, facility pads, dams, water systems and other critical infrastructure. In addition to our current
limestone mining operations, we also hold leases for limestone and other minerals covering approximately one million acres in the
surrounding area that encompass a large portion of the mineable Athabasca oil sands region of Alberta.
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Consolidation in the platinum group metals industry throughout 2017 has resulted in our palladium mining operation being
the only pure play palladium company globally. Palladium is a specialty metal in the platinum group of metals, primarily used in the
manufacture of catalytic converters for automobiles. We acquired the mine by converting our senior secured loan position, which
we have held since 2013, into an ownership position when the mine underwent a recapitalization in 2015. Since acquiring control
of the mine, we have embarked on several initiatives targeted at expanding production and reserves and reducing cash costs. There
are very few palladium producing regions worldwide and few known economically viable ore bodies. Russia and South Africa, which
are known to be higher-risk jurisdictions, account for approximately 80% of global palladium production. Growth in palladium mine
supply is constrained, due to political, infrastructure cost and labour issues in South Africa, declining palladium production in Russia
and a limited number of new projects on the horizon in the near term.
Operations at LDI consist of an underground mine accessed via shaft and ramp, an open pit, a substantial low-grade surface
stockpile and a mill with a nameplate processing capacity of 15,000 tonnes per day. The primary underground deposits on the property
are the Offset and Roby zones.
Our palladium mining operation has exploration potential near the LDI mine, where a number of growth targets on its
properties have been identified, and is engaged in an exploration program aimed at increasing its palladium reserves and resources.
As an established precious metals producer on a permitted property, the operation has the potential to convert exploration success
into production and cash flow.
Graphite Electrodes Production
We are a manufacturer of a broad range of high quality graphite electrodes. Graphite electrodes are essential to the production
of electric arc furnace ("EAF") steel. A significant portion of our sales is tied to the steel production industry. We also manufacture
petroleum needle coke, which is the key raw material in the production of graphite electrodes. We completed the acquisition of this
business in August 2015, at what we believe was a low point in the industry cycle, driven primarily by oversupply and downward
price pressure in the steel market.
Graphite electrodes are key components of the conductive power systems used to produce steel and non-ferrous metals.
Approximately 90% of our graphite electrodes sold are consumed in the EAF steel melting process, the steel making technology
used by all "mini-mills". The vast majority of these mini-mills use alternating electric current and typically use nine electrodes (three
columns of three) at one time. These mini-mills consume approximately three graphite electrodes every eight to ten operating hours
when operating at a typical number of production cycles. We believe that mini-mills constitute the higher long-term growth sector
of the steel industry and that there is currently no commercially viable substitute for graphite electrodes in EAF steel making. The
remaining approximately 10% of electrodes sold are primarily used in various other ferrous and non-ferrous melting applications,
blast furnace ("BOF") steel production, fused materials, chemical processing, and alloy metals.
The total manufacturing time of a graphite electrode and its associated connecting pin is on average approximately six
months from needle coke production to customer delivery. We manufacture graphite electrodes ranging in size up to 30 inches in
diameter and over 11 feet in length, and weighing as much as 5,900 pounds (2.6 metric tons). The manufacture of graphite electrodes
includes six main processes: screening of raw materials (needle coke) and blending with coal tar pitch followed by forming, or
extrusion, of the electrode, baking the electrode, impregnating the electrode with a special pitch that improves strength, re-baking
the electrode, graphitizing the electrode using electric resistance furnaces, and machining.
We purchase other raw materials from a variety of sources and believe that the quality and cost of our raw materials on the
whole is competitive with those available to our competitors. Our needle coke production allows us to be the only substantially
vertically integrated graphite electrode manufacturer. We believe that we are the world's second largest petroleum-based needle coke
producer and assuming normal annual maintenance, a product mix of only normal premium petroleum needle coke production and
related by-products, the annual capacity is approximately 140,000 metric tons and currently supply a substantial portion of graphite
electrode facilities' needle coke requirements.
Our manufacturing facilities principally consist of four graphite electrode facilities located in Spain, France, the United States
and Mexico, a petroleum needle coke facility in the United States, an electrode machining center in Brazil and sales offices across
the globe. As of December 31, 2018, we have the operating capacity, depending on product demand and mix, to manufacture
approximately 202,000 metric tons of graphite electrodes. Our strategy is to be a low-cost, high quality producer in an industry where
there are high barriers to entry given the high capital investment and the extensive product, process and material science knowledge
required in the production process.
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We sell our products globally and primarily through our direct sales force, independent sales representatives and distributors,
all of whom are trained and experienced with our products. In the last year we have also entered into longer term sales contracts for
a portion of our production. We have a large customer technical service organization, with supporting application engineering,
scientific groups, and engineers and specialists around the world.
Infrastructure Support Products Manufacturing
Our operations manufacture and market a comprehensive range of infrastructure products and engineered construction
solutions. We service in a diverse cross-section of industries in Canada, as well as selected markets globally. These markets include
Canada's national and regional public infrastructure markets and private sector markets in agricultural drainage, building construction
and natural resources.
The demand for our products is cyclical and is driven by public infrastructure spending, commercial development, and
residential construction. We generate our business by participating in bids for our engineered precast products and, for our other
products, through established customer relationships with a diverse base of clients across industries and end-markets.
Returnable Plastics Packaging Manufacturing
In May 2018, together with institutional partners, we acquired a controlling stake in Schoeller Allibert Group B.V. ("Schoeller
Allibert"), a leading European provider of returnable plastic packaging with the remaining shares being held by the founding family
of the company. The business has a strong competitive position given the company's extensive scale, diversified base of long-term
customers serving multiple industries and its strong reputation for product innovation. The business operates in a growing segment
of the packaging space that has favorable long-term trends driven by an increased focus on sustainability and logistics. In addition,
we view Schoeller Allibert as a company with the opportunity to become larger, both organically by entering new markets and
developing new products, and through acquisitions.
The company operates manufacturing sites across Europe and one in Phoenix, Arizona and employs 2,000 employees with
a diverse, long-standing customer base. We believe that we can capture a meaningful portion of the growth potential of the market,
driven by a shift away from one-way packaging as well as delivering on operational efficiency improvements. We are focused on
implementing efficiencies and growing the platform.
Water and Wastewater Services
BRK Ambiental provides water and wastewater services to a broad range of residential, industrial, commercial and
governmental customers. These services include water and sewage collection, treatment and distribution. BRK Ambiental operates
primarily through long-term, inflation-adjusted concession and Public Private Partnerships ("PPP") contracts with municipalities or
take-or-pay contracts with industrial customers throughout Brazil. As part of its service contract, the company invests significant
capital to improve and expand the service offerings. The company currently serves over 15 million people with an average remaining
contract duration of 25 years.
Natural Gas Exploration and Production
Our natural gas activities consist primarily of natural gas exploration and production operations, principally through our
coal-bed methane, or CBM, platform in Alberta, Canada ("CBM properties"); and well servicing and contract drilling operations
primarily located in the Western Canadian Sedimentary Basin, or WCSB.
Our properties produce approximately 42,000 barrels of oil equivalent per day, or BOE/d. Our CBM properties are
characterized by long-life, low-decline reserves located at shallow depths and are low-cost capital projects. Revenue from sales are
recognized when the title to the product transfers to the purchasers based on volumes delivered and contractual delivery points and
prices. Revenue from the production of gas, in which we have an interest with other producers, is recognized based on our working
interest. Revenues are exposed to fluctuations in commodity prices, however; we aim to enter into contracts to hedge production,
when appropriate.
Operational results and financial condition are dependent principally upon the prices received for gas production which
have fluctuated widely in recent years. Such prices are primarily determined by economic and political factors. Supply and demand
factors, as well as weather and conditions in other oil and gas regions of the world impact prices. Any upward or downward movement
in oil and gas prices could have an effect on the natural gas platform's financial condition.
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Canadian Natural Gas Operations
Our CBM properties are characterized by long-life, low-decline reserves located at shallow depths and are low-risk with
low-cost drilling and production with little to no associated water. We believe this provides an opportunity to generate cash flow
break even in a low underlying commodity price environment. Our CBM properties are located along the Horseshoe Canyon coal
trend in the central part of the Province of Alberta and include over 7,000 miles of gathering pipelines and a significant number of
facilities with the capacity to process over 500 MMcf/d of natural gas.
We have implemented a hedging policy for our Canadian operations using, amongst other instruments, collars and fixed
price swaps to hedge our gross natural gas production on a three year rolling basis, targeting, based on economics, 50% in year one,
30% in year two and up to 10% for year three. Currently, our Canadian operations have 21.5 Bcf of natural gas hedged in 2019.
These hedging activities could result in losses or gains, but has the impact of minimizing cash flow volatility from commodity price
exposure.
Well Servicing Operations
Our natural gas exploration and production operations also include contract drilling and well-servicing operations, primarily
located in the Western Canadian Sedimentary Basin, or WCSB. In 2017, we closed the acquisition of a competitor’s Canadian business
operations to become the largest production servicing platform in Western Canada by operating hours (Source: Canadian Association
of Oilfield and Drilling Contractors, or CAODC), which includes 148 service rigs, nine coil rigs, nine telescopic double drilling rigs
and 13 swabbing rigs. A significant portion of the servicing revenue is derived from large national and international oil and gas
companies which operate in Alberta, Canada. Our well servicing operations have continued to experience industry leading utilization.
We are well positioned to adjust to our customers oilfield servicing needs and explore opportunities that would give our platform
increase size to accommodate such.
We experience seasonality in this business, as the ability to move heavy equipment safely and efficiently in Western Canadian
oil and gas fields is dependent on weather conditions. Additionally, our well servicing operations are impacted by the cyclical nature
of the oil and gas sector. Volatility of commodity prices and changes in capital and operating budgets of upstream oil and gas companies
impact the level of drilling and servicing activity.
Australian Oil and Gas Operations
Our Australian properties were acquired in June 2015 and were held through a joint venture formed prior to the acquisition,
("Quadrant Energy"). On November 26, 2018, together with institutional partners, we completed the sale of Quadrant Energy to
Santos Limited for US$2.15 billion. As part of the sale agreement, we retained the right to receive a contingent payment in relation
to Quadrant's significant Dorado-1 oil discovery and a royalty over all other future hydrocarbons produced in Quadrant's Bedout
Basin tenements. This enables us to maintain exposure to the upside in these exploration interests.
Corporate and Other
Corporate and other includes corporate cash and liquidity management, as well as activities related to the management of
the partnership's relationship with Brookfield.
Our Growth Strategy
We seek to build value through enhancing the cash flows of our businesses, pursuing an operations-oriented acquisition
strategy and opportunistically recycling capital generated from operations and dispositions into our existing platforms, new
acquisitions and investments. We look to ensure that each of our businesses has a clear, concise business strategy built on its competitive
advantages, while focusing on profitability, sustainable operating product margins and cash flows. We emphasize downside protection
by utilizing business plans that do not rely exclusively on top-line growth or excessive leverage.
We plan to grow by acquiring positions of control or significant influence in businesses at attractive valuations and by
enhancing earnings of the businesses we operate. In addition to pursuing accretive acquisitions within our current operations, we
plan to opportunistically build new platforms or make investments where our expertise, or the broader Brookfield platforms, provide
insight into global demand for goods and commodities to source acquisitions that are not available or obvious to competitors.
We offer a long-term ownership structure to companies whose management teams are seeking additional sources of capital
but prefer not to be public as a standalone business. From time to time, we will recycle capital opportunistically, but we will have
the ability to own and operate businesses for the long-term.
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Consistent with Brookfield's history as an owner/operator, our strategy is to:
•
•
•
build and operate businesses with sustainable cash flows to reduce risk and lower cost of capital;
utilize an active management approach focused on strategic, operational and/or financial improvements;
acquire businesses on a value basis; deploying contrarian thinking to target out of favor sectors; and
• make direct acquisitions or add-on acquisitions within existing platforms and/or in sectors where we believe we possess
competitive advantages.
In addition, we may make opportunistic investments in private and public securities of businesses where we can leverage
our operating footprint or the broader Brookfield platform to provide us with a competitive advantage.
Intellectual Property
Our company and the Holding LP have each entered into a licensing agreement with Brookfield pursuant to which Brookfield
has granted a non-exclusive, royalty-free license to use the name "Brookfield" and the Brookfield logo. Other than under this limited
license, we do not have a legal right to the "Brookfield" name and the Brookfield logo.
Brookfield may terminate the licensing agreement effective immediately upon termination of our Master Services Agreement
or with respect to any licensee upon 30 days' prior written notice of termination if any of the following occurs:
•
•
•
•
the licensee defaults in the performance of any material term, condition or agreement contained in the agreement and the
default continues for a period of 30 days after written notice of the breach is given to the licensee;
the licensee assigns, sublicenses, pledges, mortgages or otherwise encumbers the intellectual property rights granted to it
pursuant to the licensing agreement;
certain events relating to a bankruptcy or insolvency of the licensee; or
the licensee ceases to be an affiliate of Brookfield.
A termination of the licensing agreement with respect to one or more licensees will not affect the validity or enforceability
of the agreement with respect to any other licensees.
Governmental, Legal and Arbitration Proceedings
We are not currently subject to any material governmental, legal or arbitration proceedings which may have or have had a
significant impact on our company's financial position or profitability, nor are we aware of any such proceedings that are pending
or threatened.
We are occasionally named as a party in various claims and legal proceedings which arise during the normal course of our
business. We review each of these claims, including the nature of the claim, the amount in dispute or claimed and the availability of
insurance coverage. Although there can be no assurance as to the resolution of any particular claim, we do not believe that the outcome
of any claims or potential claims of which we are currently aware will have a material adverse effect on us.
Environmental, Social and Governance ("ESG") Management
As owners and operators of scale industrial operations and business services across the globe, robust ESG management is
an essential part of our strategy at Brookfield Business Partners. Our businesses impact the lives of tens of thousands of employees,
their families and local communities, making environmental, social, and governance matters a key consideration. Our focus is on
prioritizing a long-term view and an ethical and sustainable business model.
As described under Item 4.A "History and Development of our Company" and Item 4.C "Organizational Structure"
Brookfield has an approximate 68% interest in our partnership and affiliates of Brookfield Asset Management provide services to
us under the Master Services Agreement. Brookfield employs a framework of having a common set of ESG principles across its
business platforms, while at the same time recognizing that the geographic and sector diversity of our portfolio requires a tailored
approach. Brookfield’s and our partnership’s ESG principles include (i) mitigate environmental impact and improve efficient use of
resources; (ii) ensure the well-being and safety of employees; (iii) be good stewards in local communities; and (iv) conduct business
according to the highest legal, ethical and regulatory standards and in line with our Code of Business Conduct and Ethics.
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Recently, Brookfield released a Positive Work Environment Policy, which consolidates previous regional policies into one
global policy across all jurisdictions, explicitly expressing a commitment to maintaining a workplace free from discrimination,
violence and harassment. This directed policy is utilized by the operating businesses across our operations as appropriate, as we
recognize the benefits of a diverse and inclusive work environment to achieve our overall operational goals.
At Brookfield Business Partners we consider ESG factors throughout the investment process. During our initial identification
and due diligence of an acquisition, we utilize internal and external operating expertise as required to identify ESG risks and
opportunities. Key factors typically considered during a review of a potential acquisition include, but are not limited to bribery and
corruption risks, health and safety risks, ethical considerations, environmental matters as well as energy efficiency improvement
opportunities.
Post-acquisition, we create a tailored integration plan that, among other things, ensures any material ESG-related matters
are prioritized. ESG risks and opportunities are actively managed by the senior management teams within all our businesses. This
allows local management to draw on and apply local expertise, which provides valuable insight given the wide range of asset types
and locations in which we invest.
When we acquire a business, we focus on encouraging strong policies and standards, including emphasizing environmental,
health and safety, social responsibility and good governance protocols. For example, BRK Ambiental is Brazil’s largest private waste
water management company serving 15 million people across the country. The company operates 22 municipal water and sewage
treatment assets as well as the large waste treatment plants across Brazil. We acquired the business in 2017 acutely aware of the
stewardship responsibility around these critical assets and services in Brazil. Wastewater collection, treatment and water management
is a challenge for the country that impacts not only public health and the environment but also economic development. With only
50% of its population’s sewage collected, the Brazilian government is committed to enhancing sewage collection and treatment, as
well as water distribution across the country. Local governments are increasingly relying on private companies to fund their share
of the capital required for growth, and as the largest private player in the water and sewage sector we are committed to supporting
these government initiatives to make a positive community impact.
We recently announced the sale of our facilities management business, BGIS. Since acquiring control of BGIS, we supported
the management team in expanding the size, scale, and geographic footprint of the business, through both organic growth and
acquisitions. Under our ownership, BGIS has established itself as a leading global facilities management provider, managing more
than 320 million square feet of real estate representing more than 30,000 locations across North America, Asia Pacific and Europe.
The company has earned a reputation for innovation and numerous awards for the safety and sustainability of its operations. Most
recently the Chief Executive Officer of BGIS was presented the Canada’s Clean50 award in the Building, Design, Development,
and Management category for being the founder of Building Energy Innovators Council (BEIC), an industry-driven initiative to
accelerate the collaboration, innovation, and adoption of clean building technologies across Canada. BEIC encourages and promotes
energy efficiency and renewable solutions that will result in value for real estate owners and occupiers from a wide range of industries.
Facilities
Our principal registered offices located in Bermuda, with our operations primarily located in Canada, Australia, Europe,
the United States, Brazil and the Middle East. In total, we lease and own approximately 8.0 million square feet and 7.4 million square
feet of space, respectively, across these locations for such operations, including office, warehouse and manufacturing space. We
consider our primary facilities are:
• Approximately 7.8 million square feet of office, manufacturing and warehouse facilities in Europe and the United States
related to our power generation industry service provider business;
• Approximately 1.8 million square feet of manufacturing and warehouse facilities in Europe and the United States related
to our graphite electrode manufacturing business; and
• Approximately 2.6 million square feet of office, retail, manufacturing and warehouse facilities in Canada related to our
infrastructure support products manufacturing business, our logistics businesses, and our fuel marketing business.
Our leases expire at various times during the coming years. We believe that our current facilities are suitable and adequate
to meet our current needs and that suitable additional or substitute space will be available as needed to accommodate continuing and
expanding of our operations.
Brookfield Business Partners
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4.C. ORGANIZATIONAL STRUCTURE
Organizational Chart
The chart below represents a simplified summary of our organizational structure. All ownership interests indicated below
are 100% unless otherwise indicated. "GP Interest" denotes a general partnership interest and "LP Interest" denotes a limited
partnership interest. Certain subsidiaries through which Brookfield Asset Management holds units of our company and the redemption-
exchange units have been omitted. This chart should be read in conjunction with the explanation of our ownership and organizational
structure below.
____________________________________
(1)
Public holders of our units currently own approximately 63% of our units and Brookfield currently owns approximately 37% of our units. Our company's
sole direct investment is a managing general partnership interest in the Holding LP. Brookfield also owns a limited partnership interest in the Holding LP
through Brookfield's ownership of redemption-exchange units and Special LP Units. Brookfield indirectly owns 100% of the redemption-exchange units
of Holding LP, which represent 49% of our units on a fully diluted basis. The redemption-exchange units are redeemable for cash or exchangeable for our
units in accordance with the Redemption-Exchange Mechanism, which could result in Brookfield owning approximately 68% of our units issued and
outstanding, with public holders of our units owning approximately 32% of the units of our company issued and outstanding, in each case on a fully
exchanged basis. Brookfield's interest in our company consists of a combination of our units and general partner interests, the redemption-exchange units
and the Special LP Units. The Special LP units entitle the holder to receive incentive distributions. See Item 7.B., "Related Party Transactions—Incentive
Distributions". The BBU General Partner has adopted a distribution policy pursuant to which we intend to make quarterly cash distributions to public
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holders of our units. In general, quarterly cash distributions will be made from distributions received by our company on its Managing General Partner
Units. Distributions of available cash (if any) by the Holding LP will be made in accordance with the Holding LP Limited Partnership Agreement, which
generally provides for distributions to be made by the Holding LP to all owners of the Holding LP's partnership interests (including the Managing General
Partner Units owned by us and the Special LP Units and redemption-exchange units owned by Brookfield) on a pro rata basis. Our company currently
owns approximately 66 million Managing General Partner Units and Brookfield currently owns approximately 63 million redemption-exchange units and
four Special LP Units. However, if available cash in a quarter is not sufficient to pay the quarterly distribution amount, currently $0.0625 per unit, to the
owners of all the Holding LP interests, then we can elect to defer distributions on the redemption-exchange units and accrue such deficiency for payment
from available cash in future quarters. See "Distribution Policy" and Item 10.B., "Description of the Holding LP Limited Partnership Agreement—
Distributions".
The Holding LP currently owns, directly or indirectly, all of the common shares or equity interests, as applicable, of the Holding Entities. Brookfield has
subscribed for $5 million of preferred shares of each of CanHoldco and two of our other subsidiaries, which preferred shares will be entitled to vote with
the common shares of the applicable entity. Brookfield currently has an aggregate of 1% of the votes of each of the three entities.
Certain of the operating businesses and intermediate holding companies that are directly or indirectly owned by the Holding Entities and that directly or
indirectly hold our operations are not shown on the chart. All percentages listed represent our economic interest in the applicable entity or group of assets,
which may not be the same as our voting interest in those entities and groups of assets. All interests are rounded to the nearest one percent and are calculated
as at the date of this Form 20-F.
(2)
(3)
The following table provides the percentage of voting securities owned, or controlled or directed, directly or indirectly, by
us, and our economic interest in our operating businesses included in our organizational chart set out above.
Significant Subsidiaries
Business Services
Multiplex
Greenergy Fuels Holdings Limited
BGIS
BG Fuels
Infrastructure Services
Westinghouse Electric Company
Teekay Offshore Partners L.P.
Industrial Operations
BRK Ambiental
GrafTech International Ltd.
Schoeller Allibert Group B.V.
Ember Resources Inc.
North American Palladium Ltd.
Our Company
Jurisdiction of
Organization
Voting Interest
Economic Interest
United Kingdom
United Kingdom
Canada
Canada
United States of
America
Bermuda
Brazil
United States of
America
Netherlands
Canada
Canada
100%
85%
100%
100%
100%
51%
70%
79%
52%
100%
91%
100%
14%
26%
26%
44%
25%
26%
27%
14%
41%
23%
Our company was established on January 18, 2016 as a Bermuda exempted limited partnership registered under the Bermuda
Limited Partnership Act, as amended, and the Bermuda Exempted Partnerships Act of 1992, as amended. Our head and registered
office is 73 Front Street, 5th Floor, Hamilton HM 12, Bermuda and our telephone number is +441 294-3309.
On June 20, 2016, Brookfield Asset Management completed the spin-off of its business services and industrial operations
to our company, which was effected by way of a special dividend of units of our company to holders of Brookfield Asset Management's
Class A and B limited voting shares. We are Brookfield's flagship public company for its business services and industrial operations
and the primary entity through which Brookfield owns and operates these businesses on a global basis. We are positioned to provide
unitholders with the opportunity to benefit from Brookfield's global presence, operating experience, execution capabilities and
relationships.
Holding LP
Our company's sole direct investment is a managing general partnership interest in the Holding LP. Brookfield owns units
of our company and indirectly owns 100% of the redemption-exchange units of the Holding LP that, in aggregate, represent
approximately a 68% interest in our company, assuming that all of the redemption-exchange units of Holding LP are exchanged for
units of our company pursuant to the redemption-exchange mechanism. Brookfield also owns a special limited partnership interest
in the Holding LP that entitles it to receive incentive distributions from the Holding LP. See Item 10.B., "Description of the Holding LP
Limited Partnership Agreement—Distributions" and "Related Party Transactions—Incentive Distributions".
Brookfield Business Partners
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Our Service Providers
The Service Providers, wholly-owned subsidiaries of Brookfield Asset Management, provide management services to us
pursuant to our Master Services Agreement. The senior management team that is principally responsible for providing us with
management services include many of the same executives that have successfully overseen and grown Brookfield's business services
and industrial operations, including Cyrus Madon who is a Senior Managing Partner of Brookfield Asset Management and Head of
its Private Equity Group.
The BBU General Partner
The BBU General Partner, a wholly-owned subsidiary of Brookfield Asset Management, has sole authority for the
management and control of our company. Holders of our units, in their capacities as such, may not take part in the management or
control of the activities and affairs of our company and do not have any right or authority to act for or to bind our company or to
take part or interfere in the conduct or management of our company. See Item 10.B., "Memorandum and Articles of Association—
Description of our Units and our Limited Partnership Agreement".
Holding Entities
Our company indirectly holds its interests in our operating businesses through the Holding Entities, which are recently
formed entities. The Holding LP owns, directly or indirectly, all of the common shares or equity interests, as applicable, of the Holding
Entities. In addition, Brookfield has subscribed for $5 million of preferred shares of each of CanHoldco and two of our other
subsidiaries. See Item 7.B., "Related Party Transactions—Relationship Agreement" for further detail.
4.D. PROPERTY, PLANTS AND EQUIPMENT
See Item 4.B., "Business Overview".
ITEM 4A. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
5.A. OPERATING RESULTS
Introduction
This management’s discussion and analysis of our operating results and financial condition included in Item 5.A of this
Form 20-F, or MD&A, of Brookfield Business Partners L.P. and subsidiaries, (collectively, the partnership, or we, or our), covers
the financial position of our partnership as at December 31, 2018 and December 31, 2017, and results of operations for the years
ended December 31, 2018, 2017, and 2016. The information in this MD&A should be read in conjunction with the audited
consolidated financial statements as at December 31, 2018 and December 31, 2017, and each of the years in the three years ended
December 31, 2018 included elsewhere in this Form 20-F, which are prepared in accordance with IFRS as issued by the IASB.
In addition to historical information, this MD&A contains forward-looking statements. Readers are cautioned that these
forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those
reflected in the forward-looking statements. See ‘‘Special Note Regarding Forward-Looking Statements’’ in the forepart of this
Form 20-F.
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Continuity of Interests
On June 20, 2016, Brookfield completed the spin-off of the partnership by way of a special dividend of a portion of our
limited partnership units to holders of Brookfield's Class A and B limited voting shares (the "spin-off"). On June 1, 2016, we
acquired substantially all of the business services and industrial operations of Brookfield, and received $250 million in cash from
Brookfield. In consideration, Brookfield received (i) approximately 55% of our LP Units, and 100% of our GP Units, (ii) Special
LP Units, and redemption-exchange units of the Holding LP, representing an approximate 52% limited partnership interest in
Holding LP, and (iii) $15 million of preferred shares of certain of our subsidiaries. As at December 31, 2018, Brookfield holds an
approximate 68% ownership interest in the partnership on a fully exchanged basis. Holders of the GP Units, LP Units, Special LP
Units, and Redemption-Exchange Units will be collectively referred to throughout this MD&A as "unitholders". The LP Units and
Redemption-Exchange Units have the same economic attributes in all respects, except that the Redemption-Exchange Units may,
at the request of Brookfield, be redeemed in whole or in part for cash in an amount equal to the market value of one LP Unit
multiplied by the number of Redemption-Exchange Units to be redeemed (subject to certain adjustments). As a result, Brookfield,
as holder of the Redemption-Exchange Units, participates in earnings and distributions on a per unit basis equivalent to the per
unit participation of the LP Units of the partnership. However, given the redemption feature referenced above and the fact that
they were issued by our subsidiary, we present the Redemption-Exchange Units as a component of non-controlling interests.
Brookfield directly and indirectly controlled the Business prior to the spin-off and continues to control the partnership
subsequent to the spin-off through its interests in the partnership. Accordingly, we have reflected the Business and its financial
position and results of operations using Brookfield's carrying values prior to the spin-off.
To reflect the continuity of interests, this MD&A provides comparative information of the Business for the periods prior
to the spin-off, as previously reported by Brookfield.
Basis of Presentation
For periods prior to the spin-off on June 20, 2016, our results represent a carve out of the assets, liabilities, revenues,
expenses, and cash flows of the Business that was contributed to us and included allocations of general corporate expenses of the
pre-spin-off business. These expenses, prior to the spin-off, relate to certain operational oversight functions and associated
information technology, facilities and other overhead costs and have been allocated based on headcount. These allocated expenses
have been included, as appropriate, in our consolidated statements of operating results prior to the spin-off. These allocations may
not, however, reflect the expense we would have incurred as an independent publicly traded company for the periods presented.
Subsequent to the spin-off, we no longer allocated general corporate expenses of the parent company as the functions to which
they related to are now provided through the Master Services Agreement with Brookfield.
We also discuss the results of operations on a segment basis, consistent with how we manage and view our business. Our
operating segments are: (i) business services, (ii) infrastructure services, (iii) industrial operations, and (iv) corporate and other.
Non-IFRS measures used in this MD&A are reconciled to or calculated from such financial information. All dollar
references, unless otherwise stated, are in millions of U.S. Dollars. Australian Dollars are identified as "A$", Brazilian Reais are
identified as "R$", British Pounds are identified as "£", Euro dollars are identified as "€" and Canadian Dollars are identified as
"C$".
Overview of our Business
The partnership is a Bermuda exempted limited partnership registered under the Bermuda Limited Partnership Act of
1883, as amended, and the Bermuda Exempted Partnerships Act of 1992, as amended.
We were established by Brookfield to be its flagship public partnership for its business services and industrial operations.
Our operations are primarily located in Canada, Australia, the United Kingdom, the United States, Brazil and the Middle East.
The partnership is focused on owning and operating high quality businesses that are low cost producers and/or benefit from high
barriers to entry. We seek to build value through enhancing the cash flows of our businesses, pursuing an operations oriented
acquisition strategy and opportunistically recycling capital generated from operations and dispositions into our existing operations,
new acquisitions and investments. The partnership’s goal is to generate returns to unitholders primarily through capital appreciation
with a modest distribution yield.
Brookfield Business Partners
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Operating Segments
We have four operating segments which are organized based on how management views business activities within
particular sectors:
i. Business services, including road fuel distribution and marketing, facilities management, residential real estate services,
logistics, financial advisory, entertainment, wireless broadband and construction services;
ii.
Infrastructure services, which includes a global provider of services to the power generation industry and a service provider
to the offshore oil production industry;
iii. Industrial operations, including mining, manufacturing, water and wastewater services, and natural gas exploration and
production; and
iv. Corporate and other, which includes corporate cash and liquidity management, and activities related to the management
of the partnership's relationship with Brookfield.
Periodically we review the organizational and governance structure of our businesses. In connection with the acquisition
of Westinghouse and the disposition of our Australian energy operation, we have realigned the organizational and governance
structure of our businesses and have changed how the partnership evaluates financial information for management decision making
which has resulted in a change in our operating segments.
Specifically, our construction services segment and business services segment are presented as a single operating segment
within business services. Infrastructure services is a new operating segment, which includes our investments in Westinghouse and
Teekay Offshore. The energy segment has been eliminated and the remainder of our energy businesses are evaluated with and
presented within our industrial operations segment. The partnership has retrospectively applied these segment changes for all
periods presented.
The tables below provide a breakdown by operating segment of total assets of $27.3 billion as at December 31, 2018 and
of total revenues of $37.2 billion for the year ended December 31, 2018.
Operating Segments
(US$ Millions)
Business Services
Infrastructure Services
Industrial Operations
Corporate and Other
Total
Business Services
Assets
As at
December 31, 2018
Revenue
For the year ended
December 31, 2018
$
$
7,613
$
11,640
7,650
415
27,318
$
30,847
2,418
3,896
7
37,168
Our business services segment consists primarily of (i) road fuel distribution and marketing, (ii) facilities management,
(iii) logistics, and (iv) construction services.
Our road fuel storage and distribution business is the largest provider of road fuels in the United Kingdom with significant
import and storage infrastructure, an extensive distribution network and long-term customer relationships. Included in the revenue
and direct operating costs for this business is a duty payable to the government of the U.K. which is recorded gross within revenues
and direct costs, without impact on the margin generated by the business.
In 2017, we acquired 213 retail gas stations and associated convenience kiosks of a fuel marketing business in Canada,
which we believe already benefits from significant scale and strong customer loyalty through the PC Optimum loyalty program.
In 2018, we completed the rebranding of all of our retail gas stations to Mobil. In addition, during the year we completed a tuck-
in acquisition and now have 234 retail gas stations and associated convenience kiosks.
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Within our facilities management business, we provide property management, building operations and maintenance and
other value-added solutions, as well as strategic advisory services to a variety of customers across various sectors including
government, military, financial institutions, utilities, industrial and corporate offices. Subsequent to year-end, together with
institutional partners, we announced an agreement to sell our facilities management business to CCMP Capital Advisors, LP for
approximately $1 billion. Closing of the transaction remains subject to customary closing conditions and is expected to occur in
the second quarter of 2019.
Through our relocation services business, we provide global employee relocation and related services to individuals and
institutions and earn various fees by managing the process of employee relocation, home sale and expense management on behalf
of our clients.
Our construction services business is a global contractor with a focus on high-quality construction, primarily on large-
scale and complex landmark buildings and social infrastructure. Construction projects are generally delivered through contracts
whereby we take responsibility for design, program, procurement and construction for a defined price. The majority of construction
activities are typically subcontracted to reputable specialists whose obligations mirror those contained within the main construction
contract. A smaller part of the business is construction management, whereby we charge a fee for coordination of the sub-trades
employed by the client. We are typically required to provide warranties for completed works, either as specifically defined in a
client contract or required under local regulatory requirements. We issue bank guarantees and insurance bonds to clients and receive
guarantees and/or cash retentions from subcontractors.
We recognize revenue and costs by reference to the stage of completion of the contract activity at the reporting date,
measured as the proportion of contract costs incurred for work performed to date relative to the estimated total contract costs. A
large portion of construction revenues and costs are earned and incurred in Australia and Europe, and are impacted primarily by
the fluctuations in the Australian Dollar and British Pound. A significant portion of our revenue is generated from large projects,
and the results from our construction operations can fluctuate quarterly and annually, depending on the level of work during a
period. As we operate across the globe, our business is impacted by the general economic conditions and economic growth of the
particular region in which we provide construction services.
Some of our business services activities are seasonal in nature and are affected by the general level of economic activity
and related volume of services purchased by our clients.
Infrastructure Services
Our new infrastructure services segment is currently comprised of (i) a global provider of infrastructure services to the
power generation industry, following our acquisition of Westinghouse, and (ii) a services provider to the offshore oil production
industry, following our investment in Teekay Offshore.
On August 1, 2018, we acquired Westinghouse, a global provider of infrastructure services to the power generation
industry. The partnership funded approximately $405 million of the equity purchase price for a 44% ownership interest.
Westinghouse is one of the world’s leading suppliers of infrastructure services to the power generation industry and generates a
significant majority of its earnings from regularly recurring refueling and maintenance services, primarily under long-term contracts.
Westinghouse is the original equipment manufacturer or technology provider for approximately 50% of global nuclear
power plants and services approximately two thirds of the world’s nuclear reactors. Over decades of technological innovation and
being at the forefront of the industry, Westinghouse has developed a highly-skilled workforce with know-how across a range of
technologies and world-class capabilities. Westinghouse’s key markets are North America, Europe, the Middle East and Asia.
Westinghouse generates revenue through the entire life of the nuclear power plant. Its products and services help keep
the existing nuclear fleet operating safely and reliably. Westinghouse offers mission-critical fuel, ongoing maintenance services
and engineering solutions. Westinghouse also participates in the decontamination, decommissioning and remediation of power
plant sites at the end of their useful lives and new reactors, as well as provides technology and equipment to new power plants on
a global basis.
The significant majority of the profitability generated by Westinghouse’s core operating plants business is driven by
regularly recurring refueling and maintenance outages. While seasonal in nature, the outage periods and services provided are
required by regulatory standards, creating a stable business demand for Westinghouse’s services. We expect there will be some
inter- and intra-year seasonality, given the pre-set timing of the outage cycles at customer plants. Westinghouse generates the
majority of its revenue during the fall and spring, when power plants go offline to perform maintenance and replenish their fuel.
In addition to performing recurring services, Westinghouse delivers upgrades and performs event-driven work for operating plants
and manufactures equipment and instrumentation and controls for new power plants.
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Our services provider to the offshore oil production industry business, Teekay Offshore Partners L.P. ("Teekay Offshore"),
is an international provider of marine transportation, offshore oil production, facility storage, long-distance towing and offshore
installation, maintenance and safety services to the offshore oil production industry. Teekay Offshore operates shuttle tankers
(highly specialized vessels with dynamic positioning systems used for offloading from offshore oil installations), FPSOs (floating
production storage and offloading units), FSOs (floating storage and offloading units) and long-haul towage vessels, also with
highly specialized capabilities including dynamic positioning. The business operates in selected oil regions globally, including the
North Sea (Norway and United Kingdom), Brazil and Canada.
As a fee-based business focused on critical services, it has limited direct commodity exposure and the company has a
substantial portfolio of medium to long-term, fixed-rate contracts with high quality, primarily investment grade counterparties. In
addition, most services the business provides have high switching costs, represent a modest part of the overall cost of production
and are required for its customers to generate revenue.
On July 3, 2018, we increased our ownership in Teekay Offshore GP L.L.C. ("Teekay Offshore GP"), from 49% to 51%,
which resulted in the acquisition of a controlling stake of Teekay Offshore. A substantial part of our revenue is based on contracts
with customers and are fee-based which is recognized on a straight-line basis daily over the term of the contracts. As a fee-based
business focused on critical services, the business has limited direct commodity exposure and has a substantial portfolio of medium
to long-term, fixed-rate contracts with high quality, primarily investment grade counterparties.
Industrial Operations
Our industrial operations segment consists primarily of (i) specialty metal and aggregates mining operations in Canada,
(ii) select industrial manufacturing operations, comprised principally of the global production of graphite electrodes and the
manufacturing of infrastructure support products in Canada, (iii) water and wastewater services in Brazil, and (iv) natural gas
exploration and production.
We hold interests in specialty metal and aggregates mining operations in Canada. The mining operations currently consist
of a limestone aggregates quarry located in northern Alberta, Canada and the Lac des Iles, or LDI, mine in Ontario, Canada. The
limestone quarry has 459.2 million tonnes of proven mineral reserves and 539.5 million tonnes of probable mineral reserves. Total
sales volume for 2018 was 2.2 million tonnes.
As at September 2018, the LDI mine had an estimated 40.9 million tonnes of underground and surface reserves with an
average grade of 2.31 g/t palladium. Decommissioning liabilities relating to legal and constructive obligations for future site
reclamation and closure of the mine sites are recognized when incurred and a liability and corresponding asset are recorded at
management’s best estimate. Reclamation costs are secured by a letter of credit and estimated closure and restoration costs are
provided for in the accounting period when the obligation arising from the related disturbance occurs. Total tonnes milled increased
in 2018 to 4,237,734, compared to 2,780,119 tonnes in the prior year. This increase reflects the return to full-time milling,
supplemented by an increase in underground production.
Our industrial operations segment includes a manufacturer of graphite electrodes and needle coke products used in the
production of graphite electrodes. Graphite electrodes are primarily used in electric arc furnaces in mini-mill steel making and a
significant portion of our sales are to the steel production industry. We completed the acquisition of this business in August 2015,
at what we believe was a low point in the industry cycle, driven primarily by the oversupply and downward price pressure in the
steel market. This is a capital-intensive business with significant barriers to entry and requires technical expertise to build and
profitably operate. We have streamlined our processes with shorter lead times, lower costs, higher quality products and superior
service, which should allow us to generate cash flows and returns as we come out of the trough in this cyclical business.
In June 2015, we acquired operations that manufacture and market a comprehensive range of infrastructure products and
engineered construction solutions. We acquired these operations by converting our term loan position, which we acquired in 2011,
into an ownership position pursuant to a plan of arrangement under the Companies' Creditors Arrangement Act (Canada). Prior
to the recapitalization, our consolidated results included interest and fees on our loan position. We manufacture and market
engineered precast concrete systems such as parking garages, bridges, sport venues and building envelopes. We service customers
in a diverse cross-section of industries that are located across Canada. Growth and profitability in these operations are directly
impacted by the demand for infrastructure. We are now in the process of disposing of these operations.
In May 2018, together with institutional partners, we acquired a controlling stake in Schoeller Allibert Group B.V.
("Schoeller Allibert"), a leading European provider of returnable plastic packaging with the remaining shares being held by the
founding family of the company. Schoeller Allibert has a strong competitive position given its extensive scale, diversified base of
long-term customers serving multiple industries and its strong reputation for product innovation. The business operates in a growing
segment of the packaging space that has favorable long-term trends driven by an increased focus on sustainability and logistics.
In addition, we view Schoeller Allibert as a company with the opportunity to become larger, both organically by entering new
markets and developing new products, and through acquisitions.
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Schoeller Allibert operates manufacturing sites across Europe and one in Phoenix, Arizona and employs 2,000 employees
with a diverse, long-standing customer base. We believe that we can capture a meaningful portion of the growth potential of the
market, driven by a shift away from one-way packaging as well as delivering on operational efficiency improvements. We are
focused on implementing efficiencies and growing the platform.
In 2017, we acquired a controlling stake in the largest private water company in Brazil ("BRK Ambiental"). BRK Ambiental
provides water and wastewater services, including collection, treatment and distribution, to a broad range of residential, industrial,
commercial and governmental customers through long-term, inflation-adjusted concession, PPP and take-or pay contracts
throughout Brazil. We believe the business can capture a growing share of the water and sewage improvements planned in Brazil
over the next two decades, enabling the deployment of significant additional capital with stable, attractive risk-adjusted returns.
Our natural gas exploration and production operations leverage the history and pedigree of Brookfield as an owner and
operator of capital intensive businesses. Our energy operations business has been built using the acquisition strategy that we have
adopted for our business generally and is comprised of Canadian natural gas exploration and production, through our coal-bed
methane, or CBM, platform in Alberta, Canada. We also operate a well servicing and contract drilling operations primarily located
in the Western Canadian Sedimentary Basin, or WCSB.
Our Canadian properties produce approximately 42,000 barrels of oil equivalent per day, or BOE/d. Our CBM properties
are characterized by long-life, low-decline reserves located at shallow depths and are low-risk with low-cost capital projects.
Revenue from the sale of gas is recognized when title to the product transfers to the purchasers based on volumes delivered and
contractual delivery points and prices. Revenue from the production of gas, in which we have an interest with other producers, is
recognized based on our working interest. Revenues from this operation are exposed to fluctuations based on commodity price
movements.
Our Western Australian oil and gas operation was acquired in June 2015 and had been held through a joint venture interest.
On November 26, 2018, together with institutional partners, we completed the sale of this business to Santos Limited for US$2.15
billion. As part of the sale agreement, we retained the right to receive a contingent payment in relation to Quadrant's significant
Dorado-1 oil discovery and a royalty over all other future hydrocarbons produced in Quadrant's Bedout Basin tenements. This
enables us to maintain exposure to the upside in these exploration interests.
In our industrial operations segment, we expect to incur future costs associated with dismantlement, abandonment and
restoration of our assets. The present value of the estimated future costs to dismantle, abandon and restore are added to the capitalized
costs of our assets and recorded as a long-term liability.
Our operations also include contract drilling and well-servicing operations, primarily located in the Western Canadian
Sedimentary Basin, or WCSB. Our contract drilling and well-servicing revenues are based upon orders and contracts with customers
that include fixed or determinable prices and are based upon daily, hourly or contracted rates. A significant portion of the servicing
revenue is derived from large national and international oil and gas companies which operate in Alberta, Canada. We experience
seasonality in this business as the ability to move heavy equipment safely and efficiently in western Canadian oil and gas fields
is dependent on weather conditions. Activity levels during the first and fourth quarter are typically the most robust, as the frost
creates a stable ground mass that allows for easy access to well sites and easier drilling and service rig movement, while the second
quarter is traditionally the slowest due to road bans during spring break up.
Corporate and Other
Corporate and other includes corporate cash and liquidity management, as well as activities related to the management
of the partnership's relationship with Brookfield.
Outlook
We seek to increase the cash flows from our operations through acquisitions and organic growth opportunities as described
below. We believe our global scale and leading operating platform allows us to efficiently allocate capital around the world toward
those sectors and geographies where we see the greatest opportunities to realize our targeted returns. We also actively seek to
monetize assets on our balance sheet as they mature and reinvest the proceeds into higher yielding investment strategies, further
enhancing returns.
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Within our business services segment, we are growing our road fuels marketing and distribution platform through tuck-
in acquisitions, expanding into new regions and new product lines. At our entertainment facilities, our long-term growth strategy
includes enhancing guest experience and expanding properties to incorporate state-of-the-art facilities, hotels and premier
entertainment venues. Early construction is underway on the broader facility at our Woodbine and Pickering sites. Our construction
services business is one of the strongest operators globally and we continue to win new work and maintain a strong backlog in
core markets in Australia and the U.K. as we focus on returning to more historical levels of profitability. Our recent acquisition
of a provider of a high speed fixed wireless broadband company in rural Ireland, Imagine, provides us an initial entry point into
technology services. Our investment will fund additional capital as Imagine completes its roll out to customers. The technology
sector is an area of huge potential growth for us, given the scale of opportunity and increasing number of opportunities.
Within our infrastructure services segment, during 2018, we acquired a service provider to the power generation industry,
Westinghouse. We continue to work with the management team to implement our business plan to further enhance profitability
by strengthening the supply chain and enhancing focus on customers.
Within our industrial operations segment, during 2018, we realized a number of monetizations, including the partial
monetization of our graphite electrode manufacturing business through the sale of shares in an IPO and secondary offering, and
the sale of Quadrant Energy. Looking ahead, our graphite electrode manufacturing business continues to find operational
improvements, focusing on debottlenecking capacity at its plants and optimizing remaining sales. We expect the business to
generate continued strong cash flows. We also continue to progress operational improvement initiatives at our water and wastewater
service operations, including safety performance, completion of our water quality assurance program, expanding our lending
relationships, reducing overall borrowing costs and acceleration of capital expenditures to increase the scope of operations. Our
palladium mining operations continues to benefit from strength in demand for and price of palladium, together with the positive
impact of operation improvements we have made. Analyst consensus on palladium pricing continues to be over $1,000 per ounce
based on a sustained global supply deficit and continued strong demand for the metal in automobile catalysts in both gasoline and
hybrid vehicles.
In November 2018, together with institutional partners, we reached a definitive agreement to acquire Johnson Controls'
Power Solutions ("Power Solutions") business for $13.2 billion (approximately $750 million of equity to be funded by BBU).
Headquartered in Milwaukee, Power Solutions is the leading global producer of advanced batteries for automakers and aftermarket
distributors and retailers for use in nearly all types of vehicles, including hybrid and electric models. While Power Solutions is a
high-quality business, we have identified opportunities to further enhance value at the company.
Subsequent to year-end, together with institutional partners, we reached a definitive agreement to acquire up to 100% of
Healthscope Limited ("Healthscope") for up to $4.1 billion (approximately $250 million of equity to be funded by BBU).
Healthscope is the second largest private hospital operator in Australia with 43 private hospitals across every state and is also the
largest pathology services provider in New Zealand. The company has strong fundamentals and represents an opportunity to acquire
a high-quality business providing best-in-class essential services to the well-established and growing private healthcare sector in
Australia. While Healthscope is a high-quality business with a sustainable competitive advantage, we have also identified potential
areas of business improvement.
Geographically, our strategy is to take a long-term view on the regions where Brookfield has an established presence,
and to invest further during periods of market weakness. For example, in 2017 we acquired a 70% interest in BRK Ambiental, the
largest private water company in Brazil, as that country emerges from recession. We believe there will be considerable opportunities
to expand BRK Ambiental’s operations while achieving strong, risk adjusted returns on capital. In India, the government has made
strides in making the operating and legal environments more investor friendly and the expected GDP growth rate is projected to
be strong, making it another attractive market to invest in for the long-term.
The opportunities for our partnership to increase cash flows through acquisitions and organic growth are based on
assumptions about our business and markets that management believes are reasonable in the circumstances. There can be no
assurance as to growth in our cash flows, or capital deployed for acquisitions or organic growth. See “Special Note Regarding
Forward-Looking Statements" included in this Form 20-F.
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Review of Consolidated Results of Operations
The table below summarizes our results of operations for the years ended December 31, 2018, 2017 and 2016. Further
details on our results of operations and our financial performance are presented within the "Segment Analysis" section.
(US$ Millions, except per unit amounts)
Revenues
Direct operating costs
General and administrative expenses
Depreciation and amortization expense
Interest income (expense), net
Equity accounted income, net
Impairment expense, net
Gain (loss) on acquisitions/dispositions, net
Other (expense) income, net
Income (loss) before income tax
Current income tax (expense) recovery
Deferred income tax recovery (expense)
Net income (loss)
Attributable to:
Limited partners (1)
Brookfield Asset Management (2)
Non-controlling interests attributable to:
Redemption-Exchange Units held by
Brookfield Asset Management (1)
Special limited partners
Interest of others
Basic and diluted earnings per limited partner
unit (3) (4)
____________________________________
Year Ended December 31,
Change
$
$
$
2018
37,168
(34,134)
(643)
(748)
(498)
10
(218)
500
(136)
1,301
(186)
88
1,203
74
—
70
278
781
1,203
1.11
$
$
$
$
$
$
$
$
2017
22,823
(21,876)
(340)
(371)
(202)
69
(39)
267
(108)
223
(30)
22
215
$
(58) $
—
(60)
142
191
215
$
2016
2018 vs 2017
2017 vs 2016
$
7,960
(7,386)
(269)
(286)
(90)
68
(261)
57
(11)
(218)
(25)
41
(202) $
$
3
(35)
3
—
(173)
(202) $
14,345
(12,258)
(303)
(377)
(296)
(59)
(179)
233
(28)
1,078
(156)
66
988
132
—
130
136
590
988
$
$
$
$
14,863
(14,490)
(71)
(85)
(112)
1
222
210
(97)
441
(5)
(19)
417
(61)
35
(63)
142
364
417
(1.04) $
0.06
(1)
(2)
(3)
(4)
For the periods subsequent to June 20, 2016.
For the periods prior to June 20, 2016.
Average number of partnership units outstanding on a fully diluted time weighted average basis, assuming the exchange of redemption exchange units
held by Brookfield Asset Management for limited partnership units, for the year ended December 31, 2018 was 129.3 million (2017: 113.5 million,
2016: 92.9 million).
Income (loss) attributed to limited partnership units on a fully diluted basis is reduced by incentive distributions paid to special limited partnership
unitholders during the year ended December 31, 2018.
Comparison of the Years Ended December 31, 2018 and December 31, 2017
For the year ended December 31, 2018, we reported net income of $1,203 million, with $422 million of net income
attributable to unitholders. This compares to net income of $215 million, with $24 million of net income attributable to unitholders,
for the year ended December 31, 2017. The increase in net income was primarily attributable to stronger results in our industrial
operations segment from our graphite electrode manufacturing business, a step-up gain recognized on the consolidation of Teekay
Offshore in July 2018, and a gain recognized on the sale of our Western Australian energy operations in November 2018 and on
the disposition of our 33% ownership interest in our real estate brokerage services business in April 2018. This was partially offset
by an impairment charge recognized within our Canadian energy operation during the third quarter of 2018. 2017 results include
a net gain realized on the disposition of our bath and shower products manufacturing business and a provision taken in our
construction services business.
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Revenue
For the year ended December 31, 2018, revenue increased by $14,345 million, to $37,168 million, compared to $22,823
million for the year ended December 31, 2017. The increase in revenues was primarily due to a full year of contribution from
Greenergy, as a result of the acquisition of the business in the second quarter of 2017. Included in the revenue and direct operating
costs for Greenergy is a duty payable to the government of the U.K. The duty is considered a production cost, rather than a sales
tax, as Greenergy is obligated for the tax and passes this cost to the customer; this flow through duty amount is recorded gross
within revenues and direct costs without impact on the margin generated by the business. The 2018 acquisitions of Schoeller
Allibert, Westinghouse and the consolidation of Teekay Offshore also contributed to the incremental increase in revenues during
the year. In addition, stronger pricing at our graphite electrode manufacturing business and the acquisitions of BRK Ambiental
and our fuel marketing business in 2017 contributed to higher revenues.
Direct Operating Costs
For the year ended December 31, 2018, direct operating costs increased by $12,258 million, to $34,134 million from
$21,876 million for the year ended December 31, 2017. The increase in direct operating costs was primarily related to a full year
of contribution from Greenergy. As noted above, included in the revenue and direct operating costs for Greenergy is a duty payable
to the government of the U.K., which are recorded gross within revenues and direct costs without impact on the margin generated
by the business. The 2018 acquisitions of Schoeller Allibert, Westinghouse and the consolidation of Teekay Offshore contributed
to the incremental increase in direct operating costs during the year. The acquisitions of BRK Ambiental and our fuel marketing
business in 2017 contributed to the incremental increase.
General and Administrative Expenses
For the year ended December 31, 2018, general and administrative, G&A, expenses increased by $303 million to $643
million from $340 million from the same period in the prior year. The increase in G&A expenses is primarily due to the acquisitions
of Schoeller Allibert and Westinghouse during 2018, as well as incremental increases related to the acquisition of Greenergy, BRK
Ambiental and our fuel marketing business in 2017.
Depreciation and Amortization Expense
Depreciation and amortization, D&A, expense includes depletion related to oil and gas assets, depreciation of property,
plant and equipment, or PP&E, as well as the amortization of intangible assets. The highest contribution to D&A expense is from
our infrastructure services and industrial operations segment. The D&A expense in our infrastructure services segment is mainly
attributed to the amortization of customer contracts and depreciation at Westinghouse and the depreciation of vessels and equipment
at Teekay Offshore. The D&A expense in our industrial operations segment is primarily depreciation on PP&E assets at our graphite
electrode manufacturing operations and our water and wastewater services, and our energy assets, where PP&E is depleted on a
unit-of-production basis over the proved plus probable reserves. We use National Instrument 51-101 -Standards of Disclosure for
Oil and Gas Activities, as the basis for defining and calculating proved and probable reserves for purposes of the D&A expense
calculations. D&A is generally consistent year-over-year with large changes typically due to the addition or disposal of depreciable
assets.
For the year ended December 31, 2018, D&A expense increased by $377 million from $371 million in the year ended
December 31, 2017. The increase in D&A expense was primarily due to the acquisitions of Schoeller Allibert and Westinghouse,
combined with the consolidation of Teekay Offshore.
Interest Income (Expense), net
For the year ended December 31, 2018, interest expense increased by $296 million when compared to the year ended
December 31, 2017. The increase was primarily due to higher borrowings with the consolidation of Westinghouse and Teekay
Offshore. In addition, interest expense increased at our graphite electrode manufacturing business as a result of the senior secured
term loan facility and revolving credit facility put in place during the year.
Equity Accounted Income, net
For the year ended December 31, 2018, equity accounted income decreased by $59 million relative to the prior year. The
decrease was primarily related to the sale of Quadrant Energy in the fourth quarter of 2018, the disposition of our real estate
brokerage services business during the second quarter of 2018, and partially offset by the incremental contribution of our
entertainment operations, which were acquired during the first quarter of 2018.
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Impairment Expense, net
For the year ended December 31, 2018, impairment expense increased by $179 million to $218 million from $39 million,
for the year ended December 31, 2017. During the year ended December 31, 2018, we recorded an impairment expense of
approximately $210 million related to the write down of property, plant and equipment in our Canadian oil and gas operations as
a result of continued weakness in oil and gas prices. For the year ended December 31, 2017, we recognized a write-down of an
investment within our industrial operation segment that was sold in the third quarter of 2017, as well as on certain non-core assets
held for sale within our graphite electrode manufacturing business and on an intangible asset in our business services segment.
Goodwill increased by $857 million to $2,411 million as at December 31, 2018, which was primarily due to the
consolidation of Teekay Offshore and the acquisitions of Westinghouse, Schoeller Allibert and Imagine during the year. There
were no indicators of goodwill impairment since the acquisitions.
Gains on Acquisitions/Dispositions, net
For the year ended December 31, 2018, we recorded a net gain on dispositions of $500 million, compared to $267 million
for the year ended December 31, 2017. These gains were primarily related to the step-up gain recognized in Teekay Offshore from
the change in control and associated change in accounting from equity accounted investment to consolidation during the third
quarter of 2018. In addition, we recognized a gain on the disposition of our 33% ownership interest in our real estate brokerage
services business and the sale of our Australian energy operation. For the year ended December 31, 2017, we recorded a net gain
on disposition primarily related to the sale of our bath and shower products manufacturing business, as well as dispositions of
public investment securities, partially offset by the loss on the sale of Insignia Energy.
Other (Expenses) Income, net
For the year ended December 31, 2018, we had other expenses of $136 million, compared to $108 million for the year
ended December 31, 2017. These expenses were primarily related to mark to market fair value movements on derivatives in our
business services, industrial operations, and corporate segments, as well as transaction costs incurred on the acquisition of
Westinghouse. Other expenses in 2017 were primarily related to provisions taken in our business services segment, a decrease on
the revaluation of an investment security within our industrial operations segment and warrants within our infrastructure services
segment. Also included in other expenses for the year ended December 31, 2017 were transactions costs incurred on the acquisitions
and disposition completed during the year, which were partially offset by unrealized gains on hedges in our industrial operations
segment and a bargain purchase gain recognized on an acquisition made by our Canadian well-servicing operations.
Income Tax Expense
For the year ended December 31, 2018, current income tax expense was $186 million and deferred income tax recovery
was $88 million, compared to a $30 million current income tax expense and a $22 million deferred income tax recovery in 2017.
The increase in total tax expense to $98 million for the year ended December 31, 2018 compared to a total tax expense of $8 million
for the year ended December 31, 2017 was primarily attributable to the higher taxable income for the year ended December 31,
2018, primarily in our graphite electrode manufacturing business and resulting from the sale of our Australian energy operation
and our real estate brokerage services business.
Our effective tax rate for the year ended December 31, 2018 was 8% (2017 - 3%), while our composite income tax rate
was 27% (2017 - 27%). We operate in countries with different tax rates, most of which vary from our composite income tax 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 16% decrease in our effective tax rate. The difference will vary from period to period depending on the relative
proportion of income in each country. In addition, our consolidated net income includes income attributable to non-controlling
ownership interests in flow-through entities (for example, partnerships), while our consolidated tax provision includes only our
proportionate share of the tax provision of these entities. This gave rise to a 3% reduction in our effective tax rate.
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Comparison of the Years Ended December 31, 2017 and December 31, 2016
For the year ended December 31, 2017, we reported net income of $215 million, with $24 million of net income attributable
to unitholders. Our net income in 2017 was primarily attributable to the sale of our bath and shower products manufacturing
business in January 2017, which resulted in a net gain on the disposition of $233 million, with an $84 million net gain attributable
to unitholders, net of taxes. In addition, our industrial operations segment benefited from improved performance in our graphite
electrode manufacturing business and our palladium mining operation, as well as higher gas prices due to hedging and higher
drilling rates and greater utilization of our rigs in our Canadian well-servicing operation. Our business services segment benefited
from higher contributions from our residential real estate services and relocation services businesses, which were partially offset
by lower contributions from our financial advisory services business. Net income was also partially offset by the $16 million loss
on sale, net of taxes, of Insignia Energy in our industrial operations segment, lower results in our construction services business
in our business services segment, and higher management and corporate expenses. This compares to a net loss of $202 million,
with a $29 million net loss attributable to unitholders, for the year ended December 31, 2016. The net loss during the year ended
December 31, 2016 was primarily attributable to impairment charges related to the non-core assets held for sale within our graphite
electrode manufacturing business and on an investment security in our industrial operations segment. The decrease was also
attributable to lower realized oil and gas pricing and production in our Canadian energy operations as well as lower gains on
acquisitions and dispositions relative to the year ended December 31, 2015.
Revenue
For the year ended December 31, 2017, revenue increased by $14,863 million, to $22,823 million, compared to $7,960
million for the year ended December 31, 2016. The increase in revenues was primarily due to the acquisition of Greenergy during
the year. Included in the revenue and direct operating costs for Greenergy is a duty payable to the government of the U.K. The
duty is considered a production cost, rather than a sales tax, as Greenergy is obligated for the tax and passes this cost to the customer;
this flow through duty amount is recorded gross within revenues and direct costs without impact on the margin generated by the
business. In addition, the 2017 acquisitions of BRK Ambiental and our fuel marketing business both contributed to the incremental
revenues during the year. Our facilities management business in our business services segment benefited from both higher project
volumes and tuck-in acquisitions which resulted in increased revenues. Revenues in our construction services business increased
as we continued to turn over a higher level of activity and maintain a consistent backlog. Revenues in our industrial operations
segment increased due to improved pricing at our graphite electrode manufacturing business and increased sales volume and
pricing at our palladium mining operations. This was partially offset by a decrease in revenues from the sale of our bath and shower
products manufacturing business in our industrial operations segment in 2017.
Direct Operating Costs
For the year ended December 31, 2017, direct operating costs increased by $14,490 million, to $21,876 million from
$7,386 million for the year ended December 31, 2016. The increase in direct operating costs was primarily related to the acquisition
of Greenergy during the year. As noted, included in the revenue and direct operating costs for Greenergy is a duty payable to the
government of the U.K., which are recorded gross within revenues and direct costs without impact on the margin generated by
the business. In addition, the acquisitions of BRK Ambiental and our fuel marketing business both contributed to the increase in
direct operating costs during the year. Direct operating costs within our facilities management business, our graphite electrode
manufacturing business, and our palladium mining operations also increased in line with revenues. Direct operating costs within
our construction services business increased due to higher project costs in the Middle East. This was partially offset by a decrease
in direct operating costs resulting from the sale of our bath and shower products manufacturing business.
General and Administrative Expenses
For the year ended December 31, 2017, G&A expenses increased by $71 million to $340 million from $269 million from
the same period in the prior year. G&A expenses increased due to the acquisitions of BRK Ambiental, Greenergy, and our fuel
marketing business during the year, which contributed a total of $73 million to G&A expenses for the year ended December 31,
2017. G&A expenses also increased due to higher management fees and corporate expenses as only the latter half of 2016 relates
to periods post spin-off. The increase was partially offset by the sale of our bath and shower products manufacturing business
during the year, which had contributed approximately $30 million to G&A expenses for the year ended December 31, 2016.
Depreciation and Amortization Expense
For the year ended December 31, 2017, D&A expense increased by $85 million compared to the same period ended
December 31, 2016. The increase in D&A was mainly due to the acquisitions of BRK Ambiental, Greenergy, and our fuel marketing
business during the year.
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Interest Expense
For the year ended December 31, 2017, interest expense increased by $112 million when compared to the year ended
December 31, 2016. The increase is due to the inclusion of borrowing costs related to BRK Ambiental, Greenergy, and our fuel
marketing business, all of which were acquired during the year.
Equity Accounted Income, net
For the year ended December 31, 2017, equity accounted income increased by $1 million relative to the prior year. The
increase was primarily related to the revaluation gain on the step up of an investment from a joint venture to a consolidated entity
within our Western Australian energy operation, which was partially offset by the reorganization of the ownership group and a
partial sell down to institutional partners in the latter half of 2016. The increase was further offset by the pick-up of the net loss
in our services provider to the offshore oil production industry business, which incurred transaction costs from the acquisition in
September 2017 and recognized an impairment loss on one of its floating production storage and offloading units.
Impairment Expense, net
For the year ended December 31, 2017, impairment expense decreased by $222 million to $39 million from $261 million,
when compared to the year ended December 31, 2016. During the year ended December 31, 2017, we recognized an impairment
on certain non-core assets held for sale within our graphite electrode manufacturing business in our industrial operations segment
and on an intangible asset in our construction services business in our business services segment. This impairment was substantially
less than the impairment that was recognized on the aforementioned assets within our graphite electrode manufacturing business
in the prior year. In addition, the decrease was also attributable to an impairment recognized on an investment security held in our
industrial operations segment in the prior period.
Goodwill increased by $402 million to $1,554 million as at December 31, 2017, which was primarily due to the acquisitions
of our fuel marketing business and Greenergy, as well as the positive effect of the fluctuations in the foreign exchange rates on
the conversion of our construction services and facilities management operations' goodwill balances to USD. During the year
ended December 31, 2017, these acquisitions generated goodwill of $315 million and there were no indicators of goodwill
impairment since the acquisitions.
Gains on Acquisitions/Dispositions, net
For the year ended December 31, 2017, we recorded a net gain on dispositions of $267 million. These gains were primarily
related to the sale of our bath and shower products manufacturing business in January 2017, in which we realized a gain of
$233 million, or $84 million attributable to unitholders, net of taxes. We also disposed of public investment securities during the
year ended December 31, 2017 in our business services and industrial operations segments for realized gains of approximately
$50 million, or $12 million attributable to unitholders. These gains were partially offset by the loss on the sale of Insignia Energy
in our industrial operations segment during the year. For the year ended December 31, 2016, we recorded a net gain on dispositions
of $57 million primarily related to the sale of corporate bonds and equity securities in our industrial operations segment.
Other Income (Expenses), net
For the year ended December 31, 2017, other expenses of $108 million primarily related to provisions taken in our
construction services business and a decrease on the revaluation of an investment security within our industrial operations segment
and warrants within our infrastructure services segment during the year. Also included in other expenses for the year ended
December 31, 2017 were transaction costs incurred on the acquisitions and dispositions that were completed during the year, which
were partially offset by unrealized gains on hedges in our Canadian energy operations and a bargain purchase gain recognized on
an acquisition made by our Canadian well-servicing operations. For the year ended December 31, 2016, other expenses of $11
million primarily related to unrealized losses on the hedges in our Canadian energy operations, which were partially offset by
derecognition gains related to the repurchase of bonds of our graphite electrode manufacturing business.
Income Tax Expense
For the year ended December 31, 2017, current income tax expense was $30 million and deferred income tax recovery
was $22 million, compared to a $25 million current income tax expense and a $41 million deferred income tax recovery in
2016. The increase in total tax expense to $8 million for the year ended December 31, 2017 compared to a total tax recovery of
$16 million for the year ended December 31, 2016 was primarily attributable to the higher taxable income for the year ended
December 31, 2017, which attracted a higher tax expense when compared to the pre-tax net loss for the same period in the prior
year.
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Our effective tax rate for the year ended December 31, 2017 was 3% (2016 - 7%), while our composite income tax rate
was 27% (2016 - 27%). Our consolidated net income included income attributable to non-controlling ownership interests in flow
through entities (for example, partnerships), while our consolidated tax provision includes only our proportionate share of the tax
provision of these entities. This gave rise to a 17% reduction in our effective tax rate. In addition, the capital gain incurred on the
sale of an investment in our industrial operations segment was subject to a 50% inclusion rate, giving a further 6% reduction in
our effective tax rate.
Summary of Results
Quarterly Results
Total revenues and net income (loss) for the eight most recent quarters were as follows:
(US$ Millions, except per unit amounts)
Three months ended
Revenues
Direct operating costs
General and administrative expenses
Depreciation and amortization expense
Interest income (expense), net
Equity accounted income (loss), net
Impairment expense, net
Gain on acquisitions/dispositions
Other income (expense), net
Income (loss) before income tax
Current income tax (expense)/recovery
Deferred income tax (expense)/recovery
Net income (loss)
Attributable to:
Limited partners
Brookfield Asset Management Inc.
Non-controlling interests attributable to:
Redemption-Exchange Units held
Brookfield Asset Management Inc.
Special limited partners
Interest of others
Net income (loss)
Basic and diluted earnings (loss) per limited
partner unit (1) (2)
____________________________________
$
$
$
$
Q4
$ 10,209
(9,205)
2018
2017
Q3
Q2
Q1
Q4
Q3
Q2
Q1
$ 9,990
(9,080)
(174)
(251)
(148)
(9)
(180)
247
(42)
353
(43)
(25)
285
$
$ 8,775
(8,200)
(142)
(105)
(83)
(7)
—
90
(7)
321
(52)
39
$
308
$ 8,194
(7,649)
(118)
(106)
(86)
17
—
16
(14)
254
(28)
(10)
216
$ 8,379
(8,034)
(107)
(109)
(67)
8
(9)
—
(72)
(11)
(11)
16
(6) $
$
$ 7,640
(7,295)
(95)
(109)
(66)
37
—
(14)
(41)
57
(19)
6
44
$ 4,870
(4,673)
(76)
(88)
(50)
14
(23)
9
(9)
(26)
(4)
4
(26) $
$
$ 1,934
(1,874)
(62)
(65)
(19)
10
(7)
272
14
203
4
(4)
203
(209)
(286)
(181)
9
(38)
147
(73)
373
(63)
84
394
$
$
$
$
70
—
(1) $
—
40
—
66
—
258
394
$
—
94
192
285
38
41
189
308
$
(35) $
—
(79) $
—
(8) $
—
(3) $
—
32
—
(34)
143
142
216
(83)
117
39
(6) $
$
(8)
25
35
44
$
(3)
—
(20)
(26) $
34
—
137
203
1.04
$ — $ 0.60
$ (0.53) $ (1.25) $ (0.15) $ (0.06) $ 0.61
(1)
(2)
Average number of partnership units outstanding on a fully diluted time weighted average basis, assuming the exchange of redemption exchange units
held by Brookfield Asset Management for limited partnership units, for the three months ended December 31, 2018 was 129.3 million and for the three
months ended December 31, 2017 was 129.0 million.
Income (loss) attributed to limited partnership units on a fully diluted basis is reduced by incentive distributions paid to special limited partnership
unitholders during the period.
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Revenue and operating costs vary from quarter to quarter primarily due to acquisitions and dispositions of businesses,
fluctuations in foreign exchange rates, business and economic cycles, and weather and seasonality in underlying operations. Broader
economic factors and commodity market volatility, in particular, have a significant impact on a number of our operations, specifically
within our industrial operations. Seasonality affects our industrial operations segment primarily through our contract drilling and
well-servicing operations, as the ability to move heavy equipment safely and efficiently in western Canadian oil and gas fields is
dependent on weather conditions. Within our infrastructure services, Westinghouse’s core operating plants business generates the
majority of its revenue during the fall and spring, when power plants go offline to perform maintenance and replenish their fuel.
Some of our business services operations will typically have stronger performance in the latter half of the year whereas others,
such as our fuel marketing and fuels distribution businesses, will generate stronger performance in the second and third quarters.
Net income is impacted by periodic gains and losses on acquisitions, monetizations and impairments.
Review of Consolidated Financial Position
The following is a summary of the consolidated statements of financial position as at December 31, 2018 and December 31,
2017:
(US$ Millions)
Assets
Cash and cash equivalents
Financial assets
Accounts receivable, net
Inventory and other assets
Assets held for sale
Property, plant and equipment
Deferred income tax assets
Intangible assets
Equity accounted investments
Goodwill
Total assets
Liabilities and equity in net assets
Liabilities
Accounts payable and other
Liabilities associated with assets held for sale
Corporate borrowings
Non-recourse borrowings in subsidiaries of Brookfield Business
Partners
Deferred income tax liabilities
Equity
Limited partners
General partner
Brookfield Asset Management Inc.
Non-controlling interests attributable to:
Redemption-Exchange Units, Preferred Shares and Special Limited
Partnership Units held by Brookfield Asset Management Inc.
Interest of others in operating subsidiaries
December 31, 2018 December 31, 2017
Change
December 2018 vs
December 2017
$
$
$
$
$
$
1,949
1,369
5,160
3,075
63
6,947
280
5,523
541
2,411
$
1,106
784
4,362
1,577
14
2,530
174
3,094
609
1,554
843
585
798
1,498
49
4,417
106
2,429
(68)
857
27,318
$
15,804
$
11,514
9,082
$
5,638
$
3,444
$
$
9
—
10,866
867
20,824
1,548
—
—
1,415
3,531
6,494
$
$
—
—
3,265
837
9,740
1,585
—
—
1,453
3,026
6,064
9
—
7,601
30
11,084
(37)
—
—
(38)
505
430
Total liabilities and equity
$
27,318
$
15,804
$
11,514
Brookfield Business Partners
69
Table of Contents
Financial Assets
Financial assets increased by $585 million from $784 million as at December 31, 2017, to $1,369 million as at
December 31, 2018. The increase was primarily due to the acquisition of Westinghouse within our infrastructure services segment
and an increase in our residential loan balances to Indian developers and other equity securities balances, combined with an increase
in the fair value of derivatives at Greenergy. These were partially offset by the elimination of warrants held in Teekay Offshore
on consolidation within our infrastructure services segment.
The following table presents financial assets by segment as at December 31, 2018 and December 31, 2017:
(US$ Millions)
December 31, 2018
December 31, 2017
Accounts Receivable
Business
Services
Infrastructure
Services
Industrial
Operations
Corporate
and Other
$
$
623
438
$
$
360
102
$
$
333
244
$
$
$
53
— $
Total
1,369
784
Accounts receivable increased by $798 million from $4,362 million as at December 31, 2017, to $5,160 million as at
December 31, 2018. The increase was primarily due to the acquisition of Westinghouse and the consolidation of Teekay Offshore,
combined with an increase at our graphite electrode manufacturing business as a result of higher pricing, partially offset by lower
receivables in our business services segment.
Inventory and Other Assets
Inventory and other assets increased by $1,498 million from $1,577 million as at December 31, 2017, to $3,075 million
as at December 31, 2018. The increase was primarily related to the consolidation of Teekay Offshore, as well as the acquisitions
of Westinghouse and Schoeller Allibert, partially offset by lower inventory at Greenergy.
Assets Held for Sale
Assets held for sale were $63 million as at December 31, 2018, compared to $14 million as at December 31, 2017. The
increase is primarily due to the reclassification of certain assets in our infrastructure support products manufacturing operation to
held for sale.
Property, Plant & Equipment
Property, plant and equipment ("PP&E") was primarily related to our industrial operations and business services segments.
The PP&E balance of $6,947 million as at December 31, 2018 increased by $4,417 million when compared to $2,530 million as
at December 31, 2017. The increase is primarily due to the acquisitions completed during the year, as well as the consolidation of
Teekay Offshore, partially offset by an impairment recorded in our Canadian natural gas operations during the year.
Intangible Assets
Intangible assets were primarily related to our industrial operations and business services segments. Intangible assets
increased by $2,429 million, from $3,094 million as at December 31, 2017, to $5,523 million as at December 31, 2018. The increase
in intangible assets was primarily due to the acquisitions completed during the year, partially offset by a reduction at BRK Ambiental
due to foreign exchange movements.
Equity Accounted Investments
Equity accounted investments decreased by $68 million, from $609 million as at December 31, 2017 to $541 million as
at December 31, 2018, primarily due to the disposition of our 33% ownership interest in our real estate brokerage services business
in the second quarter, as well as the disposition of our Australian energy operations in the fourth quarter of the year. This was
partially offset by the consolidation of Teekay Offshore.
Goodwill
Goodwill increased by $857 million from $1,554 million as at December 31, 2017, to $2,411 million as at December 31,
2018. This increase was primarily due to the consolidation of Teekay Offshore, combined with goodwill recognized on acquisitions
completed during 2018.
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Accounts Payable and Other
Accounts payable and other increased by $3,444 million from $5,638 million as at December 31, 2017, to $9,082 million
as at December 31, 2018. The increase is mainly attributable to acquisitions completed during the year, combined with an increase
in payables at our graphite electrode manufacturing business due to an increase in raw material prices, partially offset by a decrease
in trade payables at Greenergy.
Corporate and Non-Recourse Borrowings
Borrowings are discussed in Item 5.B. "Liquidity and Capital Resources".
Equity Attributable to Unitholders
As at December 31, 2018, our capital structure was comprised of two classes of partnership units, LP Units and GP Units.
LP Units entitle the holder to their proportionate share of distributions. GP Units entitle the holder the right to govern our financial
and operating policies. See Item 10.B., "Memorandum and Articles of Association — Description of our Units and our Limited
Partnership Agreement"
Holding LP's capital structure is comprised of three classes of partnership units: Special LP Units, managing general
partner units and Redemption-Exchange Units held by Brookfield. In its capacity as the holder of the Special LP units of Holding LP,
the special limited partner is entitled to receive incentive distributions based on a 20% increase in the unit price of the partnership
over an initial threshold. See Item 10.B, "Memorandum and Articles of Association — Description of the Holding LP Limited
Partnership Agreement".
During the fourth quarter of 2018, the volume weighted average price per unit was $38.20, which was below the previous
incentive distribution threshold of $41.96/unit, resulting in an incentive distribution of $nil for the quarter.
As part of the spin-off, Brookfield also subscribed for $15 million of preferred shares of our holding entities.
On August 11, 2017, the Toronto Stock Exchange accepted a notice filed by the partnership of our intention to commence
a normal course issuer bid, or NCIB, for our LP Units. Under the NCIB, our Board of Directors authorized us to repurchase up
to 5% of the issued and outstanding units as at August 11, 2017, or 2,592,264 units.
On September 26, 2017, the partnership issued 13,340,000 LP Units at a price of $30 per unit, for gross proceeds of
approximately $400 million before equity issuance costs of $8 million. Concurrently, Holding LP issued 6,945,000 redemption-
exchange units to Brookfield at $28.80 per unit for additional proceeds of approximately $200 million. The unit offering resulted
in a decrease in Brookfield's ownership in the partnership from 75% to 69% before giving effect to the over-allotment option.
On October 26, 2017, the underwriters exercised their over-allotment option to purchase an additional 1,000,500 units
at a price of $30.00 per unit, for gross proceeds of approximately $30 million less equity issuance costs of approximately $1
million. The over-allotment option resulted in a decrease in Brookfield's ownership in the partnership from 69% to 68%.
On August 10, 2018, the Toronto Stock Exchange accepted a notice filed by the partnership of its intention to commence
a normal course issuer bid, or NCIB, for its limited partnership units. Under the NCIB, our Board of Directors authorized us to
repurchase up to 10% of the issued and outstanding units as at August 9, 2018, or 3,371,900 units.
As at December 31, 2018 and December 31, 2017, the total number of partnership units outstanding are as follows:
UNITS
GP Units
LP Units
Non-controlling interests:
December 31, 2018
December 31, 2017
4
66,185,798
4
66,185,798
Redemption-Exchange Units, held by Brookfield
Special LP Units
63,095,497
63,095,497
4
4
On January 3, 2019, we announced that, in connection with our NCIB, we entered into an automatic purchase plan. The
maximum amount of units which may be repurchased under the NCIB was amended from 3,371,900 units, being 10% of the public
float, to 3,309,289 units, which equals 5% of the total issued and outstanding units. As of March 8, 2019, 89,027 units had been
repurchased.
Brookfield Business Partners
71
Table of Contents
Segment Analysis
IFRS 8, Operating Segments, requires operating segments to be determined based on internal reports that are regularly
reviewed by our chief operating decision maker, or CODM, for the purpose of allocating resources to the segment and to assessing
its performance. Our operations are organized into four operating segments which are regularly reviewed by our CODM. The key
measures used by the CODM in assessing performance and in making resource allocation decisions are company funds from
operations, or Company FFO, and Company EBITDA.
Periodically we review the organizational and governance structure of our businesses. In connection with the acquisition
of Westinghouse and the disposition of our Australian energy operation, we have realigned the organizational and governance
structure of our businesses and have changed how the partnership evaluates financial information for management decision making
which has resulted in a change in our operating segments.
Specifically, our construction services segment and business services segment are presented as a single operating segment
called business services. Infrastructure services is a new operating segment, which includes our investments in Westinghouse and
Teekay Offshore. The energy segment has been eliminated and the remainder of our energy businesses are evaluated with and
presented within our industrial operations segment.
The partnership has retrospectively applied these segment changes for all periods presented.
Company FFO is calculated as net income excluding the impact of depreciation and amortization, deferred income taxes,
breakage and transaction costs, non-cash gains or losses and other items. Company FFO is presented net to unitholders, or net to
parent company. When determining Company FFO, we include our proportionate share of Company FFO of equity accounted
investments. Company FFO is considered a key measure of our financial performance and we use Company FFO to assess operating
results and our business performance. Company FFO is further adjusted as Company EBITDA to exclude the impact of realized
disposition gains (losses), interest expense, current income taxes, and realized disposition gains, current income taxes and interest
expenses related to equity accounted investments, and other items. Company EBITDA is presented net to unitholders, or net to
parent company. See "Reconciliation to Non-IFRS Measures" for a more fulsome discussion, including a reconciliation to the
most directly comparable IFRS measures.
The following table presents Company EBITDA and Company FFO for the years ended December 31, 2018, 2017 and
2016:
(US$ Millions)
Revenues
Direct operating costs
General and administrative expenses
Equity accounted Company EBITDA
Company EBITDA attributable to others (1)
Company EBITDA (2) (3)
Realized disposition gains, net
Other income (expense), net
Interest income (expense), net
Realized disposition gain, current income taxes and interest expenses related to
equity accounted investments
Current income taxes
Company FFO attributable to others (net of Company EBITDA attributable to
others) (1)
Company FFO (2) (3)
____________________________________
Year Ended December 31,
2018
37,168
(34,134)
(643)
196
(1,744)
843
$
$
2017
22,823
(21,876)
(340)
108
(475)
240
$
$
2016
7,960
(7,386)
(269)
167
(232)
240
250
(18)
(498)
(54)
(186)
244
—
(202)
(17)
(30)
396
733
$
17
252
$
57
—
(90)
(9)
(25)
27
200
$
$
$
(1)
(2)
(3)
Attributable to interests of others in our operating subsidiaries.
Attributable to parent company prior to the spin-off on June 20, 2016, and to limited partnership unitholders, general partnership unitholders, redemption-
exchange unitholders, and special limited partnership unitholders post spin-off. For the year ended December 31, 2018 and December 31, 2017, equity
is also attributable to preferred shareholders and Special LP unitholders.
Company FFO is a non-IFRS measure and is calculated as net income excluding the impact of depreciation and amortization, deferred income taxes,
breakage and transaction costs, non-cash gains or losses and other items. When determining Company FFO, we include our proportionate share of
72
Brookfield Business Partners
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Company FFO of equity accounted investments. Company FFO is further adjusted as Company EBITDA to exclude the impact of realized disposition
gains (losses), interest expense, current income taxes, and realized disposition gain, current income taxes and interest expenses related to equity accounted
investments and other items. Company EBITDA and Company FFO are presented net to unitholders. For further information on Company FFO and
Company EBITDA see the “Reconciliation of Non IFRS Measures” section of the MD&A.
Comparison of the Years Ended December 31, 2018 and December 31, 2017
For the year ended December 31, 2018, we reported Company EBITDA of $843 million, an increase of $603 million
compared to the year ended December 31, 2017. The increase in company EBITDA for the year ended December 31, 2018 was
primarily due to improved pricing and operational performance at our graphite electrode manufacturing business, combined with
contributions from acquisitions completed in 2018 and 2017, as well as a settlement received in our infrastructure services segment.
For the year ended December 31, 2018, we reported Company FFO of $733 million, representing an increase of $481
million compared to the year ended December 31, 2017, primarily due to the factors described above. Company FFO also benefited
from the disposition of our interest in our real estate brokerage services business in the second quarter of 2018, and our Australian
energy operations in the fourth quarter of 2018. The increase was partially offset by the net gain realized on the 2017 disposition
of our bath and shower product manufacturing business.
Comparison of the Years Ended December 31, 2017 and December 31, 2016
For the year ended December 31, 2017, we reported Company EBITDA of $240 million, consistent with the year ended
December 31, 2016. Company EBITDA for the year ended December 31, 2017 was primarily due to the contribution from our
industrial operations segment, specifically BRK Ambiental which was acquired in April 2017, and improved pricing and operational
performance at our graphite electrode manufacturing business and our palladium mining operation, which together, contributed
$47 million to Company EBITDA. Our infrastructure services segment benefited from a contribution of $34 million to Company
EBITDA from the acquisition of our services provider to the offshore oil production industry in September 2017. Company EBITDA
for the year ended December 31, 2017 was partially offset by lower results in our construction services business, a lower contribution
from our financial advisory services business, and higher management and corporate expenses.
For the year ended December 31, 2017, we reported Company FFO of $252 million, representing an increase of $52
million compared to the year ended December 31, 2016. Company FFO benefited from the disposition of our bath and shower
products manufacturing business in January 2017, resulting in a realized gain of $233 million, or $84 million attributable to
unitholders, net of taxes. We also disposed of public investment securities for realized gains of approximately $50 million, or $12
million attributable to unitholders. This was partially offset by the loss on the sale of Insignia Energy in our industrial operations
segment of $48 million, or $16 million attributable to unitholders net of taxes in August 2017, and the fact that Company FFO in
the prior period benefited from $57 million in gains related to the sale of investment securities during the year ended December 31,
2016.
Business Services
The following table presents Company EBITDA and Company FFO for our business services segment for the years ended
December 31, 2018, 2017 and 2016:
(US$ Millions)
Revenues
Direct operating costs
General and administrative expenses
Equity accounted Company EBITDA
Company EBITDA attributable to others (1)
Company EBITDA (2) (3)
Realized disposition gains, net
Interest income (expense), net
Realized disposition gain, current income taxes and interest expenses related to
equity accounted investments
Current income taxes
Company FFO attributable to others (net of Company EBITDA attributable to
others) (1)
Company FFO (2) (3)
$
$
$
Year Ended December 31,
2018
30,847
(30,351)
(278)
34
(124)
128
$
$
2017
20,874
(20,448)
(182)
28
(169)
103
$
$
2016
6,393
(6,053)
(146)
23
(44)
173
55
(66)
(3)
(44)
19
(47)
—
(16)
61
131
$
33
92
$
—
(15)
—
(20)
10
148
73
Brookfield Business Partners
Table of Contents
The following table presents equity attributable to unitholders for our business services segment as at December 31,
2018, 2017 and 2016:
(US$ Millions)
Total assets
Total liabilities
Interests of others in operating subsidiaries (1)
Equity attributable to unitholders (2)
Total equity
____________________________________
December 31, 2018
7,613
$
$
$
$
5,549
571
1,493
2,064
December 31, 2017
December 31, 2016
$
$
$
$
7,899
5,930
562
1,407
1,969
$
$
$
$
3,965
2,457
274
1,234
1,508
(1)
(2)
(3)
Attributable to interests of others in our operating subsidiaries.
Attributable to parent company prior to the spin-off on June 20, 2016, and to limited partnership unitholders, general partnership unitholders, redemption-
exchange unitholders, and special limited partnership unitholders post spin-off. For the year ended December 31, 2018 and December 31, 2017, equity
is also attributable to preferred shareholders and Special LP unitholders.
Company FFO is a non-IFRS measure and is calculated as net income excluding the impact of depreciation and amortization, deferred income taxes,
breakage and transaction costs, non-cash gains or losses and other items. When determining Company FFO, we include our proportionate share of
Company FFO of equity accounted investments. Company FFO is further adjusted as Company EBITDA to exclude the impact of realized disposition
gains (losses), interest expense, current income taxes, and realized disposition gain, current income taxes and interest expenses related to equity accounted
investments and other items. Company EBITDA and Company FFO are presented net to unitholders. For further information on Company FFO and
Company EBITDA see the “Reconciliation of Non IFRS Measures” section of the MD&A.
Comparison of the Years Ended December 31, 2018 and December 31, 2017
Revenue from our business services segment for the year ended December 31, 2018 was $30,847 million, an increase of
$9,973 million compared to revenues in 2017 of $20,874 million. Direct operating costs increased by $9,903 million, to $30,351
million for the year ended December 31, 2018, from $20,448 million in 2017. The increase in revenue and direct costs was
primarily due to our acquisition of Greenergy in the second quarter of 2017. Included in the revenue and direct operating costs for
Greenergy is a duty payable to the government of the U.K. which is recorded gross within revenues and direct costs without impact
on the margin generated by the business. For the year ended December 31, 2018, the duty element included in revenues and direct
operating costs was approximately $10,494 million. In addition, the acquisition of our fuel marketing business in 2017 contributed
to both the increase in revenue and direct operating costs during the year.
Company EBITDA in our business services segment was $25 million higher for the year ended December 31, 2018 when
compared to the year ended December 31, 2017. During the year ended December 31, 2018, Company EBITDA increased due to
the acquisition of our entertainment operations, as well as a settlement received in our construction services business, partially
offset by lost contribution from the disposition of our ownership interest in our real estate brokerage services business in the second
quarter of 2018.
Company FFO in our business services segment was $131 million for the year ended December 31, 2018, representing
an increase of $39 million from $92 million in 2017. The increase in Company FFO was primarily due to the aforementioned
acquisition of our entertainment operations, as well as the net gain realized on the disposition of our ownership interest in our real
estate brokerage services business, partially offset by higher current income tax expense.
Maintenance and growth capital expenditures for the year ended December 31, 2018 were $51 million and $60 million
respectively, compared to $20 million and $20 million for the year ended December 31, 2017. Capital expenditures were primarily
related to expansions at our cold storage facilities, rebranding at our fuel marketing business, and equipment purchases, upgrades
and replacements at our construction services business. Capital expenditures for the year ended December 31, 2017 were primarily
from our construction services business, which predominantly consisted of equipment purchases for utilization on our construction
projects across our regions.
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Comparison of the Years Ended December 31, 2017 and December 31, 2016
Revenue from our business services segment for the year ended December 31, 2017 was $20,874 million, an increase of
$14,481 million compared to revenues in the same period in 2016 of $6,393 million. Direct operating costs increased by $14,395
million, to $20,448 million for the year ended December 31, 2017, from $6,053 million in the same period in 2016. The increase
in revenue and direct costs was primarily due to our acquisition of Greenergy in the second quarter of 2017. Included in the revenue
and direct operating costs for Greenergy is a duty payable to the government of the U.K. which is recorded gross within revenues
and direct costs without impact on the margin generated by the business. For the year ended December 31, 2017, the duty element
included in revenues and direct operating costs was approximately $5,036 million. In addition, the acquisition of our fuel marketing
business and higher project volumes in our facilities management business contributed to both the increase in revenue and direct
operating costs during the year.
Company EBITDA in our business services segment was $70 million lower for the year ended December 31, 2017 when
compared to the year ended December 31, 2016. During the year ended December 31, 2017, Company EBITDA decreased due
to increased project costs and underperformance at select projects in our construction services business, as well as lower
contributions from our financial advisory service business. The decrease was partially offset by contributions from the acquisitions
of Greenergy and our fuel marketing business during the second and third quarters of 2017, respectively, as well as higher
contribution from our facilities management business primarily due to the tuck-in acquisitions and the execution of new contracts
during the year.
Company FFO in our business services segment was $92 million for the year ended December 31, 2017, representing a
decrease of $56 million from $148 million in 2016. The decrease in Company FFO was primarily due to the factors mentioned
above, as well as a higher interest expense due to increased borrowings related to the acquisition of Greenergy, partially offset by
realized gains from the sale of investment securities during the first and second quarters of 2017. In addition, our relocation services
business realized a small gain on the strategic sale of certain client contracts during the first quarter of 2017.
Maintenance and growth capital expenditures for the year ended December 31, 2017 were $20 million and $20 million
respectively, compared to $15 million and $17 million for the year ended December 31, 2016. Capital expenditures for the year
ended December 31, 2017 were primarily from our construction services business, which predominantly consisted of equipment
purchases for utilization on our construction projects across our regions.
These expenditures were immaterial for our business services segment for the year ended December 31, 2016 as the
businesses were generally not capital intensive.
Infrastructure Services
The following table presents Company EBITDA and Company FFO for our infrastructure services segment for the years
ended December 31, 2018, 2017 and 2016:
(US$ Millions)
Revenues
Direct operating costs
General and administrative expenses
Equity accounted Company EBITDA
Company EBITDA attributable to others (1)
Company EBITDA (2) (3)
Realized disposition gains, net
Other income (expense), net
Interest income (expense), net
Realized disposition gain, current income taxes and interest expenses related to
equity accounted investments
Current income taxes
Company FFO attributable to others (net of Company EBITDA attributable to
others) (1)
Company FFO (2) (3)
Year Ended December 31,
2018
2017
2016
$
$
$
$
$
2,418
(1,715)
(65)
120
(463)
295
—
(15)
(176)
(41)
(10)
$
$
3
—
—
31
—
34
—
—
—
(13)
—
142
195
$
—
21
$
—
—
—
—
—
—
—
—
—
—
—
—
—
Brookfield Business Partners
75
Table of Contents
The following table presents equity attributable to unitholders for our infrastructure services segment as at December 31,
2018, 2017 and 2016:
(US$ Millions)
Total assets
Total liabilities
Interests of others in operating subsidiaries (1)
Equity attributable to unitholders (2)
Total equity
____________________________________
December 31, 2018
11,640
$
$
$
$
9,129
1,534
977
2,511
December 31, 2017
December 31, 2016
$
$
$
$
306
4
$
$
— $
302
302
$
—
—
—
—
—
(1)
(2)
(3)
Attributable to interests of others in our operating subsidiaries.
Attributable to parent company prior to the spin-off on June 20, 2016, and to limited partnership unitholders, general partnership unitholders, redemption-
exchange unitholders, and special limited partnership unitholders post spin-off. For the year ended December 31, 2018 and December 31, 2017, equity
is also attributable to preferred shareholders and Special LP unitholders.
Company FFO is a non-IFRS measure and is calculated as net income excluding the impact of depreciation and amortization, deferred income taxes,
breakage and transaction costs, non-cash gains or losses and other items. When determining Company FFO, we include our proportionate share of
Company FFO of equity accounted investments. Company FFO is further adjusted as Company EBITDA to exclude the impact of realized disposition
gains (losses), interest expense, current income taxes, and realized disposition gain, current income taxes and interest expenses related to equity accounted
investments and other items. Company EBITDA and Company FFO are presented net to unitholders. For further information on Company FFO and
Company EBITDA see the “Reconciliation of Non IFRS Measures” section of the MD&A.
Comparison of the Years Ended December 31, 2018 and December 31, 2017
As discussed, infrastructure services is a new operating segment which includes our investments in Westinghouse and
Teekay Offshore.
Our infrastructure services segment reported revenue of $2,418 million for the year ended December 31, 2018, compared
to $3 million for the year ended December 31, 2017. The increase is primarily due to the acquisition of Westinghouse and
consolidation of Teekay Offshore, beginning in the third quarter of 2018.
The segment contributed Company EBITDA of $295 million compared to $34 million for the year ended December 31,
2017. Westinghouse contributed $110 million to Company EBITDA during the year ended December 31, 2018. The results were
positively impacted by delivery of projects, partially offset by higher than normal costs associated with the write-up of inventory
as part of our purchase price accounting on the acquisition. The remaining increase in Company EBITDA is primarily from a full
year's contribution from Teekay Offshore. Company EBTIDA benefited from a one-time settlement received by Teekay Offshore
from a customer in Brazil relating to previously-terminated charter contracts.
Company FFO for the year ended December 31, 2018 was $195 million, compared to the year ended December 31, 2017
amount of $21 million. The increase in Company FFO was due to the factors mentioned above.
Maintenance and growth capital expenditures for the year ended December 31, 2018 were $71 million and $82 million
respectively, compared to $nil million and $nil million for the year ended December 31, 2017. Capital expenditures were primarily
related to equipment and tooling expenditures at Westinghouse and vessel dry-docking costs, additions, newbuildings and
conversions at Teekay Offshore.
Comparison of the Years Ended December 31, 2017 and December 31, 2016
In the third quarter of fiscal 2017, the partnership, together with institutional partners, acquired a 60% stake in Teekay
Offshore. The equity accounted investment contributed $34 million of Company EBITDA and $21 million of Company FFO.
Prior to this investment, our infrastructure services segment had no operations.
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Industrial Operations
The following table presents Company EBITDA and Company FFO for our industrial operations segment for the years
ended December 31, 2018, 2017 and 2016:
(US$ Millions)
Revenues
Direct operating costs
General and administrative expenses
Equity accounted Company EBITDA
Company EBITDA attributable to others (1)
Company EBITDA (2) (3)
Realized disposition gains, net
Other income (expense), net
Interest income (expense), net
Realized disposition gain, current income taxes and interest expenses related to
equity accounted investments
Current income taxes
Company FFO attributable to others (net of Company EBITDA attributable to
others) (1)
Company FFO (2) (3)
$
$
$
Year Ended December 31,
2018
2017
2016
3,896
(2,060)
(231)
42
(1,157)
490
$
$
195
(3)
(263)
(10)
(132)
1,939
(1,425)
(113)
49
(306)
144
225
—
(154)
(4)
(32)
193
470
$
(16)
163
$
$
$
1,566
(1,333)
(106)
144
(188)
83
57
—
(74)
(9)
(5)
17
69
The following table presents equity attributable to unitholders for our industrial operations segment as at December 31,
2018, 2017 and 2016:
(US$ Millions)
Total assets
Total liabilities
Interests of others in operating subsidiaries (1)
Equity attributable to unitholders (2)
Total equity
____________________________________
December 31, 2018
7,650
$
$
$
$
5,865
1,426
359
1,785
December 31, 2017
December 31, 2016
$
$
$
$
7,204
3,721
2,464
1,019
3,483
$
$
$
$
3,643
1,664
1,263
716
1,979
(1)
(2)
(3)
Attributable to interests of others in our operating subsidiaries.
Attributable to parent company prior to the spin-off on June 20, 2016, and to limited partnership unitholders, general partnership unitholders, redemption-
exchange unitholders, and special limited partnership unitholders post spin-off. For the year ended December 31, 2018 and December 31, 2017, equity
is also attributable to preferred shareholders and Special LP unitholders.
Company FFO is a non-IFRS measure and is calculated as net income excluding the impact of depreciation and amortization, deferred income taxes,
Company FFO of equity accounted investments. Company FFO is further adjusted as Company EBITDA to exclude the impact of realized disposition
gains (losses), interest expense, current income taxes, and realized disposition gain, current income taxes and interest expenses related to equity accounted
investments and other items. Company EBITDA and Company FFO are presented net to unitholders. For further information on Company FFO and
Company EBITDA see the “Reconciliation of Non IFRS Measures” section of the MD&A.
Comparison of the Years Ended December 31, 2018 and December 31, 2017
Revenue from our industrial operations segment for the year ended December 31, 2018 was $3,896 million, representing
an increase of $1,957 million compared to the same period in 2017 of $1,939 million. Direct operating costs increased by $635
million, to $2,060 million for the year ended December 31, 2018, from $1,425 million in the same period in 2017. The increase
in revenue and direct operating costs was primarily due to stronger pricing and increased raw material costs at our graphite electrode
manufacturing business, combined with our acquisitions of BRK Ambiental in 2017 and Schoeller Allibert in the second quarter
of 2018.
Company EBITDA in our industrial operations segment increased by $346 million for the year ended December 31, 2018,
compared to the year ended December 31, 2017. The increase is primarily attributable to stronger pricing and performance at our
graphite electrode manufacturing business and our palladium mining operations, combined with contribution from the acquisition
of Schoeller Allibert.
Brookfield Business Partners
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Company FFO in our industrial operations segment was $470 million for the year ended December 31, 2018, compared
to $163 million for the year ended December 31, 2017. In addition to the factors noted above, the increase was primarily due to
the gain recognized on the sale of our Australian energy operations during the fourth quarter of 2018, partially offset by the gain
recognized on the sale of our bath and shower products manufacturing business during 2017.
Maintenance and growth capital expenditures for the year ended December 31, 2018 were $121 million and $152 million
respectively, compared to $93 million and $104 million for the year ended December 31, 2017. Capital expenditures for the year
ended December 31, 2018 were primarily related to expansions and equipment replacement at our graphite electrode manufacturing
business, mineral properties at our palladium mining operations and mold and machines at Schoeller Allibert. Capital expenditures
for the year ended December 31, 2017 were primarily related to mineral properties within our palladium mining operations,
intangible assets related to concession agreements from BRK Ambiental and our graphite electrode manufacturing business.
Comparison of the Years Ended December 31, 2017 and December 31, 2016
Revenue from our industrial operations segment for the year ended December 31, 2017 was $1,939 million, representing
an increase of $373 million compared to the same period in 2016 of $1,566 million. Direct operating costs increased by $92 million
to $1,425 million for the year ended December 31, 2017, from $1,333 million in the same period in 2016. The increase in revenue
and direct operating costs was primarily due to our acquisition of BRK Ambiental, partially offset by the sale of our bath and
shower products manufacturing business in January 2017, which had contributed $306 million of revenue and $245 million of
direct operating costs for the year ended December 31, 2016. The remaining increases in revenue and direct operating costs were
due to stronger pricing and operational performance at our graphite electrode manufacturing business and our palladium mining
operation, as well as an increase in volumes in our Canadian well-servicing operations.
Company EBITDA in our industrial operations segment increased by $61 million for the year ended December 31, 2017,
compared to the year ended December 31, 2016. The increase was primarily due to the acquisition of BRK Ambiental, stronger
pricing and operational performance at our graphite electrode manufacturing business and palladium mining operation during the
year. This was partially offset by the sale of our bath and shower products manufacturing business which had contributed $12
million to Company EBITDA during the year ended December 31, 2016, as well as the reorganization of the ownership group and
partial sell down to institutional partners of our Western Australian energy operations in the latter half of 2016.
Company FFO in our industrial operations segment was $163 million for the year ended December 31, 2017, compared
to $69 million for the year ended December 31, 2016. In addition to the factors noted above, the increase was primarily due to the
net gain of $84 million attributable to unitholders resulting from the sale of our bath and shower products manufacturing business
in January 2017. The increase was partially offset by the increase in interest expense due to the acquisition of BRK Ambiental
during the year, as well as lower contributions from our Canadian energy operations.
Maintenance and growth capital expenditures, including capital expenditures related to mineral properties within our
palladium mining operation, intangible assets related to concession agreements within BRK Ambiental and our graphite electrode
manufacturing business, for the year ended December 31, 2017 were $93 million and $104 million respectively, compared to
$94 million and $8 million for the year ended December 31, 2016. Capital expenditures for the year ended December 31, 2016
were primarily related to mineral properties within our palladium mining operation and graphite electrode manufacturing business.
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Table of Contents
Corporate and Other
The following table presents Company EBITDA and Company FFO for our corporate and other segment for the years
ended December 31, 2018, 2017 and 2016:
(US$ Millions)
Revenues
Direct operating costs
General and administrative expenses
Equity accounted Company EBITDA
Company EBITDA attributable to others (1)
Company EBITDA (2) (3)
Realized disposition gains, net
Other income (expense), net
Interest income (expense), net
Realized disposition gain, current income taxes and interest expenses related to
equity accounted investments
Current income taxes
Company FFO attributable to others (net of Company EBITDA attributable to
others) (1)
Company FFO (2) (3)
Year Ended December 31,
2018
2017
2016
$
7
(8)
(69)
—
—
(70) $
—
—
7
—
—
$
7
(3)
(45)
—
—
(41) $
—
—
(1)
—
18
—
(63) $
—
(24) $
1
—
(17)
—
—
(16)
—
—
(1)
—
—
—
(17)
$
$
$
The following table presents equity attributable to unitholders for our corporate and other segment as at December 31,
2018, 2017 and 2016:
(US$ Millions)
Total assets
Total liabilities
Interests of others in operating subsidiaries (1)
Equity attributable to unitholders (2)
Total equity
____________________________________
December 31, 2018
415
$
$
$
281
—
134
134
December 31, 2017
December 31, 2016
$
$
$
395
85
—
310
310
$
$
$
585
34
—
551
551
(1)
(2)
(3)
Attributable to interests of others in our operating subsidiaries.
Attributable to parent company prior to the spin-off on June 20, 2016, and to limited partnership unitholders, general partnership unitholders, redemption-
exchange unitholders, and special limited partnership unitholders post spin-off. For the year ended December 31, 2018 and December 31, 2017, equity
is also attributable to preferred shareholders and Special LP unitholders.
Company FFO is a non-IFRS measure and is calculated as net income excluding the impact of depreciation and amortization, deferred income taxes,
breakage and transaction costs, non-cash gains or losses and other items. When determining Company FFO, we include our proportionate share of
Company FFO of equity accounted investments. Company FFO is further adjusted as Company EBITDA to exclude the impact of realized disposition
gains (losses), interest expense, current income taxes, and realized disposition gain, current income taxes and interest expenses related to equity accounted
investments and other items. Company EBITDA and Company FFO are presented net to unitholders. For further information on Company FFO and
Company EBITDA see the “Reconciliation of Non IFRS Measures” section of the MD&A.
General and administrative costs relate to corporate expenses, including management, audit and director fees. Pursuant
to our Master Services Agreement, we pay Brookfield a quarterly base management fee equal to 0.3125% (1.25% annually) of
our total capitalization, plus third party debt with recourse, net of cash held by corporate entities. The management fees for the
year ended December 31, 2018, 2017 and 2016 were $56 million, $33 million and $12 million, respectively. The increase in the
management fee was due to the growth in the partnership's total capitalization relative to the same period in 2017.
The partnership has in place a Deposit Agreement with Brookfield whereby it may place funds on deposit with Brookfield
as approved by the Board of Directors. Any deposit balance is due on demand and earns an agreed upon rate of interest based on
market terms. As at December 31, 2018 and 2017, the amount of the deposit was $244 million and $384 million, respectively, and
was included in cash and cash equivalents.
Brookfield Business Partners
79
Table of Contents
Reconciliation of Non-IFRS Measures
Company FFO
To measure our performance, amongst other measures, we focus on Company FFO. We define Company FFO as net
income excluding the impact of depreciation and amortization, deferred income taxes, breakage and transaction costs, non-cash
valuation gains or losses and other items. Company FFO is presented net to unitholders, or net to the parent company. Company
FFO is a measure of operating performance that is not calculated in accordance with, and does not have any standardized meaning
prescribed by, IFRS. Company FFO is therefore unlikely to be comparable to similar measures presented by other issuers. Company
FFO has the following limitations as an analytical tool:
• Company FFO does not include depreciation and amortization expense; because we own capital assets with finite lives,
depreciation and amortization expense recognizes the fact that we must maintain or replace our asset base in order to
preserve our revenue generating capability;
• Company FFO does not include deferred income taxes, which may become payable if we own our assets for a long period
of time; and
• Company FFO does not include any non-cash fair value adjustments or mark-to-market adjustments recorded to
net income.
Because of these limitations, Company FFO should not be considered as the sole measure of our performance and should
not be considered in isolation from, or as a substitute for, analysis of our results as reported under IFRS. However, Company FFO
is a key measure that we use to evaluate the performance of our operations.
When viewed with our IFRS results, we believe that Company FFO provides a more complete understanding of factors
and trends affecting our underlying operations, including the impact of borrowing. Company FFO allows us to evaluate our
businesses on the basis of cash return on invested capital by removing the effect of non-cash and other items. We add back
depreciation and amortization as the depreciated cost base of our assets is reflected in the ultimate realized disposition gain or loss
on disposal. We add back deferred income taxes because we do not believe this item reflects the present value of the actual cash
tax obligations we will be required to pay, particularly if our operations are held for a long period of time. We add back non-cash
valuation gains or losses recorded in net income as these are non-cash in nature and indicate a point in time approximation of value
on long-term items. We also add back breakage and transaction costs as they are capital in nature.
Company EBITDA
We also use Company EBITDA as a measure of performance. We define Company EBITDA as Company FFO excluding
the impact of realized disposition gains, interest expense, current income taxes, realized disposition gains, current income taxes
and interest expense related to equity accounted investments and other expenses. Company EBITDA is presented net to unitholders,
or net to the parent company. Company EBITDA has limitations as an analytical tool as it does not include realized disposition
gains, interest expense, and current income taxes, as well as depreciation and amortization expense, deferred income taxes and
non-cash valuation gains/losses and impairment charges and other expenses. Because of these limitations, Company EBITDA
should not be considered as the sole measure of our performance and should not be considered in isolation from, or as a substitute
for, analysis of our results as reported under IFRS. However, Company EBITDA is a key measure that we use to evaluate the
performance of our operations.
When viewed with our IFRS results, we believe that Company EBITDA provides a more complete understanding of the
ability of our businesses to generate recurring earnings which allows users to better understand and evaluate the underlying financial
performance of our operations.
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Brookfield Business Partners
Table of Contents
The following table reconciles Company EBITDA and Company FFO to net income attributable to unitholders for the
periods indicated:
(US$ Millions)
Revenues
Direct operating costs
General and administrative expenses
Equity accounted investment Company EBITDA (1)
Company EBITDA attributable to others (2)
Company EBITDA
Realized disposition gain, net (3)
Other income (expense), net
Interest income (expense), net
Equity accounted current taxes and interest (1)
Current income taxes
Company FFO attributable to others (2)
Company FFO
Depreciation and amortization
Realized disposition (gain)/loss recorded in prior periods (3)
Impairment expense, net
Gain on acquisition and disposition (3)
Other income (expense), net
Deferred income taxes
Non-cash items attributable to equity accounted investments (1)
Non-cash items attributable to others (2)
Net income attributable to unitholders (4)
____________________________________
$
$
$
Year Ended December 31,
$
$
$
$
$
$
2018
37,168
(34,134)
(643)
196
(1,744)
843
250
(18)
(498)
(54)
(186)
396
733
(748)
—
(218)
250
(118)
88
(132)
567
2017
22,823
(21,876)
(340)
108
(475)
240
244
—
(202)
(17)
(30)
17
252
(371)
23
(39)
—
(108)
22
(22)
267
$
422
$
24
$
2016
7,960
(7,386)
(269)
167
(232)
240
57
—
(90)
(9)
(25)
27
200
(286)
—
(261)
—
(11)
41
(90)
378
(29)
(1)
(2)
(3)
(4)
The sum of these amounts equates to equity accounted income of $10 million, as per our IFRS statement of operating results for year ended December 31,
2018, equity accounted income of $69 million for the year ended December 31, 2017 and equity accounted income of $68 million for the year ended
December 31, 2016.
Total cash and non-cash items attributable to the interest of others equals net income of $781 million, as per our IFRS statement of operating results
for year ended December 31, 2018, net income of $191 million for the year ended December 31, 2017 and net loss of $173 million for the year ended
December 31, 2016.
The sum of these amounts equates to net realized disposition gain of $500 million, as per our IFRS statement of operating results for year ended
December 31, 2018, net realized disposition gain of $267 million for the year ended December 31, 2017 and net realized disposition gain of $57 million
for the year ended December 31, 2016.
Attributable to LP unitholders, GP unitholders, Redemption-Exchange unitholders, and Special LP unitholders post spin-off, and to parent company
prior to the spin-off.
The following table reconciles equity attributable to LP Units, GP Units, Redemption-Exchange Units, preferred shares
and Special LP units to equity attributable to unitholders for the periods indicated:
(US$ Millions)
Limited partners
General partner
Non-controlling interests attributable to:
Redemption-Exchange Units, Preferred Shares and Special LP Units held by
Brookfield
Equity attributable to unitholders (1)
Years ended December 31
2018
2017
$
$
1,548
$
—
1,415
2,963
$
1,585
—
1,453
3,038
Brookfield Business Partners
81
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The following table presents equity attributable to unitholders by segment as at December 31, 2018 and December 31,
2017:
(US$ Millions)
December 31, 2018
December 31, 2017
__________________________________
Business
Services
Infrastructure
Services
Industrial
Operations
Corporate
and Other
$
$
1,493
1,407
$
$
977
302
$
$
359
1,019
$
$
134
310
$
$
Total
2,963
3,038
(1)
Attributable to parent company prior to the spin-off on June 20, 2016, and to limited partnership unitholders, general partnership unitholders, redemption-
exchange unitholders, and special limited partnership unitholders post spin-off. For the year ended December 31, 2018 and December 31, 2017, equity
is also attributable to preferred shareholders and Special LP unitholders.
5.B. LIQUIDITY AND CAPITAL RESOURCES
We manage our liquidity and capital requirements through cash flows from operations, opportunistically monetizing mature
operations, refinancing existing debt and businesses and through the use of credit facilities. We aim to maintain sufficient financial
liquidity to be able to meet our on-going operating requirements and to maintain a modest distribution.
Our principal liquidity needs for the next year include meeting debt service payments and funding recurring expenses,
required capital expenditures, committed acquisitions and acquisition opportunities as they arise. In addition, an integral part of our
strategy is to pursue acquisitions through Brookfield-led consortium arrangements with institutional investors or strategic partners,
and to form partnerships to pursue acquisitions on a specialized or global basis. Brookfield has an established track record of leading
such consortiums and partnerships and actively managing underlying assets to improve performance. The "Recent Business
Developments" section of Item 4.A. "History and Development of our Company" details recent acquisitions completed by the
partnership. For example, the partnership, alongside institutional investors, completed the acquisition of Westinghouse on August
1, 2018 for a purchase price of approximately $4 billion, funded with approximately $920 million of equity and $3.1 billion of long-
term debt financing ($2.9 billion net of financing fees). The partnership's share of approximately $405 million of equity was funded
with available liquidity.
Our principal sources of liquidity are financial assets, undrawn credit facilities, cash flow from our operations and access
to public and private capital markets. In September 2017, we issued 13,340,000 LP Units to the public and 6,945,000 Redemption-
Exchange Units to Brookfield for aggregate gross proceeds of $600 million, before $8 million in equity issuance costs. In October
2017, the underwriters exercised their over-allotment option to purchase an additional 1,000,500 units at a price of $30.00 per unit,
for gross proceeds of approximately $30 million less equity issuance costs of approximately $1 million. For further detail, see "Equity
Attributable to Unitholders" section of Item 5.A. "Operating Results".
The following table presents borrowings by segment as at December 31, 2018 and December 31, 2017:
(US$ Millions)
December 31, 2018
December 31, 2017
Business
Services
Infrastructure
Services
Industrial
Operations
Corporate
and Other
$
$
1,228
1,190
$
$
5,748
$
— $
3,890
2,075
$
$
— $
— $
Total
10,866
3,265
As at December 31, 2018, the partnership had outstanding debt of $10,866 million as compared to $3,265 million as at
December 31, 2017. The borrowings consist of the following:
(US$ Millions)
Term loans and credit facilities
Project financing
Debentures
Securitization program
Senior notes
Total Borrowings
82
Brookfield Business Partners
December 31, 2018
December 31, 2017
$
$
8,505
$
573
503
260
1,025
10,866
$
1,745
449
596
249
226
3,265
Table of Contents
The partnership has credit facilities within its operating businesses with major financial institutions. The credit facilities
are primarily composed of revolving and term operating facilities with variable interest rates. At the operating level, we endeavor
to maintain prudent levels of debt which can be serviced through on-going operations. On a consolidated basis, our operations had
borrowings totaling $10,866 million as at December 31, 2018, compared to $3,265 million at December 31, 2017. The increase of
$7,601 million was primarily attributable to a $2,250 million senior secured term loan put in place within GrafTech, of which
approximately $400 million was used to repay existing debt, $2,950 million of term loan financing put in place within Westinghouse,
and the debt consolidation of Teekay Offshore.
We finance our assets principally at the operating company level with debt that generally is not recourse to either the
partnership or to our other operations and is generally secured against assets within the respective operating companies. Moreover,
debt instruments at the operating company level do not cross-accelerate or cross-default to debt at other operating companies. This
debt is in the form of revolving lines of credit, term loans and debt securities with varying maturities, ranging from 1-21 years. The
weighted average maturity at December 31, 2018 was 5.9 years and the weighted average interest rate on debt outstanding was
6.45%. As at December 31, 2018, the maximum borrowing capacity of our term loans and credit facilities at the operations and other
subsidiaries level, excluding at the corporate level, was $15.4 billion, of which $10.9 billion was drawn.
The use of the term loans and credit facilities is primarily related to on-going operations and capital expenditures, and to
fund acquisitions. The interest rates charged on these facilities are based on market interest rates. These borrowings include customary
covenants based on fixed charge coverage, debt-to-EBITDA ratios and maintaining minimum equity or liquidity levels. Our operations
are currently in compliance with or have obtained waivers related to all material covenant requirements of their term loans and credit
facilities. In periods of difficult economic conditions, we undertake proactive measures to avoid having any of our operations default
under the terms of their facilities, including amending such debt instruments or, if necessary, seeking waivers from the lenders. Our
ability to enter into an amendment or, if needed, obtain a waiver or otherwise refinance any such indebtedness depends on, among
other things, the conditions of the capital markets and our financial conditions at such time.
The partnership has a revolving acquisition credit facility with Brookfield that permits borrowings of up to $500 million.
The credit facility is guaranteed by the partnership, and each direct wholly-owned (in terms of outstanding common equity) subsidiary
of the partnership or the Holding LP, that is not otherwise a borrower. The credit facility is available in U.S. or Canadian dollars,
and advances are made by way of LIBOR, base rate, bankers' acceptance rate or prime rate loans. The credit facility bears interest
at the specified LIBOR or bankers’ acceptance rate plus 3.75%, or the specified base rate or prime rate plus 2.75%. The credit facility
also requires us to maintain a minimum deconsolidated net worth and contain restrictions on the ability of the borrowers and the
guarantors to, among other things, incur liens, engage in certain mergers and consolidations or enter into speculative hedging
arrangements. Net proceeds above a specified threshold that are received by the borrowers from asset dispositions, debt incurrences
or equity issuances by the borrowers or their subsidiaries must be used to pay down the credit facility (which can then be redrawn
to fund future investments). As at December 31, 2018, the credit facility remains undrawn.
In the second quarter of 2018, the partnership amended and restated our bilateral credit facility, increasing it by $575 million
to $825 million across an expanded group of banks. In addition to U.S. or Canadian dollars, the credit facility is available in Euros,
Sterling, or Australian dollars. Advances under the credit facility bear interest at the specified LIBOR, EURIBOR, CDOR, BBSY
or bankers' acceptance rate plus 2.50%, or the specified base rate or prime rate plus 1.50%. The credit facility's maturity date was
extended by two years to August 2021. The credit facility is for general corporate purposes and requires us to maintain a minimum
tangible net worth and to maintain debt to capitalization ratios at the corporate level. As at December 31, 2018, the facility
remains undrawn.
The table below outlines the partnership's consolidated net debt to capitalization as at December 31, 2018 and December 31,
2017:
(US$ Millions)
Corporate borrowings
Non-recourse subsidiary borrowings
Cash and cash equivalents
Net debt
Total equity
Total capital and net debt
Net debt to capitalization ratio
December 31, 2018
$
— $
10,866
(1,949)
8,917
6,494
$
15,411
$
December 31, 2017
—
3,265
(1,106)
2,159
6,064
8,223
58%
26%
Brookfield Business Partners
83
Table of Contents
The partnership's general partner has implemented a distribution policy pursuant to which we intend to make quarterly cash
distributions in an initial amount currently anticipated to be approximately $0.25 per unit on an annualized basis. On February 7,
2019, the Board of Directors of the partnership's general partner declared a dividend of $0.0625 per unit payable on March 29, 2019
to unitholders of record as at the close of business on February 28, 2019.
During the fourth quarter of 2018, the volume weighted average price per unit was $38.20, which was below the previous
incentive distribution threshold of $41.96/unit, resulting in an incentive distribution of $nil for the quarter. For the year ended
December 31, 2018, the total incentive distribution was $278 million.
Cash Flow
We believe that we currently have sufficient access to capital resources and will continue to use our available capital resources
to fund our operations. Our future capital resources include cash flow from operations, borrowings and proceeds from potential future
debt issues or equity offerings, if required.
As at December 31, 2018, we had cash and cash equivalents of $1,949 million, compared to $1,106 million as at December 31,
2017 and $1,050 million as at December 31, 2016. The net cash flows for the years ended December 31, 2018, 2017 and 2016 were
as follows:
(US$ Millions)
Cash flows provided by operating activities
Cash flows provided by (used in) investing activities
Cash flows provided by (used in) financing activities
Effect of foreign exchange rates on cash
Cash reclassified as held for sale
Revision of comparatives
Year Ended December 31,
2018
2017
2016
$
(70) $
$
1,341
(3,999)
3,561
(60)
—
$
843
$
(1,595)
1,713
8
—
56
$
229
(96)
586
(15)
(8)
696
The comparative cash flow figures for the year ended December 31, 2017 have been revised to correct an immaterial error
identified by management related to the reclassification of cash flows from bank overdrafts, from an acquisition completed in May
2017 in our business services segment, within the consolidated statements of cash flow. As a result, $360 million which was previously
reported in accounts payable and other within the operating activities line item entitled "changes in non-cash working capital, net,"
is now being reported within the financing activities line item entitled "proceeds from other credit facilities, net". The 2017 comparative
figures in the supplemental cash flow information within Note 28 have also been updated to remove the bank overdraft which was
previously recorded within accounts payable and other. The correction of the classification in the statement of cash flow is immaterial
and had no impact on the partnership’s historical statements of financial position, statements of operating results, statements of
comprehensive income, and statements of changes in equity.
The impact of the correction of the classification in the consolidated statement of cash flows for the periods ended December
31, 2017 and March 31, 2018 is detailed below:
(US$ Millions)
As reported
Changes in non-cash working capital, net
Proceeds from other credit facilities, net
As corrected
Changes in non-cash working capital, net
Proceeds from other credit facilities, net
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Brookfield Business Partners
December 31, 2017
March 31, 2018
$
$
(91) $
—
(451) $
360
(228)
—
(405)
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Cash Flow Provided by Operating Activities
Total cash flow provided by operating activities for the year ended December 31, 2018 was $1,341 million compared to
$70 million used for the year ended December 31, 2017. The cash provided by operating activities during the year ended December 31,
2018 was primarily attributable to the incremental contribution from stronger results in our graphite electrode manufacturing business
as a result of stronger pricing and higher volume and from the consolidation of Teekay Offshore.
Total cash flow used in operating activities for the year ended December 31, 2017 was $70 million compared to $229 million
provided for the year ended December 31, 2016. The cash provided by operating activities during the year ended December 31, 2017
was primarily attributable to the contributions from Greenergy, BRK Ambiental, and our fuel marketing business which were acquired
throughout 2017.
Cash Flow Provided by (Used in) Investing Activities
Total cash flow used in investing activities was $3,999 million for the year ended December 31, 2018, compared to $1,595
million used during the year ended December 31, 2017. Our investing activities were primarily related to the acquisitions of
Westinghouse, Schoeller Allibert and Imagine, the tuck-in acquisitions within our facilities management and fuel marketing
businesses, as well as the acquisition of property, plant, and equipment within our operations. This was partially offset by the cash
proceeds received on the disposition of our interests in our real estate brokerage services business and in our Australian energy
operation, as well as the cash assumed from the consolidation of Teekay Offshore.
Total cash flow used in investing activities was $1,595 million for the year ended December 31, 2017 compared to $96
million for the year ended December 31, 2016. Our investing activities were primarily related to the acquisitions within our business
services and industrial operations segments offset by the disposition of our bath and shower products manufacturing business, the
disposition of Insignia Energy in our industrial operations segment, as well as the sale of public investment securities in our industrial
operations and business services segments.
Cash Flow Provided by (Used in) Financing Activities
Total cash flow provided by financing activities was $3,561 million for the year ended December 31, 2018, compared to
$1,713 million cash flow provided by financing activities for the year ended December 31, 2017. During the year ended December 31,
2018, our borrowings, net of repayments, were $4,568 million. This primarily consisted of the $2,250 million of senior secured term
loan financing obtained by our graphite electrode manufacturing business, of which approximately $400 million was used to pay
down existing debt. Also contributing to the increase in borrowings was the $2,950 million term loan financing put in place at
Westinghouse. Distributions to others who have interests in operating subsidiaries, net of capital provided by others who have interests
in our operating subsidiaries, were $600 million, which were mostly comprised of distributions from our graphite electrode
manufacturing business. During the year ended December 31, 2018, $32 million was distributed to limited partners and redemption-
exchange unitholders and $327 million was distributed to Special LP unitholders.
Total cash flow provided by financing activities was $1,713 million for the year ended December 31, 2017 compared to
$586 million cash flow provided by financing activities for the year ended December 31, 2016. During the year ended December 31,
2017, our borrowings, net of repayments, were $349 million, and capital provided by others who have interests in our operating
subsidiaries, net of distributions, was $509 million. In September 2017, we issued limited partnership units and redemption exchange
units of Holding LP in exchange for gross proceeds of approximately $600 million, before $8 million in equity issuance costs, and
issued an additional $30 million of limited partnership units in October 2017, before $1 million in equity issuance costs, as a result
of the exercise of the over-allotment option. During the year ended December 31, 2017, $31 million was distributed to limited partners
and redemption-exchange unitholders and $95 million was distributed to Special LP unitholders.
Market Risks
Market risk is defined for these purposes as the risk that the fair value or future cash flows of a financial instrument held
by our partnership 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.
Financial instruments held by our partnership that are subject to market risk include other financial assets, borrowings,
derivative instruments, such as interest rate and foreign currency contracts, and marketable securities.
The partnership is exposed to price risks arising from marketable securities and other financial assets. As at December 31,
2018 the balance of the portfolio was $546 million (2017: $461 million), a 10% change in the value of the portfolio would impact
our equity by $55 million (2017: $46 million) and result in an impact on the consolidated statements of comprehensive income of
$55 million (2017: $46 million).
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Interest rate risk
The observable impacts on the fair values and future cash flows of financial instruments that can be directly attributable to
interest rate risk include changes in the net income from financial instruments whose cash flows are determined with reference to
floating interest rates and changes in the value of financial instruments whose cash flows are fixed in nature. A 10 basis point increase
or decrease in the interest rates would not have a material impact on our net income.
Foreign currency risk
We have operations in international markets denominated in currencies other than the U.S. dollar, primarily the Australian
dollar, the Canadian dollar and the Brazilian real. As a result, we are subject to foreign currency risk due to potential fluctuations in
exchange rates between foreign currencies and the U.S. dollar. We structure our operations such that foreign operations are primarily
conducted by entities with a functional currency which is the same as the economic environment in which the operations take place.
As a result, the net income impact of currency risk associated with financial instruments is limited as its financial assets and liabilities
are generally denominated in the functional currency of the subsidiary that holds the financial instrument. However, we are exposed
to foreign currency risk on the net assets of its foreign currency denominated operations and foreign currency denominated debt. We
manage foreign currency risk through hedging contracts, typically foreign exchange forward contracts. There is no assurance that
hedging strategies, to the extent used, will fully mitigate the risk.
The table below outlines the impact on net income and other comprehensive income of a 10% change in the exchange rates
between the U.S. dollar and the major foreign currencies:
(US$ Millions)
USD/AUD
USD/BRL
USD/CDN
USD/Other
2018
2017
2016
OCI
Net income
OCI
Net income
OCI
Net income
$
(36) $
(35)
(12)
(19)
— $
4
3
5
(88) $
(33)
(37)
(9)
— $
—
—
(20)
(55) $
—
(50)
(3)
—
—
—
1
See also Note 4, "Fair Value of Financial Instruments", Note 25, "Derivative Financial Instruments" and Note 26, "Financial
Risk Management" in our consolidated financial statements included in this Form 20-F.
Commodity price risk
Commodity price risk is the risk that the fair value of financial instruments will fluctuate as a result of changes in commodity
prices. Our operating subsidiaries that are exposed to commodity risk attempt to mitigate commodity price risk through the use of
commodity contracts. A 10 basis point increase or decrease in commodity prices, as they relate to financial instruments, would not
have a material impact on our net income.
Our commodity exposure is primarily in our industrial operations. We hedge this exposure where appropriate. See Item 4.B.,
"Business Overview - Industrial Operations".
Related Party Transactions
We entered into a number of related party transactions with Brookfield as described in Note 24 in our consolidated financial
statements included in this Form 20-F.
Critical Accounting Policies, Estimates and Judgments
The preparation of financial statements requires management to make critical judgments, estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses that are not readily apparent from other sources, during the reporting
period. These estimates and associated assumptions are based on historical experience and other factors that are considered to be
relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are
recognized in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and
future periods if the revision affects both current and future periods.
Critical judgments made by management and utilized in the normal course of preparing our partnership's consolidated
financial statements are outlined below.
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For further reference on accounting policies, critical judgments and estimates, see our "Significant Accounting Policies"
contained in Note 2 of our consolidated financial statements as at December 31, 2018 and 2017 and for the years ended December 31,
2018, 2017 and 2016, included in this Form 20-F. See Item 18. "Financial Statements".
Business Combinations
The partnership accounts for business combinations using the acquisition method of accounting. The allocation of fair values
to assets acquired and liabilities assumed through an acquisition requires numerous estimates that affect the valuation of certain
assets and liabilities acquired including discount rates, operating costs, revenue estimates, commodity prices, future capital costs
and other factors. The determination of the fair values may remain provisional for up to 12 months from the date of acquisition due
to the time required to obtain independent valuations of individual assets and to complete assessments of provisions. When the
accounting for a business combination has not been completed as at the reporting date, this is disclosed in the financial statements,
including observations on the estimates and judgments made as at the reporting date.
Determination of Control
We consolidate an investee when we control the investee, with control existing if and only if we have power over the
investee; exposure, or rights, to variable returns from our involvement with the investee; and the ability to use our power over the
investee to affect the amount of the partnership's returns.
In determining if we have power over an investee, we make judgments when identifying which activities of the investee
are relevant in significantly affecting returns of the investee and the extent of our existing rights that give us the current ability to
direct the relevant activities of the investee. We also make judgments as to the amount of potential voting rights which provides us
voting powers, the existence of contractual relationships that provide us voting power and the ability to appoint directors. We enter
into voting agreements to provide the partnership with the ability to contractually direct the relevant activities of the investee (formally
referred to as "power" within IFRS 10, Consolidated Financial Statements). In assessing if we have exposure, or rights, to variable
returns from our involvement with the investee we make judgments concerning whether returns from an investee are variable and
how variable those returns are on the basis of the substance of the arrangement, the size of those returns and the size of those returns
relative to others, particularly in circumstances where our voting interest differs from our ownership interest in an investee. In
determining if we have the ability to use our power over the investee to affect the amount of our returns, we make judgments when
we are an investor as to whether we are a principal or agent and whether another entity with decision-making rights is acting as an
agent for us. If we determine that we are acting as an agent, as opposed to principal, we do not control the investee.
Common Control Transactions
IFRS 3, Business Combinations, does not include specific measurement guidance for transfers of businesses or subsidiaries
between entities under common control. Accordingly, the partnership has developed an accounting policy to account for such
transactions taking into consideration other guidance in the IFRS framework and pronouncements of other standard-setting bodies.
The partnership's policy is to record assets and liabilities recognized as a result of transactions between entities under common control
at the carrying values in the transferor's financial statements.
Indicators of Impairment
Judgment is applied when determining whether indicators of impairment exist when assessing the carrying values of the
partnership's assets, including the determination of the partnership's ability to hold financial assets; the estimation of a cash generating
unit's future revenues and direct costs; and the determination of discount rates, and when an asset's carrying value is above the value
derived using publicly traded prices which are quoted in a liquid market.
For some of our assets forecasting the recoverability and economic viability of property and equipment requires an estimate
of reserves. The process for estimating reserves is complex and requires significant interpretation and judgment. It is affected by
economic conditions, production, operating and development activities, and is performed using available geological, geophysical,
engineering and economic data.
Revenue Recognition
Certain of the partnership's subsidiaries use the cost-to-cost method to measure progress towards complete satisfaction of
the performance obligations under IFRS 15. As work is performed, a contract asset in the form of work-in-progress is recognized,
which is reclassified to accounts receivable when invoiced to the customer. If payment is received in advance of work being completed,
a contract liability is recognized. There is not considered to be a significant financing component in construction contracts as the
period between the recognition of revenue under the cost-to-cost method and when payment is received is typically less than one
year.
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Revenue from the sale of goods in our U.K. road fuel service operation represents net invoiced sales of fuel products and
RTFO certificates, excluding value added taxes but including excise duty, which has been assessed to be a production tax and recorded
as part of consideration received. Revenue is recognized at the point that title passes to the customer.
Financial Instruments
Judgments inherent in accounting policies relating to derivative financial instruments relate to applying the criteria to the
assessment of the effectiveness of hedging relationships. Estimates and assumptions used in determining the fair value of financial
instruments are equity and commodity prices, future interest rates, the credit worthiness of our partnership relative to its counterparties,
the credit risk of the partnership's counterparties, estimated future cash flows, discount rates and volatility utilized in option valuations.
Decommissioning Liabilities
Decommissioning costs will be incurred at the end of the operating life of some of our oil and gas facilities and mining
properties. These obligations are typically many years in the future and require judgment to estimate. The estimate of decommissioning
costs can vary in response to many factors including changes in relevant legal regulatory, and environmental requirements, the
emergence of new restoration techniques or experience at other production sites. Inherent in the calculations of these costs are
assumptions and estimates including the ultimate settlement amounts, inflation factors, discount rates, and timing of settlements.
Other
Other estimates and assumptions utilized in the preparation of the partnership's financial statements are the assessment or
determination of 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, and ability to utilize tax losses and other tax
measurements.
Other critical judgments include the determination of functional currency.
Future Changes in Accounting Policies
Leases
In January 2016, the IASB published a new standard, IFRS 16, Leases ("IFRS 16"). The new standard brings most leases
on the statement of financial position, eliminating the distinction between operating and finance leases. Lessor accounting,
however, remains largely unchanged and the distinction between operating and finance leases is retained. IFRS 16 supersedes
IAS 17, Leases and related interpretations and is effective for periods beginning on or after January 1, 2019.
The partnership will adopt IFRS 16 using the modified retrospective method whereby any transitional impact is recorded
in equity as at January 1, 2019 and comparative periods are not restated. The partnership will apply certain transition reliefs,
practical expedients and policy choice options on adoption of the new standard. Specifically, the partnership has elected to apply
practical expedients associated with short-term leases.
After leading strategic planning sessions with its subsidiaries and associates, the partnership implemented an adoption
project plan. The partnership used the population of existing contractual arrangements to complete the identification of leases
that are required to be recognized in the consolidated statement of financial position under the new standard. Additionally, the
partnership has substantially completed quantifying the present value of the identified lease contracts to determine the impact on
adoption, except for acquisitions that closed in the fourth quarter of 2018. At this time, the partnership has nearly finalized the
documented analysis and assessment of the potential impact to IT systems and internal controls and has drafted a preliminary
version of the disclosures required by the new standard.
The estimated range of the transitional impact of the new standard, excluding the impact of acquisitions closed in the
last quarter of the year, is an increase in total assets and liabilities of $880 million to $1,080 million, and no significant impact
to equity. These are preliminary estimates and subject to change as the partnership completes the adoption procedures and evaluates
and quantifies the IFRS 16 impact of the acquisitions closed in the fourth quarter of 2018.
Uncertainty over Income Tax Treatments
In June 2017, the IASB published IFRIC 23, Uncertainty over Income Tax Treatments ("IFRIC 23") effective for annual
periods beginning on or after January 1, 2019. The interpretation requires an entity to assess whether it is probable that a tax authority
will accept an uncertain tax treatment used, or proposed to be used, by an entity in its income tax filings and to exercise judgment
in determining whether each tax treatment should be considered independently or whether some tax treatments should be considered
together. The decision should be based on which approach provides better predictions of the resolution of the uncertainty. An entity
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also has to consider whether it is probable that the relevant authority will accept each tax treatment, or group of tax treatments,
assuming that the taxation authority with the right to examine any amounts reported to it will examine those amounts and will have
full knowledge of all relevant information when doing so. The interpretation may be applied on either a fully retrospective basis or
a modified retrospective basis without restatement of comparative information. The partnership is currently evaluating the impact
of IFRIC 23 on its consolidated financial statements.
Business Combinations
In October 2018, the IASB issued an amendment to IFRS 3, Business Combinations (“IFRS 3”), effective for annual periods
beginning on or after January 1, 2020. The amendment clarifies the definition of a business and assists companies in determining
whether an acquisition is a business combination or an acquisition of a group of assets. The amendment emphasizes that the output
of a business is to provide goods and services to customers and also provides supplementary guidance. The company will adopt the
standard prospectively and is currently evaluating the impact on its consolidated financial statements.
New Accounting Policies Adopted
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 additional disclosures. IFRS 15 requires disclosure regarding the nature, amount, timing and uncertainty of revenue
and cash flows arising from customer contracts. IFRS 15 supersedes IAS 18, Revenue, IAS 11, Construction Contracts and a number
of revenue-related interpretations. IFRS 15 applies to nearly all contracts with customers: the main exceptions are leases, financial
instruments and insurance contracts.
The partnership adopted the standard using the modified retrospective approach, in which a cumulative catch-up adjustment
is recorded through opening retained earnings on January 1, 2018 as if the standard had always been in effect and whereby comparative
periods are not restated. The partnership elected to use the practical expedient for contract modifications. On adoption, the partnership
recorded a reduction in opening retained earnings of approximatively $260 million, attributable to the partnership net of taxes, mainly
from our construction services business. Under IFRS 15, revenue from the partnership’s construction services contracts will continue
to be recognized over time, however, a higher threshold of probability must be achieved prior to recognizing revenue from variable
consideration such as incentives and claims and variations resulting from contract modifications. Under IAS 18 and IAS 11, revenue
was recognized when it is probable that work performed will result in revenue whereas under IFRS 15, revenue is recognized when
it is highly probable that a significant reversal of revenue will not occur for these modifications.
Financial Instruments
In July 2014, the IASB issued the final publication of IFRS 9, Financial Instruments ("IFRS 9") superseding IAS 39,
Financial Instruments: Recognition and Measurement. 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 aligns hedge accounting more closely with an entity's risk management activities. It does not fully change the types
of hedging relationships or the requirement to measure and recognize ineffectiveness, however, it provides more hedging strategies
that are used for risk management to qualify for hedge accounting and introduces greater judgment to assess the effectiveness of a
hedging relationship. Apart from the requirements applicable to hedge accounting, which have been applied on a prospective basis,
the partnership adopted the standard using the retrospective approach without restatement, in which a cumulative catch-up adjustment
is recorded through opening retained earnings on January 1, 2018 as if the standard had always been in effect and whereby comparative
periods are not restated, comparative periods are presented under IAS 39. On adoption, the partnership recorded an adjustment in
opening retained earnings of $nil attributable to the partnership net of taxes.
Foreign Currency Transactions and Advance Consideration
In December 2016, the IASB issued IFRIC 22, Foreign Currency Transaction and Advance Consideration ("IFRIC 22"),
effective for annual periods beginning on or after January 1, 2018. The interpretation clarifies that the date of the transaction for the
purpose of determining the exchange rate to use on initial recognition of the related asset, expense or income (or part of it) is the
date on which an entity initially recognizes the non-monetary asset or non-monetary liability arising from the payment or receipt of
advance consideration. The interpretation has been applied prospectively. The adoption of IFRIC 22 did not have a significant impact
on the financial statements.
5.C. RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC.
Not applicable.
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5.D. TREND INFORMATION
See Item 5.A.—"Operating Results".
5.E. OFF-BALANCE SHEET ARRANGEMENTS
In the normal course of operations our operating subsidiaries have bank guarantees, insurance bonds and letters of credit
outstanding to third parties. As at December 31, 2018, the total outstanding amount was approximately $1.7 billion. If these letters
of credit or bonds are drawn upon, we will be obligated to reimburse the issuer of the letter of credit or bonds. The partnership does
not conduct its operations, other than those of equity accounted investments, through entities that are not consolidated in the financial
statements, and has not guaranteed or otherwise contractually committed to support any material financial obligations not reflected
in the financial statements.
Our construction businesses and other operations are called upon to give, in the ordinary course of business, guarantees and
indemnities in respect of the performance of controlled entities, associates and related parties of their contractual obligations. Any
known losses have been brought to account.
In the normal course of operations, we execute agreements that provide for indemnification and guarantees to third parties
in transactions such as business dispositions and acquisitions, construction projects, capital projects, and sales and purchases of assets
and services. We have also agreed to indemnify our directors and certain of our officers and employees. The nature of substantially
all of the indemnification undertakings prevents us from making a reasonable estimate of the maximum potential amount that we
could be required to pay third parties, as many of 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. Historically, we
have made no significant payments under such indemnification agreements. In addition, we have also entered into indemnity
agreements with Brookfield that relate to certain projects in the Middle East region that were in place prior to the spin-off. Under
these indemnity agreements, Brookfield has agreed to indemnify us or refund as, as appropriate, for the receipt of payments relating
to such projects.
From time to time, we may be contingently liable with respect to litigation and claims that arise in the normal course
of operations. On July 3, 2017, at our construction business, a customer called on an advance payment bank guarantee for an amount
of approximately $32 million, associated with a project in the Middle East. Management successfully contested the claim, which
was upheld in local courts. On February 22, 2018, the customer’s appeal of the court’s ruling resulted in the bank guarantees being
paid due to the structural form of the guarantee. Management continues to counterclaim through local courts and any loss amount
associated with this project cannot be measured and is not probable at this time.
Financial Instruments — Foreign Currency Hedging Strategy
To the extent that it is economical to do so, the partnership's strategy is to hedge a portion of its equity investments and/or
cash flows exposed to foreign currencies. The partnership's foreign currency hedging strategy includes leveraging any natural hedges
that may exist within the operations, utilizing local currency debt financing to the extent possible, and utilizing derivative contracts
to the extent that natural hedges are insufficient.
The following table presents our foreign currency equity positions, excluding interest of others in operating subsidiaries,
as at December 31, 2018:
(US$ Millions)
Net Equity
Foreign Currency Hedges — US$
USD
$
$
853
573
CAD
685
(328)
$
AUD
409
(48)
$
BRL
356
—
$
GBP
142
(125)
$
EUR
170
(72)
Other
348
$
—
Net Investment Hedges
As at December 31, 2018, we had hedges in place equal to approximately 27% of our net equity investment in foreign
currencies. Our primary unhedged exposure relates to some of our Canadian operations where natural hedges exist within the
businesses. For the year ended December 31, 2018, we recorded a pre-tax net gain in comprehensive income of $125 million related
to these contracts.
5.F. TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS
An integral part of our partnership’s strategy is to participate with institutional investors in Brookfield-sponsored private
equity funds that target acquisitions that suit Brookfield private equity’s profile. In the normal course of business, our partnership
has made commitments to Brookfield-sponsored private equity funds to participate in these target acquisitions in the future, if and
when identified.
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In the ordinary course of business, we enter into contractual arrangements that may require future cash payments. The table
below outlines our contractual obligations as at December 31, 2018:
(US$ Millions)
Borrowings
Finance lease obligations
Operating leases
Interest expense
Decommissioning liabilities
Pension obligations
Obligations under agreements
Total
5.G SAFE HARBOR
Payments as at December 31, 2018
Total
Less than
One Year
One-Two
Years
Three-Five
Years
Thereafter
$
10,904
$
1,825
$
1,014
$
2,623
$
5,442
60
1,245
2,718
1,033
1,006
1,051
12
225
545
5
84
376
7
143
503
2
88
423
25
341
1,206
7
292
138
16
536
464
1,019
542
114
$
18,017
$
3,072
$
2,180
$
4,632
$
8,133
See "Special Note Regarding Forward-Looking Statements."
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ITEM 6 DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
6.A. DIRECTORS AND SENIOR MANAGEMENT
Governance
As required by law, our Limited Partnership Agreement provides for the management and control of our company by a
general partner rather than a board of directors and officers. The BBU General Partner serves as our company's general partner and
has a board of directors. The BBU General Partner has sole responsibility and authority for the central management and control of
our company, which is exercised through its board of directors. Accordingly, references herein to "our directors" and "our board"
refer to the board of directors of the BBU General Partner.
The following table presents certain information concerning our board of directors:
Name, Municipality of Residence and
Independence (1)
Jeffrey Blidner
Toronto, Ontario, Canada
(Not Independent)
David Court (2)
Toronto, Ontario, Canada
(Independent)
Anthony Gardner (2)
London, United Kingdom
(Independent)
Stephen Girsky
New York, New York,
USA
(Not Independent)
David Hamill (3)
Eastern Heights, Queensland, Australia
(Independent)
John Lacey (4)
Thornhill, Ontario, Canada
(Independent)
Don Mackenzie (3)
Pembroke Parish, Bermuda
(Independent)
Patricia Zuccotti (5)
Kirkland, Washington,
USA
(Independent)
____________________________________
Age
70
62
55
56
61
75
58
71
Position with the
BBU General
Partner
Board Chair and
Director
Principal Occupation
Vice Chairman, Brookfield Asset
Management
Director
Director Emeritus, McKinsey & Company
Director
Former U.S. Ambassador to the European
Union
Director
Managing Partner, VectoIQ
Director
Corporate Director
Lead Independent
Director
Chairman, Doncaster Consolidated Ltd.
Director
Chairman and Owner of New Venture
Holdings
Director
Corporate Director
(1)
(2)
(3)
(4)
(5)
The mailing addresses for the directors are set forth under "Security Ownership".
Member of the governance and nominating committee.
Member of the audit committee.
Chair of the governance and nominating committee.
Chair of the audit committee.
Set forth below is biographical information for our directors.
Jeffrey Blidner. Mr. Blidner is a Vice Chairman of Brookfield Asset Management responsible for strategic planning and
fundraising. Mr. Blidner is also the Chief Executive Officer of Brookfield's Private Funds Group, Chairman and a director of
Brookfield Renewable Partners and a director of Brookfield Asset Management, Brookfield Property Partners and Brookfield
Infrastructure Partners. Prior to joining Brookfield in 2000, Mr. Blidner was a Senior Partner of a Canadian law firm.
David Court. Mr. Court is a Director Emeritus at McKinsey & Company. Mr. Court was previously McKinsey’s Global
Director of Technology, Digitization and Communications, led McKinsey’s global practice in harnessing digital data and advanced
analytics from 2011 to 2015, and was a member of the firm’s Board of Directors and its Global Operating Committee. Mr. Court is
a director of Canadian Tire Corporation and a member of the National Geographic International Council of Advisors and the Advisory
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Board for both the Queen’s University Business School and its Analytics Program. Mr. Court holds a BCom from Queen’s University
and an MBA from Harvard Business School where he was a Baker Scholar.
Anthony Gardner. Mr. Gardner served as U.S. Ambassador to the European Union from 2014 to 2017. Prior to his
appointment, Mr. Gardner was Managing Director for six years at Palamon Capital Partners, a private equity firm based in London.
Previously, Mr. Gardner served as an Executive Director in the leveraged finance departments of Bank of America and GE Capital
and as a Director in the international acquisitions group of GE International. He has also worked at international law firms in London,
Paris, New York, and Brussels. Mr. Gardner holds an A.B. in Government from Harvard University, an MPhil in International
Relations from Oxford University, a JD from Columbia Law School, and a Masters in Finance from London Business School.
Stephen Girsky. Mr. Girsky is a Managing Partner of VectolQ, an independent advisory firm based in New York, and
serves on the board of directors of United States Steel Corporation, Drive.ai, an autonomous driving software company, and Valens
Semiconductor Ltd. Mr. Girsky was previously the president of Centerbridge Industrial Partners and a Managing Director at Morgan
Stanley and served in a number of capacities at General Motors Co., including the office of Vice Chairman. Mr. Girsky also served
as Chairman of Adam Opel AG Supervisory Board and was President of General Motors Europe. Mr. Girsky holds a B.S. in
mathematics from the University of California at Los Angeles and a M.B.A. from the Harvard Business School.
David Hamill. Dr. Hamill is a professional director and was Treasurer of the State of Queensland in Australia from 1998
to 2001, Minister for Education from 1995 to 1996, and Minister for Transport and Minister Assisting the Premier on Economic and
Trade Development from 1989 to 1995. Dr. Hamill retired from the Queensland Parliament in February 2001 and since that time has
served as a non-executive director or chairman of a range of listed and private companies as well as not-for-profit and public sector
entities. Dr. Hamill holds a Bachelor of Arts (Honours) from the University of Queensland, a Master of Arts from Oxford University
and a Doctorate of Philosophy from University of Queensland, and is a fellow of the Chartered Institute of Transport and the Australian
Institute of Company Directors.
John Lacey. Mr. Lacey is Chairman of Doncaster Consolidated Ltd. and a director of Whittington Investments Ltd. Mr.
Lacey also serves as a consultant to the Chairman of the Board of George Weston Ltd., a Canadian food processing and distribution
company, and Loblaw Companies Limited, a Canadian food retailer. Mr. Lacey was previously the Chairman of the board of directors
of Alderwoods Group, Inc., an organization operating funeral cemeteries within North America, until 2006. Mr. Lacey is the former
President and Chief Executive Officer of The Oshawa Group (now part of Sobeys Inc.) and a former director of Loblaw Companies
Limited and TELUS Corporation.
Don Mackenzie. Mr. Mackenzie is the Chairman and Owner of New Venture Holdings, a well-established privately owned
holding company with operating company and real estate investments in Bermuda and Canada. Prior to moving to Bermuda in 1990,
Mr. Mackenzie worked in the software and sales sector. Mr. Mackenzie acquired his first business in 1995, and New Venture Holdings
was formed in 2000 to consolidate a number of operating investments under a holding company umbrella. Mr. Mackenzie has a
Bachelor of Commerce from Queens University and an MBA from Schulich School of Business of York University.
Patricia Zuccotti. Ms. Zuccotti is a director of Brookfield Renewable Partners L.P., where she is the Chair of the Audit
Committee. She served as Senior Vice President, Chief Accounting and Controller of Expedia, Inc. from October 2005 to
September 2011. Prior to joining Expedia, Ms. Zuccotti was the Director, Enterprise Risk Services of Deloitte & Touche LLP from
June 2003 until October 2005. Ms. Zuccotti is a Certified Public Accountant (inactive) and received her Master's in Business
Administration, majoring in accounting and finance, from the University of Washington and a Bachelor of Arts, majoring in political
science, from Trinity College.
Our Management
The Service Providers, wholly-owned subsidiaries of Brookfield Asset Management, provide management services to us
pursuant to our Master Services Agreement. Brookfield has built its business platform through the integration of formative portfolio
acquisitions and single asset transactions over several decades and throughout all phases of the business cycle. The Service Providers'
investment and asset management professionals are complemented by the depth of transactional and operational expertise throughout
our operating segments which specialize in business services and industrial operations, generating significant returns. Members of
Brookfield's senior management and other individuals from Brookfield's global affiliates are drawn upon to fulfill the Service
Providers' obligations to provide us with management services under our Master Services Agreement.
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The following table presents certain information concerning the core senior management team that are principally responsible
for our operations and their positions with the Service Providers.
Name
Cyrus Madon
Jaspreet Dehl
Age
53
42
Years of
Experience
Years at
Brookfield
30
20
20
8
Position with one of the Service Providers
Chief Executive Officer
Chief Financial Officer
Set forth below is biographical information for Mr. Madon and Ms. Dehl.
Cyrus Madon. Mr. Madon is a Senior Managing Partner of Brookfield Asset Management, Head of Brookfield's Private
Equity Group and Chief Executive Officer of our company. Mr. Madon joined Brookfield in 1998 as Chief Financial Officer of
Brookfield's real estate brokerage business. During his tenure, Mr. Madon has held a number of senior roles across the organization,
including head of Brookfield's corporate lending business. Mr. Madon began his career at PricewaterhouseCoopers where he worked
in Corporate Finance and Recovery, both in Canada and the United Kingdom.
Jaspreet Dehl. Ms. Dehl is the Chief Financial Officer of our company. Ms. Dehl is also a Managing Director of Brookfield
Asset Management. Since joining Brookfield in 2011, Ms. Dehl has held a number of senior finance positions, including within
Brookfield’s Private Equity Group and in Brookfield’s Private Funds Group. Prior to joining Brookfield, Ms. Dehl was part of the
Financial Advisory Services practice at Deloitte, specializing in corporate restructuring services and transaction execution services
to private equity clients. Ms. Dehl is a Chartered Professional Accountant and holds a bachelor’s degree in economics from Wilfrid
Laurier University.
Our directors and officers and their associates, as a group, beneficially own, directly or indirectly, or exercise control and
direction over, our units representing in the aggregate less than 1% of our issued and outstanding units on a fully exchanged basis.
6.B. COMPENSATION
The BBU General Partner pays to each of our directors (other than Mr. Jeffrey Blidner) $125,000 per year for serving on
our board of directors and various board committees. The BBU General Partner does not pay any compensation in connection with
Mr. Blidner's board service. The BBU General Partner pays the chair of the audit committee an additional $20,000 per year and the
lead independent director an additional $10,000 per year.
The BBU General Partner currently does not have any employees. Pursuant to our Master Services Agreement, the Service
Providers will provide or arrange for other service providers to provide day-to-day management and administrative services for our
company, the Holding LP and the Holding Entities. The fees payable to the Service Providers under our Master Services Agreement
are set forth under Item 7.B., "Major Shareholders and Related Party Transactions—Related Party Transactions—Our Master Services
Agreement—Management Fee".
Pursuant to our Master Services Agreement, members of Brookfield's senior management and other individuals from
Brookfield's global affiliates are drawn upon to fulfill obligations under our Master Services Agreement. However, these individuals,
including the Brookfield employees identified in the table under Item 6.A., "Directors, Senior Management and Employees—
Directors and Senior Management—Our Management", are not compensated by our company or the BBU General Partner. Instead,
they continue to be compensated by Brookfield.
Pursuant to our Master Services Agreement, there may be instances in which an employee of Brookfield provides services
in addition to those contemplated by our Master Services Agreement to the BBU General Partner, our company or any of our
subsidiaries, or vice versa. In such cases, all or a portion of the compensation paid to an employee who provides services to the other
party may be allocated to such other party.
6.C. BOARD PRACTICES
Board Structure, Practices and Committees
The structure, practices and committees of our board of directors, including matters relating to the size and composition of
the board of directors, the election and removal of directors, requirements relating to board action and the powers delegated to board
committees, are governed by the BBU General Partner's bye-laws. Our board of directors is responsible for supervising the
management, control, power and authority of the BBU General Partner and our company except as required by applicable law or
the bye-laws of the BBU General Partner. The following is a summary of certain provisions of those bye-laws that affect
our governance.
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Size, Independence and Composition of the Board of Directors
Our board of directors may consist of between three (3) and eleven (11) directors or such other number of directors as may
be determined from time to time by a resolution of the BBU General Partner's shareholders and subject to its bye-laws. Our board
is currently set at eight (8) directors, a majority of whom are independent. In addition, the BBU General Partner's bye-laws provide
that not more than 50% of the directors (as a group) or the independent directors (as a group) may be residents of any one jurisdiction
(other than Bermuda and any other jurisdiction designated by the board of directors from time to time).
Lead Independent Director
Our independent directors have selected John Lacey to serve as the lead independent director. The lead independent director's
primary role is to facilitate the functioning of the board (independently of the Service Providers and Brookfield), and to maintain
and enhance the quality of our corporate governance practices. The lead independent director presides over the private sessions of
our independent directors that take place following each meeting of the board and conveys the results of these meetings to the chair
of the board. In addition, the lead independent director is available, when appropriate, for consultation and direct communication
with unitholders or other stakeholders of our company.
Unitholders and other interested parties may communicate with any member of the board, including its chair, as well as the
lead independent director and the independent directors as a group by contacting the Corporate Secretary's Office at 73 Front Street,
5th Floor, Hamilton, HM 12, Bermuda.
Election and Removal of Directors
Our board of directors is appointed by shareholders of BBU General Partner and each of our current directors will serve
until the earlier of his or her death, resignation, removal from office or until a successor is appointed. Vacancies on the board of
directors may be filled and additional directors may be added by a resolution of the BBU General Partner's shareholders or a vote
of the directors then in office. A director may be removed from office by a resolution duly passed by the BBU General Partner's
shareholders. A director will be automatically removed from the board of directors if he or she becomes bankrupt, insolvent or
suspends payments to his or her creditors, or becomes prohibited by law from acting as a director.
Action by the Board of Directors
Our board of directors may take action in a duly convened meeting at which a quorum is present or by a written resolution
signed by all directors then holding office. Our board of directors will hold a minimum of four meetings per year. When action is to
be taken at a meeting of the board of directors, the affirmative vote of a majority of the votes cast is required for any action to be taken.
Transactions Requiring Approval by the Governance and Nominating Committee
Our governance and nominating committee has approved a conflicts policy which addresses the approval requirement and
other requirements for transactions in which there is greater potential for a conflict of interest to arise. These transactions include:
•
•
•
•
•
•
•
the dissolution of our company;
any material amendment to our Master Services Agreement, our Limited Partnership Agreement or the Holding LP Limited
Partnership Agreement;
any material service agreement or other arrangement pursuant to which Brookfield will be paid a fee, or other consideration
other than any agreement or arrangement contemplated by our Master Services Agreement;
co-investments by us with Brookfield;
acquisitions by us from, and dispositions by us to, Brookfield;
any other material transaction involving us and Brookfield; and
termination of, or any determinations regarding indemnification under, our Master Services Agreement.
Our conflicts policy requires the transactions described above to be approved by our governance and nominating committee.
Pursuant to our conflicts policy, our governance and nominating committee may grant approvals for any of the transactions described
above in the form of general guidelines, policies or procedures in which case no further special approval will be required in connection
with a particular transaction or matter permitted thereby. The conflicts policy can be amended at the discretion of our governance
and nominating committee. See Item 7.B., "Related Party Transactions—Conflicts of Interest and Fiduciary Duties".
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Service Contracts
There are no service contracts with directors that provide benefits upon termination of office or services.
Transactions in which a Director has an Interest
A director who directly or indirectly has an interest in a contract, transaction or arrangement with the BBU General Partner,
our company or certain of our affiliates is required to disclose the nature of his or her interest to the full board of directors. Such
disclosure may generally take the form of a general notice given to the board of directors to the effect that the director has an interest
in a specified company or firm and is to be regarded as interested in any contract, transaction or arrangement with that company or
firm or its affiliates. A director may participate in any meeting called to discuss or any vote called to approve the transaction in which
the director has an interest and no transaction approved by the board of directors will be void or voidable solely because the director
was present at or participates in the meeting in which the approval was given provided that the board of directors or a board committee
authorizes the transaction in good faith after the director's interest has been disclosed or the transaction is fair to the BBU General
Partner and our company at the time it is approved.
Transactions Requiring Unitholder Approval
Limited partners have consent rights with respect to certain fundamental matters and related party transactions (in accordance
with MI 61-101) and on any other matters that require their approval in accordance with applicable securities laws and stock exchange
rules. See Item 10.B., "Description of the Holding LP Limited Partnership Agreement—Amendment of the Holding LP Limited
Partnership Agreement", "Description of the Holding LP Limited Partnership Agreement—Opinion of Counsel and Limited Partner
Approval" and "Description of the Holding LP Limited Partnership Agreement—Withdrawal of the Managing General Partner".
Audit Committee
Our board of directors is required to maintain an audit committee that operates pursuant to a written charter. The audit
committee consists solely of independent directors and each member is financially literate, which is defined under our audit committee
charter to mean having the ability to read and understand a set of financial statements that present a breadth and level of complexity
of accounting issues that are generally comparable to the breadth and complexity of the issues that can reasonably be expected to be
raised by our financial statements. Not more than 50% of the audit committee members may be residents of any one jurisdiction
(other than Bermuda and any other jurisdiction designated by the board of directors from time to time). See Item 6.A., "Directors
and Senior Management—Governance" for the names of our audit committee members.
The audit committee is responsible for assisting and advising our board of directors with respect to:
•
•
•
•
our accounting and financial reporting processes;
the integrity and audits of our financial statements;
our compliance with legal and regulatory requirements; and
the qualifications, performance and independence of our independent accountants.
The audit committee is responsible for engaging our independent auditors, reviewing the plans and results of each audit
engagement with our independent auditors, approving professional services provided by our independent accountants, considering
the range of audit and non-audit fees charged by our independent auditors and reviewing the adequacy of our internal accounting
controls.
Governance and Nominating Committee
Our board of directors is required to maintain at all times a governance and nominating committee that operates pursuant
to a written charter. The governance and nominating committee consists solely of independent directors and not more than 50% of
the governance and nominating committee members may be residents of any one jurisdiction (other than Bermuda and any other
jurisdiction designated by the board of directors from time to time).
The governance and nominating committee has approved a conflicts policy which addresses the approval and other
requirements for transactions in which there is a greater potential for a conflict of interest to arise. The governance and nominating
committee may be required to approve any such transactions. See "—Transactions Requiring Approval by the Governance and
Nominating Committee".
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The governance and nominating committee is responsible for approving the appointment by the sitting directors of a person
to the office of director and for recommending a slate of nominees for election as directors by the BBU General Partner's shareholders.
The governance and nominating committee is responsible for assisting and advising the board of directors with respect to matters
relating to the general operation of the board of directors, our governance, the governance of the BBU General Partner and the
performance of the board of directors. The governance and nominating committee is responsible for reviewing and making
recommendations to the board of directors of the BBU General Partner concerning the remuneration of directors and committee
members and any changes in the fees to be paid pursuant to our Master Services Agreement.
Director Unit Ownership Requirements
The BBU General Partner believes that our directors can better represent our unitholders if they have economic exposure
to our company themselves. Our company expects that directors should hold sufficient number of our units such that the acquisition
costs of units held by such directors are equal to at least two times their annual retainer (the "Unit Ownership Requirement"), as
determined by the board of directors from time to time.
Our directors are required to purchase our units on an annual basis in an amount not less than 20% of the Unit Ownership
Requirement until such requirement has been met. Our directors are required to achieve the Unit Ownership Requirement within
five years of joining the board. In the event of an increase in the annual retainer fee, our directors will have two years from the date
of the change to comply with the Unit Ownership Requirement. In the case of directors who have served on our board less than five
years at the date of the change, such directors will be required to comply with the Unit Ownership Requirement by the date that is
the later of: (i) the fifth anniversary of their appointment to the board, and (ii) two years following the date of the change in retainer fee.
Status as Foreign Private Issuer
Because we qualify as a foreign private issuer under SEC rules, we are permitted to follow the corporate governance practices
of Bermuda (the jurisdiction in which we are organized) in lieu of the NYSE corporate governance requirements that would otherwise
be applicable to us. We currently follow the same corporate governance practices as would be applicable to U.S. domestic limited
partnerships. However, we may in the future elect to follow Bermuda law for certain corporate governance practices, as permitted
by the rules of NYSE, in which case our unitholders would not be afforded the same protection as provided under NYSE corporate
governance standards. Following our home country governance practices as opposed to the requirements that would otherwise apply
to a limited partnership listed on the NYSE may provide less protection than is accorded to investors of U.S. domestic issuers.
Indemnification and Limitations on Liability
Our Limited Partnership Agreement
The laws of Bermuda permit the partnership agreement of a limited partnership, such as our company, to provide for the
indemnification of a partner, the officers and directors of a partner and any other person against any and all claims and demands
whatsoever, except to the extent that the indemnification may be held by the courts of Bermuda to be contrary to public policy or to
the extent that the laws of Bermuda prohibit indemnification against personal liability that may be imposed under specific provisions
of the laws of Bermuda. The laws of Bermuda also permit a partnership to pay or reimburse an indemnified person's expenses in
advance of a final disposition of a proceeding for which indemnification is sought. See Item 10.B., "Memorandum and Articles of
Association—Description of our Units and our Limited Partnership Agreement—Indemnification; Limitations on Liability" for a
description of the indemnification arrangements in place under our Limited Partnership Agreement.
The BBU General Partner's Bye-laws
The laws of Bermuda permit the bye-laws of an exempted company, such as the BBU General Partner, to provide for the
indemnification of its officers, directors and shareholders and any other person designated by our company against any and all claims
and demands whatsoever, except to the extent that the indemnification may be held by the courts of Bermuda to be contrary to public
policy or to the extent that the laws of Bermuda prohibit indemnification against personal liability that may be imposed under specific
provisions of Bermuda law, such as the prohibition under the Bermuda Companies Act 1981 to indemnify liabilities arising from
fraud or dishonesty. The BBU General Partner's bye-laws provide that, as permitted by the laws of Bermuda, it will pay or reimburse
an indemnified person's expenses in advance of a final disposition of a proceeding for which indemnification is sought.
Under the BBU General Partner's bye-laws, the BBU General Partner is required to indemnify, to the fullest extent permitted
by law, its affiliates, directors, officers, resident representative, shareholders and employees, any person who serves on a governing
body of the Holding LP or any of its subsidiaries and certain others against any and all losses, claims, damages, liabilities, costs or
expenses (including legal fees and expenses), judgments, fines, penalties, interest, settlements or other amounts arising from any
and all claims, demands, actions, suits or proceedings, incurred by an indemnified person in connection with our operations and
activities or in respect of or arising from their holding such positions, except to the extent that the claims, liabilities, losses, damages,
costs or expenses are determined to have resulted from the indemnified person's bad faith, fraud or willful misconduct, or in the case
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of a criminal matter, action that the indemnified person knew to have been unlawful. In addition, under the BBU General Partner's
bye-laws: (i) the liability of such persons has been limited to the fullest extent permitted by law and except to the extent that their
conduct involves bad faith, fraud or willful misconduct, or in the case of a criminal matter, action that the indemnified person knew
to have been unlawful; and (ii) any matter that is approved by the independent directors will not constitute a breach of any duties
stated or implied by law or equity, including fiduciary duties. The BBU General Partner's bye-laws require it to advance funds to
pay the expenses of an indemnified person in connection with a matter in which indemnification may be sought until it is determined
that the indemnified person is not entitled to indemnification.
Insurance
We have obtained insurance coverage under which our directors are insured, subject to the limits of the policy, against
certain losses arising our from claims made against such directors by reason of any acts or omissions covered under the policy in
their respective capacities as directors, including certain liabilities under securities laws. The insurance applies in certain circumstances
where we may not indemnify directors and officers for their acts or omissions.
6.D. EMPLOYEES
The BBU General Partner does not have any employees. Our company has entered into a Master Services Agreement with
the Service Providers, pursuant to which each Service Provider and certain other affiliates of Brookfield provide, or arrange for other
Service Providers to provide, day-to-day management and administrative services for our company, the Holding LP and the Holding
Entities.
As at December 31, 2018, our consolidated operating companies had approximately 46,651 employees, including
approximately 13,766 in our infrastructure services segment, approximately 16,530 our business services segment, and approximately
16,355 in our industrial operations segment. Our employees are primarily based in North America (40%), Brazil (23%), Middle East
(10%), Europe (19%), and Australia (4%). Our company believes that its employees are critical to its success and its relationships
with its employees and with any labor organizations that represent its employees are good.
6.E. SHARE OWNERSHIP
Our directors and officers and their associates, as a group, beneficially own, directly or indirectly, or exercise control and
direction over, our units representing in the aggregate less than 1% of our issued and outstanding units on a fully exchanged basis.
The Unit Option Plan
Our company has adopted a Unit Option Plan to enable our company to grant options to eligible persons should it be
considered desirable to do so. The plan provides for the issuance of our units (or delivery of our units purchased in the open market)
on the exercise of an option with a value equal to the amount, if any, by which the fair market value of a unit on the date of exercise
exceeds the exercise price of the option.
The Unit Option Plan allows for the issuance of up to 5 million units, representing approximately 5% of the number of units
(on a fully exchanged basis) outstanding. When our units are issued to a participant upon the exercise of an option, the number of
units issued to the participant in respect of the in-the-money amount of the option will be deducted from the maximum number of
units issuable under the Unit Option Plan.
The maximum number of our units issuable to any one person under the Unit Option Plan is 5% of the outstanding units
(on a fully exchanged, non-diluted basis) less the aggregate number of our units reserved for issuance to such person under any other
security based compensation arrangement of our company. The number of our units issuable to insiders, at any time, under the Unit
Option Plan and all other security based compensation arrangements of our company cannot exceed 10% of the issued and outstanding
units (on a fully exchanged basis). The number of our units issued to insiders, within any one-year period, under the Unit Option
Plan and all other security based compensation arrangements of our company cannot exceed 10% of the issued and outstanding units
(on a fully exchanged basis).
The exercise price of an option under the Unit Option Plan is established at the time such option is granted, which shall be
in U.S. dollars and shall not be less than the fair market value on the date of grant of such option (based on the closing price of a
unit on the NYSE on the last trading day preceding the date of grant), and shall, in all cases, be not less than such amount required
by applicable regulatory authorities from time to time. If the approval date for options to be granted falls within a blackout period,
the effective grant date for such options will be no earlier than six business days after the date on which the blackout period ends,
and the exercise price for such options shall not be less than the volume-weighted average price of a unit on the NYSE for the five
business days preceding the effective grant date.
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Our board of directors may determine vesting terms for options and may determine that an option shall be vested and
exercisable in installments. Unless otherwise specified in the option agreement or other agreement with the participant, options
become vested as to 20% on the first anniversary date after the grant and as to 20% on each subsequent anniversary date up to and
including the fifth anniversary date of the grant. Our board of directors may determine the maximum period following the grant date
during which a vested option may be exercised, subject to the provision that options shall not be exercisable later than 10 years after
the date of grant, provided that, if an option would otherwise expire during a blackout period or within 10 days after the end of the
blackout period, to the extent permitted by applicable law, the term of such option shall automatically be extended until 10 days after
the end of the blackout period. To the extent permitted by law, our board of directors may, from time to time, delegate to an
administrative committee or the chair thereof all or any of the powers conferred on our directors under the Unit Option Plan.
Eligible persons under the Unit Option Plan are: (i) officers or employees of our company or any affiliate of our company
whose location of employment is within the United States, without regard to that individual's tax residence or citizenship and for
which our units constitute "service recipient stock" within the meaning of Section 409A of the U.S. Internal Revenue Code; (ii) officers
or employees of our company or any affiliate of our company whose location of employment is within the United Kingdom or any
jurisdiction other than the United States, Australia or Canada, without regard to that individual's tax residence or citizenship; and
(iii) any other persons (other than non-employee directors) so designated by our board of directors, subject to applicable laws and
regulations. Options may not be assigned; however, the foregoing does not prohibit a holder from directing payments under the Unit
Option Plan to his or her legal representative.
All options immediately cease to be exercisable if the holder ceases to be an eligible person under the Unit Option Plan for
any reason, except termination without cause or due to a holder's death, retirement or continuous leave of absence as a result of
disability or leave authorized by statute. If the holder's employment is terminated without cause or due to a continuous leave of
absence as a result of disability or leave authorized by statute, the holder has 60 days after the holder's termination date to exercise
vested options and options which have not vested by the termination date are cancelled on the termination date. If the holder's
employment is terminated for cause, by resignation, or by a continuous leave of absence other than as a result of disability or leave
authorized by statute, all options whether vested or not vested by the termination date are cancelled on the termination date. If the
holder retires, vested options remain exercisable until the original expiry date and options which have not vested by the termination
date are cancelled on the termination date. If the holder dies, the holder's legal representatives have six months to exercise
vested options.
Our board of directors may make the following types of amendments to the Unit Option Plan without seeking unitholder
approval: (i) amendments of a "housekeeping" or administrative nature, including any amendment for the purpose of curing any
ambiguity, error or omission in the Unit Option Plan or to correct or supplement any provision of the Unit Option Plan that is
inconsistent with any other provision of the Unit Option Plan; (ii) amendments necessary to comply with the provisions of applicable
law (including the rules, regulations and policies of the TSX and the NYSE); (iii) amendments necessary for awards to qualify for
favorable treatment under applicable tax laws; (iv) amendments to the vesting provisions of the Unit Option Plan or any option;
(v) amendments to the termination or early termination provisions of the Unit Option Plan or any option, whether or not such option
is held by an insider, provided any such amendment does not entail an extension beyond the original expiry date; and (vi) amendments
necessary to suspend or terminate the Unit Option Plan.
Unitholder approval is required for certain amendments to the Unit Option Plan, including: (i) any amendment to increase
the number of our units issuable under the Unit Option Plan, including an increase to a fixed maximum number of units or a change
from a fixed maximum number of units to a fixed maximum percentage; (ii) any amendment to the Unit Option Plan that increases
the length of the period after a blackout period during which options may be exercised; (iii) any amendment which would result in
the exercise price for any option granted under the Unit Option Plan being lower than the fair market value of our units at the time
the option is granted; (iv) any amendment which reduces the exercise price of an option, except in connection with any change in
our outstanding units by reason of any stock dividend or split, recapitalization, reorganization, amalgamation, consolidation, merger
or other corporate change; (v) any amendment expanding the categories of eligible person which may permit the introduction or
reintroduction of non-employee directors on a discretionary basis or any amendment to remove or exceed the insider participation
limit; (vi) any amendment extending the term of an option beyond its original expiry date, or a date beyond the permitted automatic
extension in the case of an option expiring during a blackout period; (vii) any amendment which would permit Options to be
transferable or assignable other than for normal estate settlement purposes; (viii) any amendment to the amendment provisions; and
(ix) amendments required to be approved by unitholders under applicable law (including the rules, regulations and policies of the
TSX and the NYSE).
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ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
7.A. MAJOR SHAREHOLDERS
As at the date of this Form 20-F, there are 66,096,771 units of our company outstanding, or 129,192,268 units on a fully-
exchanged basis. To our knowledge, as at the date of this Form 20-F, there is no person or company, other than Brookfield, who
beneficially owns or controls or directs, directly or indirectly, more than 5% of our units on a fully-exchanged basis (based on reports
filed under Section 13(d) or Section 13(g) of the Exchange Act).
As at March 8, 2019, 15,502 of our outstanding units were held by holders of record in the United States, not including
units of our company held of record by DTC. As at March 8, 2019, DTC was the holder of record of 14,108,605 units.
As at March 8, 2019, 24,181,959 of our outstanding units were held by holders of record in Canada, not including units of
our company held of record by CDS. As at March 8, 2019, CDS was the holder of record of 27,785,351 units.
The following table presents information regarding the beneficial ownership of our units, as at December 31, 2018, by each
person or entity that beneficially owns 5% or more of our units (based on reports filed under Section 13(d) or Section 13(g) of the
Exchange Act) on a fully-exchanged basis.
Name and Address
Brookfield Asset Management Inc.
Suite 300, Brookfield Place, 181 Bay Street
Toronto, Ontario M5J 2T3
Partners Limited
Suite 400, 51 Yonge Street
Toronto, Ontario M5E 1J1
____________________________________
Units Outstanding
Units Owned
Percentage
87,879,747
68.0% (1)
89,392,565
69.2% (2)
(1)
(2)
Consists of 24,784,250 units and 63,095,497 redemption-exchange units. In addition, Brookfield has an indirect general partnership interest in the BPP
General Partner. See also the information contained in this Form 20-F under Item 10.B., "Memorandum and Articles of Association—Description of our
Units and our Limited Partnership Agreement".
Partners Limited is a corporation whose principal business mandate is to hold shares of Brookfield, directly or indirectly, for the long-term. Partners
Limited owns all of Brookfield's Class B Limited Voting Shares entitling it to appoint one-half of the Board of Directors of Brookfield. In addition, Partners
Limited owns 49% of the general partner units of Partners Value Investments LP, a publicly traded partnership on the TSX Venture Exchange that owns
approximately 9% of Brookfield's Class A Limited Voting Shares and a 9% common equity interest in Brookfield. Partners Limited may be deemed to be
the beneficial owner of 89,392,565 of our units, constituting approximately 69.2% of the issued and outstanding units, assuming that all of the redemption-
exchange units are exchanged for our units pursuant to the Redemption-Exchange Mechanism described in Item 10.B "Description of the Holding LP
Limited Partnership Agreement—Redemption-Exchange Mechanism." This amount includes 1,495,469 of our units beneficially held by Partners Value
Investments LP. Partners Limited may be deemed to have the power (together with each of Brookfield and Partners Value Investments LP) to vote or
direct the vote of the units beneficially owned by it or to dispose of such units other than 17,349 of our units with respect to which Partners Limited has
sole voting and investment power.
Our major unitholders have the same voting rights as all other holders of our units.
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7.B. RELATED PARTY TRANSACTIONS
Brookfield Asset Management
Brookfield Asset Management is a global alternative asset manager with over $350 billion in assets under management. It
has more than a 100-year history of owning and operating assets with a focus on real estate, renewable power, infrastructure and
private equity. Brookfield Asset Management offers a range of public and private investment products and services, and is co-listed
on the New York, Toronto and Euronext stock exchanges under the symbols BAM, BAM.A and BAMA, respectively.
Brookfield believes its operating experience is an essential differentiating factor in its past ability to generate significant
risk-adjusted returns. In addition, Brookfield has demonstrated particular expertise in sourcing and executing large-scale multifaceted
transactions across a wide spectrum of sectors and geographies.
As a global alternative asset manager, Brookfield brings a strong and proven corporate platform supporting legal, tax,
operations oversight, investor reporting, portfolio administration and other client services functions. Brookfield's management team
is multi-disciplinary, comprising investment and operations professionals, each with significant expertise in evaluating and executing
acquisition opportunities on behalf of itself and institutional investors.
We are an affiliate of Brookfield and have a number of agreements and arrangements with Brookfield, as described below.
While we believe that our ongoing relationship with Brookfield provides us with a unique competitive advantage as well
as access to opportunities that would otherwise not be available to us, we operate very differently from an independent, stand-alone
entity. We describe below this relationship as well as potential conflicts of interest (and the methods for resolving them) and other
material considerations arising from our relationship with Brookfield. We include only material related party transactions in the
notes to our consolidated financial statements.
Our Master Services Agreement
The Service Recipients have entered into a Master Services Agreement pursuant to which the Service Providers have agreed
to provide or arrange for other Service Providers to provide management and administration services to our company and the other
Service Recipients.
The following is a summary of certain provisions of our Master Services Agreement. Because this description is only a
summary of our Master Services Agreement, it does not necessarily contain all of the information that you may find useful. We
therefore urge you to review our Master Services Agreement in its entirety. Our Master Services Agreement is filed as exhibit to this
Form 20-F and is also available on our SEDAR profile at www.sedar.com. See also Item 10.C., "Material Contracts", Item 10.H.,
"Documents on Display" and Item 19., "Exhibits".
Appointment of the Service Providers and Services Rendered
Under our Master Services Agreement, the Service Recipients have appointed the Service Providers to provide or arrange
for the provision by an appropriate Service Provider of the following services:
•
•
•
•
providing overall strategic advice to the applicable Service Recipients including advising with respect to the expansion of
their business into new markets;
identifying, evaluating and recommending to the Service Recipients acquisitions or dispositions from time to time and,
where requested to do so, assisting in negotiating the terms of such acquisitions or dispositions;
recommending and, where requested to do so, assisting in the raising of funds whether by way of debt, equity or otherwise,
including the preparation, review or distribution of any prospectus or offering memorandum in respect thereof and assisting
with communications support in connection therewith;
recommending to the Service Recipients suitable candidates to serve on the boards of directors or their equivalent governing
bodies of the operating businesses;
• making recommendations with respect to the exercise of any voting rights to which the Service Recipients are entitled in
respect of the operating businesses;
• making recommendations with respect to the payment of dividends or other distributions by the Service Recipients, including
distributions by our company to our unitholders;
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• monitoring and/or oversight of the applicable Service Recipient's accountants, legal counsel and other accounting, financial
or legal advisors and technical, commercial, marketing and other independent experts, including making recommendations
with respect to, and supervising the making of all tax elections, determinations and designations, the timely calculation and
payment of taxes payable and the filing of all tax returns due, by each Service Recipient, and overseeing the preparation of
the Service Recipients' annual consolidated financial statements and quarterly interim financial statements;
• making recommendations in relation to and effecting, when requested to do so, the entry into insurance of each Service
Recipient's assets, together with other insurances against other risks, including directors and officers insurance as the relevant
Service Provider and the relevant board of directors or its equivalent governing body may from time to time agree;
•
•
arranging for individuals to carry out the functions of principal executive, accounting and financial officers for our company
only for purposes of applicable securities laws; and
providing individuals to act as senior officers of the Service Recipients as agreed from time to time, subject to the approval
of the relevant board of directors or its equivalent governing body.
Notwithstanding the foregoing, all investment advisory services (as defined in our Master Services Agreement) must be
provided solely to the Holding LP.
The Service Providers' activities are subject to the supervision of the board of directors or equivalent governing body of
BBU General Partner and of each of the other Service Recipients, as applicable. The relevant governing body remains responsible
for all investment and divestment decisions made by the Service Recipient.
Any Service Provider may, from time to time, appoint an affiliate of Brookfield to act as a new Service Provider under our
Master Services Agreement, effective upon the execution of a joinder agreement by the new Service Provider.
Management Fee
Pursuant to our Master Services Agreement, we pay a quarterly base management fee to the Service Providers equal to
0.3125% (1.25% annually) of the total capitalization of our company. For purposes of calculating the base management fee, our total
capitalization of our company is equal to the quarterly volume-weighted average trading price of a unit on the principal stock exchange
for our units (based on trading volumes) multiplied by the number of units outstanding at the end of the quarter (assuming full
conversion of the redemption-exchange units into units), plus the value of securities of the other Service Recipients that are not held
by us, plus all outstanding third party debt with recourse to a Service Recipient, less all cash held by such entities. For any quarter
in which the BBU General Partner determines that there is insufficient available cash to pay the base management fee as well as the
next regular distribution on our units, the Service Recipients may elect to pay all or a portion of the base management fee in our
units or redemption-exchange units, subject to certain conditions. The aggregate base management fee for the year ended December
31, 2018 was approximately $56 million.
Brookfield has established and manages a number of private investment entities, managed accounts, joint ventures,
consortiums, partnerships and investment funds whose investment objectives include the acquisition of businesses similar to those
that we operate and Brookfield may in the future establish similar funds. Brookfield Asset Management has agreed that it will offer
our company the opportunity to take up Brookfield's share of any acquisition through these consortium arrangements or by one of
these entities that involves the acquisition of business services and industrial operations that are suitable for us, subject to certain
limitations. To the extent that under any other arrangement involving Brookfield we are obligated to pay a base management fee
(directly or indirectly through an equivalent arrangement) to the Service Providers (or any affiliate) on a portion of our capital that
is comparable to the base management fee, the base management fee payable for each quarter in respect thereof generally will be
reduced on a dollar-for-dollar basis by our proportionate share of the comparable base management fee (or equivalent amount) under
such other arrangement for that quarter. The base management fee will not be reduced by the amount of any incentive distribution
payable by any Service Recipient or operating entity to the Service Providers (or any other affiliate) (for which there is a separate
credit mechanism under the Holding LP Limited Partnership Agreement), or any other fees that are payable by any operating entity
to Brookfield for financial advisory, operations and maintenance, development, operations management and other services.
The only services that are currently contemplated to be provided by Brookfield that would not give rise to an offsetting
reduction in the base management fee described above are in connection with the provision of insurance and information technology
support where the Service Recipients and other members of the Brookfield group participate in group-wide centralized programs,
together with other Brookfield affiliates, in order to benefit from economies of scale. While not currently contemplated, it is also
possible that a Brookfield affiliate could be retained to provide operations or development services that are outside the scope of the
Master Services Agreement, such as services related to residential land development, in which case any such fees would not result
in offsetting reductions to the base management fee.
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Pursuant to our Master Services Agreement, there may be instances in which an employee of Brookfield provides services
in addition to those contemplated by our Master Services Agreement to the BBU General Partner, our company or any of our
subsidiaries, or vice versa. In such cases, all or a portion of the compensation paid to an employee who provides services to the other
party may be allocated to such other party.
Reimbursement of Expenses and Certain Taxes
The relevant Service Recipient will reimburse the Service Providers for all other out-of-pocket fees, costs and expenses
incurred in connection with the provision of the services including those of any third party. Such out-of-pocket fees, costs and
expenses are expected to include, among other things: (i) fees, costs and expenses relating to any debt or equity financing; (ii) fees,
costs and expenses incurred in connection with the general administration of any Service Recipient; (iii) taxes, licenses and other
statutory fees or penalties levied against or in respect of a Service Recipient; (iv) amounts owed by the Service Providers under
indemnification, contribution or similar arrangements; (v) fees, costs and expenses relating to our financial reporting, regulatory
filings and investor relations and the fees, costs and expenses of agents, advisors and other persons who provide services to a Service
Recipient; and (vi) any other fees, costs and expenses incurred by the Service Providers that are reasonably necessary for the
performance by the Service Providers of their duties and functions under our Master Services Agreement. However, the Service
Recipients are not required to reimburse the Service Providers for the salaries and other remuneration of their management, personnel
or support staff who carry out any services or functions for such Service Recipients or overhead for such persons.
In addition, the Service Recipients are required to pay all fees, costs and expenses incurred in connection with the
investigation, acquisition, holding or disposal of any asset or business that is made or that is proposed to be made by us. Such
additional fees, expenses and costs represent out-of-pocket costs associated with investment activities that will be undertaken pursuant
to our Master Services Agreement.
The Service Recipients are also required to pay or reimburse the Service Providers for all sales, use, value added, goods
and services, harmonized sales, withholding or other similar taxes or customs duties or other governmental charges levied or imposed
by reason of our Master Services Agreement, any service agreement or any agreement our Master Services Agreement contemplates,
other than income taxes, corporation taxes, capital taxes or other similar taxes payable by the Service Providers, which are personal
to the Service Providers.
Assignment
Our Master Services Agreement may not be assigned by the Service Providers without the prior written consent of our
company except that (i) any Service Provider may subcontract or arrange for the provision of services by another Service Provider,
provided that the Service Providers remain responsible for any services provided by such other Service Provider, and (ii) any of the
Service Providers may assign the agreement to an affiliate or to a person that is its successor by way of merger, amalgamation,
consolidation or acquisition of the business of the Service Provider.
Termination
Our Master Services Agreement continues in perpetuity until terminated in accordance with its terms. However, the Service
Recipients may terminate our Master Services Agreement upon written notice of termination from the BBU General Partner to the
Service Providers if any of the following occurs:
•
•
•
any of the Service Providers defaults in the performance or observance of any material term, condition or covenant contained
in the agreement in a manner that results in material harm to the Service Recipients and the default continues unremedied
for a period of 30 days after written notice of the breach is given to such Service Provider;
any of the Service Providers engages in any act of fraud, misappropriation of funds or embezzlement against any Service
Recipient that results in material harm to the Service Recipients;
any of the Service Providers is grossly negligent in the performance of its obligations under the agreement and such gross
negligence results in material harm to the Service Recipients; or
•
certain events relating to the bankruptcy or insolvency of each of the Service Providers.
The Service Recipients have no right to terminate for any other reason, including if any of the Service Providers or Brookfield
experiences a change of control. The BBU General Partner may only terminate our Master Services Agreement on behalf of our
company with the prior unanimous approval of our independent directors.
Our Master Services Agreement expressly provides that our Master Services Agreement may not be terminated by the BBU
General Partner due solely to the poor performance or the underperformance of any of our operations.
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The Service Providers may terminate our Master Services Agreement upon written notice of termination to the Service
Recipients if any Service Recipient defaults in the performance or observance of any material term, condition or covenant contained
in the agreement in a manner that results in material harm to the Service Providers and the default continues unremedied for a period
of 30 days after written notice of the breach is given to the Service Recipient. The Service Providers may also terminate our Master
Services Agreement upon the occurrence of certain events relating to the bankruptcy or insolvency of the Service Recipients.
If our Master Services Agreement is terminated, the Licensing Agreements, the Relationship Agreement and any of
Brookfield Asset Management's obligations under the Relationship Agreement will also terminate.
Indemnification and Limitations on Liability
Under our Master Services Agreement, the Service Providers have not assumed and do not assume any responsibility other
than to provide or arrange for the provision of the services called for thereunder in good faith and will not be responsible for any
action that the Service Recipients take in following or declining to follow the advice or recommendations of the Service Providers.
In addition, under our Master Services Agreement, the Service Providers and the related indemnified parties will not be liable to the
Service Recipients for any act or omission, except for conduct that involved bad faith, fraud, willful misconduct, gross negligence
or in the case of a criminal matter, conduct that the indemnified person knew was unlawful. The maximum amount of the aggregate
liability of the Service Providers or any of their affiliates, or of any director, officer, agent, subcontractor, contractor, delegate, member,
partner, shareholder, employee or other representative of the Service Providers or any of their affiliates, will be equal to the amounts
previously paid by the Service Recipients in respect of services pursuant to our Master Services Agreement in the two most recent
calendar years. The Service Recipients have agreed to indemnify the Service Providers, their affiliates, directors, officers, agents,
subcontractors, delegates, members, partners, shareholders and employees to the fullest extent permitted by law from and against
any claims, liabilities, losses, damages, costs or expenses (including legal fees) incurred by an indemnified person or threatened in
connection with any and all actions, suits, investigations, proceedings or claims of any kind whatsoever, whether arising under statute
or action of a governmental authority or in connection with our respective businesses, investments and activities or in respect of or
arising from our Master Services Agreement or the services provided by the Service Providers, except to the extent that the claims,
liabilities, losses, damages, costs or expenses are determined to have resulted from the indemnified person's bad faith, fraud or willful
misconduct, gross negligence or in the case of a criminal matter, action that the indemnified person knew to have been unlawful.
Outside Activities
Our Master Services Agreement does not prohibit the Service Providers or their affiliates from engaging in other business
activities or sponsoring, or providing services to, third parties that compete directly or indirectly with the Service Recipients.
Other Services
Brookfield may provide services to our operating businesses which are outside the scope of our Master Services Agreement
under arrangements that are on market terms and conditions and pursuant to which Brookfield will receive fees. The services that
may be provided under these arrangements include financial advisory, operations and maintenance, development, operating
management and other services.
Relationship Agreement
Our company, the Holding LP, the Holding Entities, the Service Providers and Brookfield Asset Management have entered
into an agreement, referred to as the Relationship Agreement, that governs aspects of the relationship among them. Pursuant to the
Relationship Agreement, Brookfield Asset Management has agreed that we will serve as the flagship public company for its business
services and industrial operations and the primary entity through which Brookfield owns and operates these businesses on a
global basis.
An integral part of our strategy is to pursue acquisitions through consortium arrangements with institutional investors,
strategic partners or financial sponsors and to form partnerships to pursue acquisitions on a specialized or global basis. Brookfield
has also established and manages a number of private investment entities, managed accounts, joint ventures, consortiums, partnerships
and investment funds whose investment objectives include the acquisition of businesses similar to those that we operate and Brookfield
may in the future establish similar funds. Nothing in the Relationship Agreement will limit or restrict Brookfield from establishing
or advising these or similar entities or limit or restrict any such entities from carrying out any acquisition. Brookfield Asset Management
has agreed that it will offer us the opportunity to take up Brookfield's share of any acquisition through these consortium arrangements
or by one of these entities that involves the acquisition of business services and industrial operations that are suitable for us, subject
to certain limitations. We expect to invest in and/or alongside funds created, managed and sponsored by Brookfield. To the extent
that we invest in or alongside funds created, managed or sponsored by Brookfield, we may pay a base management fee (directly or
indirectly through an equivalent arrangement) on a portion of our capital that is comparable to the base management fee payable
pursuant to our Master Services Agreement. In this case, the base management fee payable for each quarter pursuant to the Master
Services Agreement generally will be reduced on a dollar-for-dollar basis by our proportionate share of the comparable base
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management fee (or equivalent amount) under such other arrangement for that quarter. The payment of base management fees under
such other arrangements will not have any impact on the incentive distribution amount that Brookfield may be entitled to receive
from the Holding LP. Brookfield may be entitled to performance or incentive distributions in respect of funds created, managed or
sponsored by Brookfield, and we may invest in or alongside such funds. To the extent that any Holding Entity or any operating
business pays to Brookfield any comparable performance or incentive distribution, the amount of any future incentive distributions
payable in respect of our Special LP Units will be reduced in an equitable manner to avoid duplication of distributions; however,
any such comparable performance or incentive distribution will not result in a reduction to the base management fee payable pursuant
to the Master Services Agreement.
Under the terms of the Relationship Agreement, our company, the Holding LP and the Holding Entities have acknowledged
and agreed that Brookfield carries on a diverse range of businesses worldwide, and that except as explicitly provided in the Relationship
Agreement, the Relationship Agreement does not in any way limit or restrict Brookfield from carrying on its business.
Our ability to grow depends in part on Brookfield identifying and presenting us with acquisition opportunities. Brookfield's
commitment to us and our ability to take advantage of opportunities is subject to a number of limitations such as our financial capacity,
the suitability of the acquisition in terms of the underlying asset characteristics and its fit with our strategy, limitations arising from
the tax and regulatory regimes that govern our affairs and certain other restrictions. Under the terms of the Relationship Agreement,
our company, the Holding LP and the Holding Entities have acknowledged and agreed that, subject to providing us the opportunity
to participate on the basis described above, Brookfield may pursue other business activities and provide services to third parties that
compete directly or indirectly with us. In addition, Brookfield has established or advised, and may continue to establish or advise,
other entities that rely on the diligence, skill and business contacts of Brookfield's professionals and the information and acquisition
opportunities they generate during the normal course of their activities. Our company, the Holding LP and the Holding Entities have
acknowledged and agreed that some of these entities may have objectives that overlap with our objectives or may acquire business
services and industrial operations that could be considered appropriate acquisitions for us, and that Brookfield may have financial
incentives to assist those other entities over us. If any of the Service Providers determines that an opportunity is not suitable for us,
Brookfield may still pursue such opportunity on its own behalf. Our company, the Holding LP and the Holding Entities have further
acknowledged and agreed that nothing in the Relationship Agreement will limit or restrict: (i) Brookfield's ability to make any
investment recommendation or take any other action in connection with its public securities businesses; (ii) Brookfield from investing
in any loans or debt securities or from taking any action in connection with any loan or debt security notwithstanding that the
underlying collateral comprises or includes business services and industrial operations provided that the original purpose of the
investment was not to acquire a controlling interest in such business services and industrial operations; or (iii) Brookfield from
acquiring or holding an investment of less than 5% of the outstanding shares of a publicly traded company or from carrying out any
other investment in a company or real estate portfolio where the underlying assets do not principally constitute business services
and industrial operations.
Due to the foregoing, we expect to compete from time to time with other affiliates of Brookfield Asset Management or other
third parties for access to the benefits that we expect to realize from Brookfield Asset Management's involvement in our business.
This includes not only the allocation of acquisition opportunities but also the allocation of capital investment (e.g., co-investment)
within such opportunities. Brookfield allocates co-investment opportunities on a case-by-case basis as they arise. Brookfield may,
without notice to us, determine to provide priority rights with respect to all or a select geographic, industry or other subset of future
co-investment opportunities generally to certain other affiliates of Brookfield Asset Management or other third parties pursuant to
contracts or informal arrangements with such persons. For example, under one of these arrangements Brookfield may offer an initial
priority allocation of each co-investment opportunity located outside of the United States and Canada to certain person(s), without
making the opportunity to co-invest in such transaction available to us. In such a scenario, we would be less likely to be offered co-
investment opportunities outside of the United States and Canada (or may be offered lesser amounts of such co-investment
opportunities) than we might otherwise have received in the absence of such arrangements. In sum, we do not have any contractual
or other right with respect to co-investment opportunities and should not expect that we will be offered any co-investment opportunities
except in the sole discretion of Brookfield.
In the event of the termination of our Master Services Agreement, the Relationship Agreement would also terminate,
including Brookfield's commitments to provide us with acquisition opportunities, as described above.
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Under the Relationship Agreement, our company, the Holding LP and the Holding Entities have agreed that none of
Brookfield nor any affiliate, director, officer, employee, contractor, agent, advisor, member, partner, shareholder or other representative
of Brookfield, will be liable to us for any claims, liabilities, losses, damages, costs or expenses (including legal fees) arising in
connection with the business and activities in respect of or arising from the Relationship Agreement, except to the extent that the
claims, liabilities, losses, damages, costs or expenses (including legal fees) are determined to have resulted from the person's bad
faith, fraud, willful misconduct or gross negligence, or in the case of a criminal matter, action that the person knew to have been
unlawful. The maximum amount of the aggregate liability of Brookfield, or any of its affiliates, or of any director, officer, employee,
contractor, agent, advisor, member, partner, shareholder or other representative of Brookfield, will be equal to the amounts previously
paid in the two most recent calendar years by the Service Recipients pursuant to our Master Services Agreement.
Preferred Shares of Certain Holding Entities
Brookfield has provided $5 million of working capital to CanHoldco and two of our other subsidiaries for a total of
$15 million, through a subscription for preferred shares of such entities. These preferred shares are entitled to receive a cumulative
preferential cash dividend equal to 5% of their redemption value as and when declared by the board of directors of the applicable
entity. The preferred shares are redeemable following the twentieth anniversary of the date of issue. The preferred shares will be
entitled to vote with the common shares of the applicable entity and will have an aggregate of 1% of the votes to be cast in respect
of the applicable entity.
Credit Facilities
In October 2017, we entered into a credit agreement with Brookfield to borrow up to $500 million to help fund new
acquisitions and investments (the “New Brookfield Acquisition Facility”). The New Brookfield Acquisition Facility replaced a $200
million operating credit facility and a $300 million acquisition facility that were in place with Brookfield when we were spun off
from Brookfield Asset Management in June 2016. Given our strong liquidity, we have not made any borrowings under these credit
facilities and have determined that an operating credit facility for working capital purposes is no longer necessary.
Net proceeds above a specified threshold received by the borrowers or their subsidiaries from asset dispositions, debt
incurrences or equity issuances must be used to pay down the New Brookfield Acquisition Facility (which can then be redrawn to
fund future investments). The New Brookfield Acquisition Facility has an initial term ending in August 2019 and is extendible for
one-year renewal periods by mutual agreement, subject to our paying an extension fee and credit agreement compliance.
The New Brookfield Acquisition Facility is guaranteed by our company and each direct wholly-owned (in terms of
outstanding common equity) subsidiary of our company or Holding LP that is not otherwise a borrower, and provides for funds to
be made available in U.S. or Canadian dollars at an interest rate based on LIBOR, base rate, bankers' acceptance rate or prime rate
loans. The New Brookfield Acquisition Facility bears interest at the specified LIBOR or bankers' acceptance rate plus 3.75%, or the
specified base rate or prime rate plus 2.75%.
Redemption-Exchange Mechanism
The holder of redemption-exchange units of the Holding LP, namely Brookfield, has the right at any time to require the
Holding LP to redeem all or a portion of its redemption-exchange units for cash in an amount equal to the market value of one of
our units multiplied by the number of units to be redeemed (subject to certain adjustments), subject to our right to acquire such
interests (in lieu of redemption) in exchange for our units. See Item 10.B., "Description of the Holding LP Limited Partnership
Agreement—Redemption-Exchange Mechanism". Taken together, the effect of the redemption right and the right of exchange is
that the holder of redemption-exchange units will receive our units, or the value of such units, at our election. Should we determine
not to exercise our right of exchange, cash required to fund a redemption of redemption-exchange units will likely be financed by a
public offering of our units.
Registration Rights Agreement
We have entered into a customary registration rights agreement with Brookfield pursuant to which we have agreed that,
upon the request of Brookfield, we will file one or more registration statements to register for sale under the U.S. Securities Act of
1933, as amended, or the U.S. Securities Act, or one or more prospectuses to qualify the distribution in Canada of any of our units
held by Brookfield (including units acquired pursuant to the Redemption-Exchange Mechanism). Under the registration rights
agreement, we will not be required to file a U.S. registration statement or a Canadian prospectus unless Brookfield requests that units
having a value of at least $50 million be registered or qualified. In the registration rights agreement, we have agreed to pay expenses
in connection with such registration and sales, except for any underwriting discounts, commissions, or fees attributable to the sale
of the units, which will be borne by the selling unitholder, and to indemnify Brookfield for, among other things, material misstatements
or omissions in the registration statement and/or prospectus.
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Incentive Distributions
As a result of holding Special LP Units, Brookfield will be entitled to receive from the Holding LP incentive distributions
calculated as (a) 20% of the growth in the market value of our units quarter-over-quarter (but only after the market value exceeds
the "Incentive Distribution Threshold" being initially $25.00 and adjusted at the beginning of each quarter to be equal to the greater
of (i) our unit's market value for the previous quarter and (ii) the Incentive Distribution Threshold at the end of the previous quarter)
multiplied by (b) the number of units outstanding at the end of the quarter (assuming full conversion of the redemption-exchange
units into units). For the purposes of calculating incentive distributions, the market value of our units will be equal to the quarterly
volume-weighted average price of our units on the principal stock exchange for our units (based on trading volumes). The incentive
distribution amount, if any, will be calculated at the end of each calendar quarter and paid concurrently with any other distributions
by the Holding LP in accordance with the Holding LP Limited Partnership Agreement. In the event that there is a decline in our units'
market value during any quarter, there will be no repayment or clawback of any incentive distribution amounts previously received
by Brookfield from Holding LP and no further incentive distributions will be payable by Holding LP unless and until the previous
"Incentive Distribution Threshold" is exceeded. The Incentive Distribution Threshold will be adjusted in accordance with the
Holding LP Limited Partnership Agreement in the event of transactions with a dilutive effect on the value of the units, including any
quarterly cash distribution above the initial amount of $0.0625/unit. For any quarter in which we determine that there is insufficient
cash to pay the incentive distribution, we may elect to pay all or a portion of this distribution in redemption-exchange units or may
elect to defer all or a portion of the amount distributable for payment from available cash in future quarters. We believe these
arrangements will create an incentive for Brookfield to manage our company in a way that helps us achieve our goal of creating
value for our unitholders through capital appreciation while providing a modest distribution yield. For a further explanation of
incentive distributions, see Item 10.B., "Description of the Holding LP Limited Partnership Agreement—Distributions". The
aggregate incentive distribution for the year ended December 31, 2018 was approximately $278 million and the Incentive Distribution
Threshold as at December 31, 2018 is $41.96.
Brookfield may, at its sole discretion, elect to reinvest incentive distributions in exchange for redemption-exchange units
or our units.
Brookfield may be entitled to performance or incentive distributions in respect of funds created, managed or sponsored by
Brookfield, and we may invest in or alongside such funds. To the extent that any Holding Entity or any operating business pays to
Brookfield any comparable performance or incentive distribution, the amount of any future incentive distributions payable in respect
of our Special LP Units will be reduced in an equitable manner to avoid duplication of distributions; however, any such comparable
performance or incentive distribution will not result in a reduction to the base management fee payable pursuant to the Master Services
Agreement.
General Partner Distributions
Pursuant to our Limited Partnership Agreement, the BBU General Partner is entitled to receive a general partner distribution
equal to its pro rata share of the total distributions of our company, initially 0.2%.
Indemnification Arrangements
Subject to certain limitations, Brookfield and its directors, officers, agents, subcontractors, contractors, delegates, members,
partners, shareholders and employees generally benefit from indemnification provisions and limitations on liability are included in
our Limited Partnership Agreement, the BBU General Partner's bye-laws, the Holding LP Limited Partnership Agreement, our Master
Services Agreement and other arrangements with Brookfield. See Item 7.B., "Related Party Transactions—Our Master Services
Agreement", Item 10.B., "Memorandum and Articles of Association—Description of our Units and our Limited Partnership
Agreement—Indemnification; Limitations on Liability" and Item 10.B., "Description of the Holding LP Limited Partnership
Agreement—Indemnification; Limitations on Liability".
Licensing Agreement
Our company and the Holding LP have each entered into a licensing agreement with Brookfield pursuant to which Brookfield
has granted a non-exclusive, royalty-free license to use the name "Brookfield" and the Brookfield logo. Other than under this limited
license, we do not have a legal right to the "Brookfield" name and the Brookfield logo. Brookfield Asset Management may terminate
the licensing agreement immediately upon termination of our Master Services Agreement and it may be terminated in the
circumstances described under Item 4.B., "Business Overview—Intellectual Property".
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Conflicts of Interest and Fiduciary Duties
Our organizational, ownership and management structure and strategy involve a number of aspects and relationships that
may give rise to conflicts of interest between our company and our unitholders, on the one hand, and Brookfield and other Brookfield-
sponsored vehicles, consortiums and/or partnerships (including private funds, joint ventures and similar arrangements, collectively
"Brookfield Accounts"), on the other hand. The discussion below sets out certain of the conflicts of interest that may arise, but does
not purport to be a complete list or explanation of all such potential conflicts of interest. Dealing with conflicts of interest is complex,
and it is not possible to predict all of the types of conflicts that may arise. While Brookfield acts in good faith to resolve all potential
conflicts in a manner that is fair and balanced taking into account the facts and circumstances known to it at the time, there can be
no assurance that any recommendation or determination made by Brookfield will be most beneficial or favourable to us, or would
not have been different if additional information were available to it. Potential conflicts of interest generally will be resolved in
accordance with the principles summarized herein and in accordance with a conflicts management policy that has been approved by
the BBU General Partner's independent directors. The conflicts management policy was put in place in recognition of the benefit to
our company of our relationship with Brookfield and our intent to seek to maximize the benefits from this relationship. The policy
generally provides for potential conflicts to be resolved on the basis of transparency and, where required pursuant to the policy, third-
party validation and approvals. The policy focuses on addressing the principal activities that may give rise to potential conflicts of
interest, including our investment activities, our participation in Brookfield Accounts, transactions with Brookfield (and Brookfield
Accounts), and engagements of Brookfield affiliates (or of us by Brookfield Accounts), including engagements for operational
services entered into between underlying operating entities.
As described elsewhere herein, we may pursue acquisition opportunities in various ways, including indirectly through
investments in Brookfield Accounts or directly by investing alongside Brookfield Accounts. Any references in this Item 7.B. "Related
Party Transactions-Conflicts of Interest and Fiduciary Duties" to our acquisitions, investments, assets, expenses, portfolio companies
or other terms should be understood to mean such items held, incurred or undertaken directly by us or indirectly by us through our
investment in one or more Brookfield Accounts.
• Allocation of Investment Opportunities. In recommending acquisition opportunities, Brookfield has significant discretion
to determine the suitability and/or appropriateness of opportunities for us and to allocate such opportunities among us,
Brookfield, Brookfield Accounts, and/or third parties as it deems appropriate. Brookfield and Brookfield Accounts have
(and future Brookfield Accounts may in the future have) investment mandates that overlap with our investment mandate,
including Brookfield Accounts that invest in business services, industrial operations and related assets, and in which we
generally expect to be a significant investor. In addition, Brookfield has provided, and may in the future provide (without
notice to our unitholders), priority rights with respect to certain investment opportunities, including all or a select geographic,
industry or other subset of opportunities, to certain Brookfield Accounts (but not to us) or to other persons pursuant to
contractual or other arrangements. In particular, Brookfield Accounts with real estate or infrastructure focused investment
mandates generally have been (and will in the future be) given priority with respect to investment opportunities that are
suitable and appropriate for them. As a result, Brookfield Accounts may compete with, or have priority over, our company
in respect of investment opportunities, and opportunities that would otherwise be suitable for us may not be made available
to us, we may receive a smaller allocation of such opportunities than would otherwise have been the case, or we may receive
an allocation of such opportunities on different terms than Brookfield or Brookfield Accounts (which may be less favourable
than otherwise would have been the case).
The question of whether a particular opportunity is suitable and/or appropriate for us, and to the extent it is the amount of
such opportunity to be allocated to us, is highly subjective and will be made in Brookfield's discretion based on various
portfolio construction and management factors, including: (i) the size, nature and type of the opportunity (including the
expected risk-return profile of the investment, expected holding period and its fit with the balance of our investments and
related operations), (ii) the amount of capital available for investment, (iii) principles of diversification of assets (including
whether we will participate in the opportunity through our investment in Brookfield Accounts), (iv) the nature and extent
of involvement in the transaction and the sourcing of the transaction by the Brookfield investment professionals that manage
our company, (v) the nature of potential acquirers upon disposition, (vi) our expected future capacity, (vii) cash and liquidity
needs (including our interest in preserving capital in order to secure other opportunities and/or to meet other obligations),
(viii) the availability of other appropriate or similar investment opportunities (including opportunities that we may be
pursuing or otherwise considering at the relevant time) and (ix) other considerations deemed relevant by Brookfield
(including legal, regulatory, tax, timing and similar considerations). If Brookfield determines that an opportunity is not
suitable or appropriate for us, it may still pursue such opportunity on its own behalf or on behalf of one or more Brookfield
Accounts. As a result, there may be differences in the overall performance of our company, Brookfield and Brookfield
Accounts that have overlapping investment mandates.
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In allocating investment opportunities among us, Brookfield and Brookfield Accounts (including Brookfield Accounts that
have investment mandates that overlap with that of our company), Brookfield will face certain potential conflicts of interest
between the interests of our company, its interests and the interests of Brookfield Accounts. These potential conflicts may
be exacerbated in situations where Brookfield has larger interests in Brookfield Accounts than its interest in our company,
where Brookfield is entitled to higher fees from Brookfield Accounts than from our company, where portfolio managers
making an allocation decision are entitled to performance-based compensation from Brookfield or a Brookfield Account,
or where there are capacity constraints with respect to a particular strategy or opportunity as a result of, for example, position
limits and/or regulatory reporting obligations applicable to Brookfield. In addition, as an investment changes over time,
additional conflicts of interest may arise, including as a result of earlier investment allocation decisions. Brookfield will
make investment allocation decisions taking into account our company’s, Brookfield’s and Brookfield Accounts’ investment
mandates and interests.
• Allocation of Broken-Deal Expenses. We will incur expenses with respect to the consideration and pursuit of transactions
that are not ultimately consummated, referred to as broken-deal expenses, including through our investments in Brookfield
Accounts. Examples of broken-deal expenses include (i) research costs, (ii) fees and expenses of legal, financial, accounting,
consulting or other advisers (including Brookfield) in connection with conducting due diligence or otherwise pursuing a
particular non-consummated transaction, (iii) fees and expenses in connection with arranging financing for a particular non-
consummated transaction, (iv) travel costs, (v) deposits or down payments that are forfeited in connection with, or amounts
paid as a penalty for, a particular non-consummated transaction and (vi) other expenses incurred in connection with activities
related to a particular non-consummated transaction. Broken-deal expenses generally will be allocated among our company,
Brookfield and Brookfield Accounts in the manner that Brookfield determines to be fair and equitable, which may be pro
rata or on a different basis.
• Co-Investment Opportunities and Expenses. Because of the scale of typical business services and industrial operations
acquisitions we may offer portions of certain acquisition opportunities for co-investment. In addition, because our strategy
includes completing acquisitions through Brookfield Accounts, we will likely make co-investments with Brookfield and
Brookfield Accounts. Decisions regarding whether and to which parties to offer co-investment opportunities are made by
Brookfield and may be based on a number of factors, including portfolio construction, strategic or other considerations,
taking into account the specific facts and circumstances relating to each potential co-investment opportunity. As a result,
from time to time, we may offer (or receive from Brookfield Accounts) larger or smaller portions of co-investment
opportunities than would otherwise have been the case or no portion of certain opportunities.
In our capacity as a co-investor, we will typically bear our pro rata share of fees, costs and expenses related to the discovery,
investigation, development, acquisition or consummation, ownership, maintenance, monitoring, hedging and disposition
of our co-investments and we may be required to pay our pro rata share of fees, costs and expenses related to potential
investments that are not consummated, such as broken deal expenses (including “reverse” breakup fees). Notwithstanding
the foregoing, certain potential co-investors may not agree to pay or otherwise bear fees, costs and expenses related to
unconsummated co-investments. In addition, in certain circumstances, potential co-investors may not bear such fees, costs
and expenses, including because they have not yet been identified (or their anticipated allocation has not yet been identified)
as of the time such potential investment ceases to be pursued, are not yet committed to such potential investment or are not
contractually required to bear such fees, costs and expenses. In those events, such fees, costs and expenses will (i) be
considered our operating expenses and be borne by us (in connection with co-investment opportunities that we offered) or
(ii) be considered operating expenses of, and be borne by, the Brookfield Account (in connection with co-investments offered
by the Brookfield Account), a pro-rata portion of which will be borne by us through our investment in the Brookfield
Account.
• Other Activities of Our Investment Personnel. The same professionals within Brookfield's organization who are involved
in sourcing and executing acquisitions that are suitable for us are responsible for sourcing and executing opportunities for
the Brookfield Accounts as well as having other responsibilities within Brookfield's broader asset management business.
Limits on the availability of such individuals will likewise result in a limitation on the availability of acquisition opportunities
for us, and such individuals' broader responsibilities could conflict with their responsibilities to us.
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•
•
Investments by Brookfield Personnel. The partners, members, shareholders, directors, officers and employees of
Brookfield (“Brookfield Personnel”) may generally buy and sell securities or other investments for their own or their family
members’ accounts (including through Brookfield Accounts). Positions may be taken by such Brookfield Personnel that
are the same, different from, or made at different times than positions taken directly or indirectly for us. To reduce the
possibility of (a) potential conflicts between our investment activities and those of Brookfield Personnel, and (b) us being
materially adversely affected by Brookfield Personnel’s personal trading activities, Brookfield has established policies and
procedures relating to personal securities trading. To this end, Brookfield Personnel that participate in managing our
investment activities are generally restricted from engaging in personal trading activities (unless such activities are conducted
through accounts over which the personnel have no influence or control), and other personnel generally must pre-clear
proposed personal trades. In addition, Brookfield’s policies include prohibitions on insider trading, front running, trading
in securities that are on Brookfield’s restricted trading list, trading in securities that are subject to a black-out period and
other restrictions.
Investments by the Investing Affiliate. Certain Brookfield executives own a substantial majority of an entity that makes
investments for its own account (the “Investing Affiliate”). The Investing Affiliate’s activities are managed separately from
our (or any Brookfield Account’s) activities. There is no formal informational barrier between the Investing Affiliate and
the rest of Brookfield. Brookfield has adopted protocols designed to ensure that the Investing Affiliate’s activities do not
materially adversely affect our (and Brookfield Accounts’) activities and to ensure that potential conflicts are resolved in a
manner pursuant to which our (and Brookfield Accounts’) interests are, to the extent feasible, prioritized relative to the
Investing Affiliate’s.
• Warehousing Investments. Where Brookfield has made an acquisition, it may transfer it to us at a later date at cost, plus
a pre-agreed interest rate, after the assets have been developed or we have obtained sufficient financing. Similarly, we may
warehouse one or more investments for a Brookfield Account in which we are invested and generally transfer the warehoused
investment to the applicable Brookfield Account at cost, plus a pre-agreed interest rate, once the Brookfield Account has
raised sufficient capital, including financing, to support the acquisition. In the event the applicable Brookfield Account does
not obtain sufficient financing to purchase the warehoused investment and we cannot find another buyer for the investment,
we may be forced to retain the investment, the value of which may have increased or declined.
• Transacting with Brookfield. When permitted by applicable law and subject to and in accordance with our conflicts policy,
we may buy investments from or sell investments to Brookfield and/or Brookfield Accounts. Such transactions generally
will require the approval of the BBU General Partner’s independent directors and, in connection with transactions with a
Brookfield Account, the advisory committee of the applicable Brookfield Account.
• Terms of an Investment by Our Company May Benefit or Disadvantage Brookfield or A Brookfield Account. In
making certain decisions with regard to a potential investment by our company (or by a Brookfield Account in which we
are invested), Brookfield could face certain conflicts of interest between the interests of our company (or the Brookfield
Account), on the one hand, and the interests of Brookfield, the Investing Affiliate or a Brookfield Account that has already
made a related investment, on the other hand. Similarly, a prospective investment by Brookfield or a Brookfield Account
may present a conflict of interest with respect to an investment by our company. Subject to applicable law and our conflicts
policy, Brookfield may cause our company to invest in securities, bank loans or other obligations of companies affiliated
with or advised by Brookfield or in which Brookfield, the Investing Affiliate or a Brookfield Account has an equity, debt
or other interest, or to engage in investment transactions that may result in Brookfield, the Investing Affiliate or a Brookfield
Account getting an economic benefit, being relieved of obligations or divested of investments. For example, we may make
a debt or equity investment in an entity which is expected to use the proceeds of such investment to repay loans from
Brookfield or a Brookfield Account. Depending on the circumstance, Brookfield or such Brookfield Account might benefit
if our company invested more money, thus providing sufficient funds to repay Brookfield or the Brookfield Account, or it
might benefit if the loans remained outstanding and Brookfield or such Brookfield Account continued to receive payment
under the existing loans, if the loans were on attractive terms (including an attractive interest rate) from the perspective of
Brookfield or such Brookfield Account. Alternatively, Brookfield or a Brookfield Account might be in the position of making
an investment that could be used to repay loans from our company, which would present the opposite conflict. Similarly,
such conflicts might also be present in other situations. For example, in certain circumstances, we may pursue a take-
private, asset purchase or other material transaction with an issuer in which Brookfield, the Investing Affiliate or a Brookfield
Account is invested, which may result in a benefit to Brookfield, the Investing Affiliate or the Brookfield Account. In
situations where our activities may enhance Brookfield’s, the Investing Affiliate’s or a Brookfield Account’s profitability,
Brookfield may take its, the Investing Affiliate’s or the Brookfield Account’s interests into consideration in connection with
actions it takes on our behalf.
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•
Investments with Related Parties. In certain circumstances, we will participate in investments that involve Brookfield
or Brookfield Accounts in equity or debt positions within a transaction. For example, Brookfield or Brookfield Accounts
may: (a) enter into a joint transaction with us; (b) be borrowers of certain investments or lenders in respect of our company;
or (c) hold debt positions (either junior or senior to our positions) or other interests in an investment’s capital stack. The
interests of Brookfield or Brookfield Accounts in such investments may differ from our interests and also may have been
acquired at different times, at different prices and/or subject to different terms and conditions. As a result of these differences,
Brookfield or Brookfield Accounts may manage such interests in a way that is different from ours (including, for example,
by investing in different portions of an issuer’s capital structure, investing in the same portion but on different terms,
obtaining exposure to the investment using different types of securities or instruments, voting securities in a different manner,
and/or acquiring or disposing of its interests at different times than us). In connection with the foregoing, Brookfield or
Brookfield Accounts may pursue or enforce rights or activities, or refrain from pursuing or enforcing rights or activities,
with respect to a particular investment in which we have invested, even though such actions or inaction could adversely
affect us. For example, if an issuer in which we have an investment and in which Brookfield or a Brookfield Account also
has an investment, but at a different portion of the capital structure, becomes distressed or defaults on its obligations,
Brookfield will have conflicting loyalties between its duties to us and to itself or to the Brookfield Account. In such a
situation Brookfield, acting on behalf of itself or a Brookfield Account, may seek a liquidation, reorganization or restructuring
of the issuer that may have an adverse effect on our holdings in the same issuer, and our transactions may be effected at
prices or terms that may be less favorable than would otherwise have been the case (or vice versa). In addition, in the event
that Brookfield or Brookfield Accounts hold voting securities of an issuer in which we hold loans, bonds, or other credit-
related securities, Brookfield or such Brookfield Accounts may have the right to vote on certain matters that have an adverse
effect on the positions held by us. Furthermore, to the extent that Brookfield or a Brookfield Account has holdings in the
same issuer as us, Brookfield may be incentivized to take its interests or the interests of such Brookfield Account into
consideration in connection with actions it takes on behalf of our company, even though taking such interests into account
could adversely affect us.
In addition, we and Brookfield or a Brookfield Account may jointly acquire a portfolio of assets and thereafter divide up
the assets. In this circumstance, Brookfield will determine the purchase price associated with each asset, which price may
not represent the price we would have paid if we had acquired only the assets we ultimately retain. Furthermore, we and
Brookfield or a Brookfield Account may jointly enter into a binding agreement to acquire an investment. If Brookfield or
such Brookfield Account is unable to consummate such investment, we may be subject to additional liabilities, including
the potential loss of any deposit or the obligation to fund the entire investment. In addition, we may provide for the repayment
of indebtedness and/or the satisfaction of guarantees on behalf of a Brookfield Account in connection with investments
made by such Brookfield Account alongside our company. Likewise, a Brookfield Account in which we are invested may
provide for the repayment of indebtedness and/or the satisfaction of guarantees on behalf of co-investment vehicles in
connection with investments made by such vehicles alongside the Brookfield Account. In such circumstances, certain
investors will benefit from such provision for repayment of indebtedness and/or the satisfaction of guarantees even though
those investors are not providing the same level of credit support as our company (or the Brookfield Account, as applicable).
In the event the Brookfield Account (or a co-invest vehicle) does not satisfy its share of any payment in respect of any such
borrowing, we (or the Brookfield Account in which we are invested, as applicable) will be contractually obligated to satisfy
their share even if our company (or the Brookfield Account) does not have recourse against the investor(s) benefiting from
such support.
Subject to Brookfield policies, information barriers and applicable legal restrictions, other parts of Brookfield may (but are
under no obligation to) refer investment opportunities to us, including investments in issuers in which Brookfield Accounts
have existing investments. Referrals of such related investments give rise to potential conflicts of interest, including that
an investment by our company may benefit such Brookfield Accounts.
In situations in which we invest alongside Brookfield or a Brookfield Account, conflicts of interest will potentially arise
with respect to the nature and timing of the initial investment and purchase price, the allocation of control rights, strategic
objectives, timing of transactions, such as the disposition of all or part of an investment, or resolution of a liability in
connection with an investment. These conflicts may result from various factors, including investments in different levels
of the capital structure, different measurements of control, different risk profiles, different rights with respect to disposition
alternatives, different investment horizons and different target rates of return.
As a result of the various conflicts and related issues described above, we could sustain losses during periods where Brookfield
or a Brookfield Account achieve profits generally or with respect to particular holdings, or could achieve lower profits or
higher losses than would have been the case had the conflicts described above not existed.
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• Pursuit of Investment Opportunities by Certain Non-Controlled Affiliates. Certain companies with which Brookfield
may technically be affiliated (a) are controlled, in whole or in part, by persons other than Brookfield, including, for example,
joint ventures or similar arrangements with third parties where Brookfield does not have complete control; (b) are separated
from Brookfield pursuant to an information barrier; or (c) do not coordinate or consult with Brookfield with respect to
investment decisions (together, “Non-Controlled Affiliates”). Such Non-Controlled Affiliates may have investment
mandates that overlap with our investment mandate and conflicts may arise therefrom. For example, the possibility exists
that such Non-Controlled Affiliates or investment vehicles managed by such Non-Controlled Affiliates could pursue
investment opportunities which are suitable for us but which are not made available to us since such Non-Controlled Affiliates
do not consult with and/or are not wholly controlled by Brookfield. Similarly, certain of Brookfield’s investment activities
are managed independently of, and carried out without any reference to the management of our company. In certain instances,
there are information barriers in place pursuant to which investment operations are managed independently of each other
and information is not generally shared relating to such activities.
• Arrangements with Brookfield. Our relationship with Brookfield involves a number of arrangements pursuant to which
Brookfield provides various services, including access to financing arrangements and acquisition opportunities. Certain of
these arrangements were effectively determined by Brookfield in the context of the spin-off, and therefore may contain
terms that are less favorable than those which otherwise might have been negotiated between unrelated parties. Circumstances
may arise in which these arrangements will need to be amended or new arrangements will need to be entered into, and
conflicts of interest between our company and Brookfield may arise in negotiating such new or amended arrangements.
Furthermore, Brookfield is generally entitled to share in the returns generated by our operations, which could create an
incentive for it to assume greater risks when making decisions than it otherwise would in the absence of such arrangements.
In addition, our investment in Brookfield Accounts may provide Brookfield with certain ancillary benefits, such as satisfying
Brookfield's commitment to invest in such accounts (which Brookfield would otherwise need to satisfy from different
sources) and assisting Brookfield in marketing the Brookfield Accounts.
• Fees for Services. We (or portfolio companies that we are directly or indirectly invested in) may be retained to perform
certain services to Brookfield, Brookfield Accounts and/or companies and assets they are invested in that would otherwise
be provided by third parties. To the extent we provide such services, we will generally be compensated (a) at rates for the
relevant services that do not exceed the rates that Brookfield reasonably believes to be customarily charged (at such time)
for similar services by (i) persons engaged in the same or substantially similar activities or (ii) Brookfield in its provision
of the same or substantially similar services to one or more third parties (such rates, the “Customary Rates”); provided that,
if Customary Rates are not able to be determined, such services may be provided at cost (including an allocable share of
internal costs), (b) at such other rates for the relevant services approved by the BBU General Partner’s independent directors.
In determining Customary Rates, Brookfield will seek to determine what one or more comparable service providers who
are engaged in the same or substantially similar activities as Brookfield charge in the ordinary course for similar services
at the time of determination. While Brookfield will determine in good faith what rates it believes are customary for such
services at such time, there will likely be variances in the marketplace based on an array of factors that affect service
providers and the prices of their services, including loss leader pricing strategies or other marketing practices, integration
efficiencies, geographic market differences and the quality of the services provided. Brookfield will make a good faith
determination as to what it believes to be the Customary Rate at such time, and may base its determination on one or more
factors, including market knowledge, prices charged by competitors, prices charged by Brookfield to one or more third
parties, a third party valuation agent, commodity or other price forecasting, prices required in order to meet certain regulatory
requirements or qualify for particular governmental programs or other subjective and objective metrics. However, there can
be no assurances that the rates charged by us will not be less than those charged by certain similarly-situated service providers
in any given circumstance. If the market rate for any service increases such that it is greater than the rate charged by us,
then we may be obligated to continue to provide the applicable service at a below-market rate.
In the ordinary course, Brookfield employees are hired or retained by, or seconded or otherwise allocated to (in whole or
in part), our company and/or portfolio companies that we are directly or indirectly invested in for performance of operating
services or roles that in the normal course are expected to be carried out by our (or the relevant portfolio company’s)
personnel. In connection with any such arrangement, all or a portion of the compensation and overhead expenses relating
to such employees (including base salaries, benefits and incentive compensation (which may include long term incentive
awards of equity or options for equity in Brookfield), among other things) will directly or indirectly be borne by us or the
applicable portfolio companies. The compensation and overhead expenses relating to such employees generally will be
within the market compensation range for the roles filled in the relevant market based on one or more of the following (i)
market compensation studies or guidance provided by third parties, (ii) recent market hires made by the relevant portfolio
company for comparable positions, (iii) the employee’s peers at Brookfield and the portfolio company, and/or (iv) specific
compensation reviews conducted by compensation consultants. For these purposes, given how certain compensation
arrangements are structured and valued (particularly various forms of incentive compensation that vest over time and whose
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value upon payment is based on estimates) and how overhead expenses are generally allocated, in each case requiring certain
judgments and assumptions, there can be no assurance that portfolio companies (and indirectly our company) will not bear
higher costs than they would have had such expenses been valued, allocated or charged differently.
Brookfield and its personnel will receive certain intangible and/or other benefits and/or perquisites arising or resulting from
their activities on behalf of our company and/or portfolio companies in which we are (directly or indirectly) invested which
will not reduce fees or other expenses or otherwise be shared with our company and/or our portfolio companies. For
example, airline travel and hotel stays incurred as direct or indirect expenses of our company and/or portfolio companies
in which we are (directly or indirectly) invested typically may result in “miles” or “points” or credit in loyalty/status programs,
and such benefits and/or amounts will, whether or not de minimis or difficult to value, inure exclusively to Brookfield and/
or such personnel (and not our company and/or our portfolio companies) even though the cost of the underlying service is
borne by directly or indirectly by our company and/or our portfolio companies. In addition, Brookfield may make available
certain discount programs to its employees as a result of Brookfield’s relationship with a portfolio company, such as “friends
and family” and similar discounts.
• Brookfield Investments in Companies. Brookfield (or Brookfield Accounts) will from time to time make equity or other
investments in companies or businesses that provide services to or otherwise contract with us, Brookfield Accounts in which
we are invested or our direct or indirect portfolio companies. In particular, Brookfield has in the past entered into, and
expects to continue to enter into, relationships with companies in technology and other sectors and industries in which
Brookfield has broad expertise and knowledge, whereby Brookfield acquires an equity or other interest in such companies
that may, in turn, transact with us, Brookfield Accounts in which we are invested or our direct or indirect portfolio companies.
For example, Brookfield (through an investment program referred to as Brookfield Ventures) invests in emerging technology
companies that develop and offer technology products that are expected to be of relevance to us, Brookfield Accounts in
which we are invested or our direct or indirect portfolio companies (as well as third-party companies). In connection with
such relationships, Brookfield may, and often will, refer, introduce or otherwise facilitate transactions between such
companies and us, Brookfield Accounts in which we are invested or our direct or indirect portfolio companies, which may,
and often will, result in benefits to Brookfield, including via increased profitability of the relevant company, as well as
financial incentives and/or milestones which benefit Brookfield (including through increased equity allotments), which may
be significant. Such financial incentives that inure to or benefit Brookfield pose an incentive for Brookfield to cause us,
Brookfield Accounts in which we are invested or our direct or indirect portfolio companies to enter into such transactions
that may or may not have otherwise been entered into. Financial incentives derived from relationships with such companies
will generally not be shared with us. Furthermore, such transactions are likely to contribute to the development of expertise,
reputational benefits and/or the development of new products or services by Brookfield and/or the companies or businesses
that Brookfield is invested in, which Brookfield will seek to capitalize on to generate additional benefits that are likely to
inure solely to Brookfield and not to us. For the avoidance of doubt, any of the arrangements and/or benefits described in
this paragraph will not require notice to, or the consent of, our unitholders.
•
Sharing of Services. In certain circumstances, in order to create efficiencies and optimize performance, one or more of
our investments, portfolio companies or assets may determine to share the operational, legal, financial, back-office or other
resources of another of our investments, portfolio companies or assets, or of an investment, portfolio company or asset of
Brookfield or a Brookfield Account. In connection therewith, the costs and expenses related to such services will be allocated
among the relevant entities on a basis that Brookfield determines in good faith is fair and equitable.
• Affiliated Transactions. In the ordinary course of business, certain of our investments may receive services from, or
participate in transactions or other arrangements with, portfolio companies invested in by Brookfield or Brookfield Accounts
in which we are not invested. Such transactions and/or arrangements may not have been entered into but for the affiliation
or relationship with Brookfield and, in certain cases, may replace transactions and/or arrangements with third parties. For
example, one or our investee companies may be a tenant of or may contract to acquire power from a portfolio company of
Brookfield or a Brookfield Account. These transactions and/or arrangements are expected to be entered into on an arm’s
length basis at Customary Rates in accordance with our conflicts policy. In addition, certain such engagements may involve
performance-based compensation (“Operating Performance Compensation”) payable to certain management members of
the applicable operating affiliate providing the service. The cost of such Operating Performance Compensation and any
other related fees and expenses in connection with services provided by the operating affiliate will be borne entirely by the
company receiving the service (and indirectly by us based on our direct or indirect interest in such company). For the
avoidance of doubt, Brookfield or the operating affiliate may subcontract with third parties for the provision of the services
Brookfield or the operating affiliate was engaged to provide.
While such transactions and/or arrangements have the potential for inherent conflicts of interest, Brookfield believes that
our access to Brookfield and its and Brookfield Accounts’ portfolio companies enhances our capabilities and is an integral
part of our operations. These transactions and/or arrangements will not require the consent of our unitholders.
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•
Information Sharing. Because of the extensive scope of Brookfield’s activities, Brookfield often has or obtains information
that can be utilized by Brookfield across multiple strategies. For example, information Brookfield has or acquires through
its management of Brookfield Accounts or its own investing activities may be used by Brookfield to identify or evaluate
potential investments for us. Conversely, information Brookfield has or acquires in connection with our activities may be
used for the benefit of Brookfield or Brookfield Accounts (and, for the avoidance of doubt, Brookfield will have no duty
(contractual, fiduciary or otherwise) to keep such information confidential from, or not to use such information in connection
with the investment activities of, itself or Brookfield Accounts). Brookfield may trade, or may cause Brookfield Accounts
to trade, on the basis of information it has or obtained through our investment and operations activities. In some cases, this
trading may result in Brookfield or a Brookfield Account taking a position that is different from, and potentially adverse
to, a position taken by our company, or may result in Brookfield or a Brookfield Account benefiting from our investment
activities. Brookfield has implemented policies and procedures to mitigate potential conflicts of interest and address certain
regulatory requirements and contractual restrictions with respect to communication and information sharing. Such policies
and procedures may reduce synergies across Brookfield’s various activities, which could negatively affect Brookfield’s or
our ability to pursue attractive investment opportunities that would otherwise be available to Brookfield or us if such policies
and procedures were not implemented. From time to time, such policies and procedures may result in our company, Brookfield
or Brookfield Accounts having reduced investment opportunities or investment flexibility, or may otherwise restrict us,
Brookfield or Brookfield Accounts in their activities with respect to such information.
Regardless of the existence of information barriers, Brookfield will not have any obligation or other duty to make available
for our benefit any information regarding Brookfield’s trading activities, strategies or views, or the activities, strategies or
views used for other Brookfield Accounts. Furthermore, to the extent that Brookfield has access to analysis, models and/
or information developed by Brookfield and its personnel, Brookfield will not be under any obligation or other duty to effect
transactions on behalf of our company in accordance with such analysis and models. In the event Brookfield elects not to
share certain information with us, we may make investment decisions that differ from those it would have made if Brookfield
had provided such information, which may be disadvantageous to us.
• Material Non-Public Information; Trading Restrictions. From time to time, our ability to buy or sell certain securities
may be restricted by applicable securities laws, regulatory requirements, information held by Brookfield, contractual
obligations applicable to Brookfield, and potential reputational risks relating to our company, Brookfield or Brookfield
Accounts (including Brookfield’s internal policies designed to comply with these and similar requirements). Brookfield
might not engage in transactions or other activities for, or enforce certain rights in favor of, our company due to Brookfield’s
activities outside our company and regulatory requirements, policies, and reputational risk assessments.
Brookfield may possess material, non-public information about a company that would limit our ability to buy and sell
securities related to that company (or, potentially, to other companies). For example, Brookfield personnel take seats on
boards of directors of, or have board of directors observer rights with respect to, portfolio companies in which Brookfield
invests (including on our behalf). In such situations, Brookfield may be limited and/or restricted in its ability to trade in
the securities of the company (or other companies about which the company has material non-public information). This
may adversely affect our ability to make and/or dispose of certain investments.
Furthermore, as a result of applicable regulations, in certain circumstances, our position in an investment may be aggregated
with a position held by Brookfield (including parts of Brookfield that are separated by an information barrier) and Brookfield
Accounts. This could require us, together with such other Brookfield parties, to make certain disclosure filings or could
otherwise restrict our activities with respect to such investment.
• Client and Other Relationships. Brookfield is permitted to pursue other business activities (including through portfolio
companies that it and Brookfield Accounts invests in) and provide services to third parties that compete directly with our
business and activities without providing us with an opportunity to participate, which could result in the allocation of
Brookfield's resources, personnel and acquisition opportunities to others who compete with us. In addition, certain portfolio
companies in which we, Brookfield and/or Brookfield Accounts are invested in may provide investment banking and other
advisory services to third parties with respect to assets in which we may be invested or seeking to invest. The interests of
such portfolio companies in such circumstances may conflict with (and potentially be adverse to) our interests, and we may
compete with such portfolio companies (and their third party clients) in pursuing certain investments. Brookfield generally
implements policies and procedures (including, for example, information barriers) to mitigate potential conflicts of interest
and address certain regulatory requirements relating to these potential circumstances.
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• Limited Liability of Brookfield. The liability of Brookfield and its directors is limited under our arrangements with them,
and we have agreed to indemnify Brookfield and its directors against claims, liabilities, losses, damages, costs or expenses
which they may face in connection with those arrangements, which may lead them to assume greater risks when making
decisions than they otherwise would if such decisions were being made solely for its own account, or may give rise to legal
claims for indemnification that are adverse to the interests of our unitholders.
• Valuation of Our Investments. Brookfield performs certain valuation services related to our securities and assets.
Brookfield performs such services in accordance with its valuation policies. From time to time, Brookfield may value a
similar or identical asset differently for our company than for itself or a Brookfield Account, including because our company,
Brookfield and Brookfield Accounts are subject to different valuation guidelines pursuant to our and their respective
governing agreements (e.g., in connection with differing applicable regulatory restrictions), different third-party vendors
are hired to perform valuation functions for our company, Brookfield or the Brookfield Accounts, or otherwise. In addition,
Brookfield faces a conflict with respect to valuations generally because of their effect on Brookfield’s fees and other
compensation.
• Brookfield Public Securities Group. Brookfield is an active participant, as agent and principal, in the global fixed income,
currency, commodity, equities and other markets. Certain of Brookfield’s investment activities are managed independently
of, and carried out without any reference to, the management of our company. For example, Brookfield may invest, trade
or make a market in the equity, debt or other interests of our portfolio companies without regard to the impact on us of such
activities. In particular, Brookfield’s Public Securities Group (“PSG”), manages investment funds and accounts that invest
in public debt and equity markets. There is currently an information barrier in place pursuant to which PSG manages its
investment operations independently of other parts of Brookfield and does not generally share information relating to such
activities. As a result, PSG will not share investment opportunities that may otherwise be suitable for our company with us,
and our company will have no rights with respect to such opportunities. In addition, in certain circumstances, funds and/or
accounts managed by PSG may hold an interest in one of our investments and, as a result of different investment objectives
and views, PSG may manage such interests in a way that is different from us (including, for example, by investing in different
portions of an issuer’s capital structure, short selling securities, voting securities in a different manner, and/or selling its
interests at different times than us). As a result of the information sharing barrier, our investment team may not be aware
of, and may not have the ability to manage, such conflicts. Brookfield may decide at any time, and without notice to our
unitholders, to remove or modify such information barrier. In the event that the information barrier is removed or modified,
Brookfield may be subject to certain protocols, obligations and restrictions in managing our company, including, for example,
conflicts-management protocols, aggregated regulatory reporting obligations and certain potential investment-related
restrictions.
•
Service Providers. Our service providers or service providers of our portfolio companies (including deal sourcers,
consultants, lenders, brokers, accountants, attorneys and outside directors) may be (or their affiliates may be) unitholders
and/or sources of investment opportunities and counterparties therein, or may otherwise participate in transactions or other
arrangements with us and/or Brookfield or Brookfield Accounts. These factors may influence Brookfield in deciding whether
to select such a service provider. Notwithstanding the foregoing, Brookfield will only select a service provider to the extent
Brookfield determines that doing so is appropriate for us given all surrounding facts and circumstances and is consistent
with Brookfield’s responsibilities under applicable law, provided that, for the avoidance of doubt, Brookfield often will not
seek out the lowest-cost option when engaging such service providers as other factors or considerations typically prevail
over cost.
Our service providers may charge different rates to different recipients based on the specific services provided, the personnel
providing the services, or other factors. As a result, the rates paid with respect to these service providers by us, on the one
hand, may be more or less favorable than the rates paid by Brookfield or Brookfield Accounts, on the other hand. Brookfield
or Brookfield Accounts may hold investments in companies that provide services to entities in which we invest generally,
and, subject to applicable law, Brookfield may refer or introduce such companies’ services to entities that have issued
securities held by us.
• Advisors. Brookfield may engage or retain strategic advisors, senior advisors, operating partners, executive advisors,
consultants and/or other professionals who are not employees or affiliates of Brookfield (which may include former
Brookfield employees as well as current and former executive officers of Brookfield portfolio companies) and who are
expected, from time to time, to receive payments from, or allocations or performance-based compensation with respect to,
our portfolio companies (as well as from us, Brookfield or Brookfield Accounts in which we are invested). In such
circumstances, such payments from, or allocations or performance-based compensation with respect to, our direct and
indirect portfolio companies and/or our company or Brookfield Accounts in which we are invested may be treated as expenses
of our company or such Brookfield Accounts. These strategic advisors, senior advisors, operating partners, executive
advisors, consultants and/or other professionals (which may include certain former Brookfield employees) may be offered
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the ability to co-invest alongside our company, including in those investments in which they are involved (and for which
they may be entitled to receive performance-based compensation, which will reduce our returns), or otherwise participate
in equity plans for management of a portfolio company. In certain cases, these persons may have certain attributes of
Brookfield “employees” (e.g., they may have dedicated offices at Brookfield and/or participate in certain benefit
arrangements typically reserved for Brookfield employees) even though they are not considered Brookfield employees,
affiliates or personnel. Brookfield expects, where applicable, to allocate the costs of such personnel to the applicable portfolio
companies, to us and/or to Brookfield Accounts in which we are invested. Payments or allocations to Brookfield’s strategic
advisors, senior advisors, operating partners, executive advisors, consultants and other similar professionals can be expected
to increase the overall costs and expenses borne indirectly by unitholders. There can be no assurance that any of the strategic
advisors, senior advisors, operating partners, executive advisors, consultants and/or other professionals will continue to
serve in such roles and/or continue their arrangements with Brookfield and/or any portfolio companies or Brookfield
Accounts.
• Diverse Interests. The various types of investors in and beneficiaries of our company, including Brookfield, may have
conflicting investment, tax and other interests with respect to their interests. When considering a potential investment for
us, Brookfield will generally consider our investment objectives, not the investment objectives of any particular investor
or beneficiary. Brookfield may make decisions, including with respect to tax or other reporting positions, from time to time
that may be more beneficial to one type of investor or beneficiary than another, or to Brookfield than to investors or
beneficiaries unaffiliated with Brookfield. Brookfield reserves the right on behalf of itself and its affiliates to take actions
adverse to us or other Brookfield Accounts in these circumstances, including withholding amounts to pay actual or potential
tax liabilities.
Furthermore, our company and any entities with which we co-invest may have conflicting investment, tax and other interests
with respect to the investments we make directly or indirectly. Conflicts of interest may arise in connection with the structure
of the investments or decisions made by Brookfield which may be more beneficial for another investing entity and its
partners, on the one hand, than for us and our unitholders, on the other hand (or vice versa) (for instance, the manner in
which investments are structured, financed and/or harvested may produce tax results that are favorable to an investing entity
targeted to non-U.S. investors, but not to us (or vice versa), or are favorable to a taxable investor, as compared to a tax-
exempt investor (or vice versa)).
• Reputational Considerations. Given the nature of its broader platform, Brookfield has an interest in preserving its
reputation, including with respect to certain of its affiliates, and in certain circumstances, such reputational considerations
may conflict with our interests. The BBU General Partner or Brookfield may make decisions on our behalf for reputational
reasons that may not be directly aligned with the interests of unitholders or consistent with the determination the BBU
General Partner or Brookfield otherwise would have made absent its interest in Brookfield’s broader reputation. For example,
Brookfield may limit transactions and activities on our behalf for reputational or other reasons, including where Brookfield
is providing (or may provide) advice or services to an entity involved in such activity or transaction, where a Brookfield
Account is or may be engaged in the same or a related activity or transaction to that being considered on our behalf, where
a Brookfield Account has an interest in an entity involved in such activity or transaction, or where such activity or transaction
on behalf of or in respect of our company could affect the BBU General Partner, Brookfield, Brookfield Accounts or their
activities.
• Possible Future Activities. Brookfield may expand the range of services that it provides over time. Except as provided
herein, Brookfield will not be restricted in the scope of its business or in the performance of any services (whether now
offered or undertaken in the future) even if such activities could give rise to conflicts of interest, and whether or not such
conflicts are described herein. Brookfield has, and will continue to develop, relationships with a significant number of
companies, financial sponsors and their senior managers, including relationships with companies that may hold or may
have held investments similar to those intended to be made by us. These companies may themselves represent appropriate
investment opportunities for us or may compete with us for investment opportunities.
See Item 3.D. “Key Information - Risk Factors - Risks Relating to Our Relationship with Brookfield - Our organizational
and ownership structure, as well as our contractual arrangements with Brookfield, may create significant conflicts of interest
that may be resolved in a manner that is not in the best interests of our company or the best interests of our unitholders”.
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As noted above, activities and transactions that give rise to potential conflicts of interests between our company and our
unitholders, on the one hand, and Brookfield and Brookfield Accounts, on the other hand, generally will be resolved in
accordance with the principles summarized herein and in accordance with a conflicts management policy that has been
approved by the BBU General Partner’s independent directors. The conflicts management policy was put in place in
recognition of the benefit to our company of our relationship with Brookfield and our intent to seek to maximize the benefits
from this relationship, and generally provides for potential conflicts to be resolved on the basis transparency and, where
applicable, third party validation and approvals. The policy focuses on addressing the principal activities that may give rise
to potential conflicts of interests, including our investment activities, our participation in Brookfield Accounts, transactions
with Brookfield (and Brookfield Accounts), and engagements of Brookfield affiliates (or of us by Brookfield Accounts),
including engagements for operational services entered into between underlying operating entities.
Pursuant to the conflicts management policy, Brookfield is required to seek the prior approval of the BBU General Partner’s
independent directors for certain transactions, including: (i) acquisitions by our company from, and dispositions by our
company to, Brookfield and Brookfield Accounts; (ii) the dissolution of our company; (iii) any material amendment to our
Master Services Agreement, the Relationship Agreement, or our limited partnership agreement; (iv) any material service
agreement or other material arrangement pursuant to which Brookfield will be paid a fee, or other consideration other than
any agreement or arrangement contemplated by our Master Services Agreement; (v) termination of, or any determinations
regarding indemnification under, our Master Services Agreement, or our limited partnership agreement; and (vi) any other
material transaction involving our company and Brookfield. Pursuant to the conflicts management policy, the BBU General
Partner’s independent directors have granted (and may in the future grant) prior approvals for certain type of transactions
and/or activities provided they such transactions and/or activities are conducted in accordance with pre-approved guidelines
and/or parameters.
In addition, the conflicts management policy provides that acquisitions that are carried out jointly by us and Brookfield, or
in the context of a Brookfield Account that we participate in, be carried out on the basis that the consideration paid by us
be no more, on a per share or proportionate basis, than the consideration paid by Brookfield or other participants, as applicable.
The policy also provides that any fees or carried interest payable in respect of our proportionate investment, or in respect
of an acquisition made solely by us, must be credited in the manner contemplated by our limited partnership agreement,
where applicable, or that such fees or carried interest must either have been negotiated with another arm’s length participant
or otherwise demonstrated to be on market terms (or better). The policy also provides that in transactions involving (i) an
acquisition by our company of an asset from Brookfield or (ii) the purchase by us and Brookfield of different assets, a
fairness opinion or a valuation or appraisal by a qualified expert be obtained. These requirements are in addition to any
disclosure, approval, or valuation requirements that may arise under applicable law.
In certain circumstances, transactions and/or activities may be related party transactions and/or activities for the purposes
of, and subject to certain requirements of, MI 61-101. MI 61-101 provides a number of circumstances in which a transaction
between an issuer and a related party may be subject to valuation and minority approval requirements. See “Canadian
Securities Law Exemptions” below for application of MI 61-101 to our company.
Our Limited Partnership Agreement and the Holding LP Limited Partnership Agreement, or together the Limited Partnership
Agreements, contain various provisions that modify the fiduciary duties that might otherwise be owed to us and our unitholders.
These duties include the duties of care and loyalty. In the absence of provisions in the Limited Partnership Agreements of our company
and the Holding LP to the contrary, the duty of loyalty would generally prohibit the BBU General Partner and the Holding LP General
Partner from taking any action or engaging in any transaction as to which it has a conflict of interest. The Limited Partnership
Agreements of our company and the Holding LP each prohibit the limited partners from advancing claims that otherwise might raise
issues as to compliance with fiduciary duties or applicable law. For example, the agreements provide that the BBU General Partner,
the Holding LP General Partner and their affiliates do not have any obligation under the Limited Partnership Agreements of our
company or the Holding LP, or as a result of any duties stated or implied by law or equity, including fiduciary duties, to present
business or acquisition opportunities to our company, the Holding LP, any Holding Entity or any other holding entity established by
us. They also allow affiliates of the BBU General Partner to engage in activities that may compete with us or our activities. In addition,
the agreements permit the BBU General Partner to take into account the interests of third parties, including Brookfield, when resolving
conflicts of interest.
These modifications to the fiduciary duties are detrimental to our unitholders because they restrict the remedies available
for actions that might otherwise constitute a breach of fiduciary duty and permit conflicts of interest to be resolved in a manner that
is not always in our best interests or the best interests of our unitholders. We believe it is necessary to modify the fiduciary duties
that might otherwise be owed to us and our unitholders, as described above, due to our organizational and ownership structure and
the potential conflicts of interest created thereby. Without modifying those duties, the ability of the BBU General Partner and the
Holding LP General Partner to attract and retain experienced and capable directors and to take actions that we believe are necessary
for the carrying out of our business would be unduly limited due to their concern about potential liability.
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Canadian Securities Law Exemptions
Multilateral Instrument 61-101—Protection of Minority Security Holders in Special Transactions, or MI 61-101, provides
a number of circumstances in which a transaction between an issuer and a related party may be subject to valuation and minority
approval requirements. An exemption from such requirements is available when the fair market value of the transaction is not more
than 25% of the market capitalization of the issuer. Our company has been granted exemptive relief from the requirements of MI
61-101 that, subject to certain conditions, permit it to be exempt from the minority approval and valuation requirements for transactions
that would have a value of less than 25% of our company's market capitalization, if the indirect equity interest in our company, which
is held in the form of redemption-exchange units, is included in the calculation of our company's market capitalization. As a result,
the 25% threshold, above which the minority approval and valuation requirements apply, is increased to include the approximately
49% economic interest in our company held in the form of redemption-exchange units.
Although our company is a reporting issuer in Canada, we are a "SEC foreign issuer" and exempt from certain Canadian
securities laws relating to continuous disclosure obligations and proxy solicitation if our company complies with certain reporting
requirements applicable in the United States, provided that the relevant documents filed with the SEC are filed in Canada and sent
to our company's unitholders in Canada to the extent and in the manner and within the time required by applicable U.S. requirements.
Therefore, there may be less publicly available information in Canada about us than is regularly published by or about other reporting
issuers in Canada. Our company has undertaken to the provincial and territorial securities regulatory authorities in Canada that to
the extent that it complies with the disclosure regime applicable to "foreign private issuers" under U.S. securities law:
•
•
•
•
•
•
our company will only rely on the exemption in Part 4 of National Instrument 71-102—Continuous Disclosure and Other
Exemptions Relating to Foreign Issuers;
our company will not rely on any exemption from the disclosure regime applicable to foreign private issuers under
U.S. securities laws;
our company will file its financial statements pursuant to Part 4 of NI 51-102-Continuous Disclosure Obligations, or
NI 51-102, except that our company does not have to comply with the conditions in section 4.2 of NI 51-102 if it files such
financial statements on or before the date that it is required to file its prospectus with the SEC;
our company will file an interim financial report as set out in Part 4 of NI 51-102 and the management's discussion and
analysis as set out in Part 5 of NI 51-102 for each period commencing on the first day of the financial year and ending nine,
six or three months before the end of the financial year;
our company will file a material change report as set out in Part 7 of NI 51-102 in respect of any material change in the
affairs of our company that is not reported or filed by our company on SEC Form 6-K; and
our company will include in any prospectus filed by our company financial statements or other information about any
acquisition that would have been or would be a significant acquisition for the purposes of Part 8 of NI 51-102 that our
company has completed, or has progressed to a state where a reasonable person would believe that the likelihood of our
company completing the acquisition is high if the inclusion of the financial statements is necessary for the prospectus to
contain full, true and plain disclosure of all material facts relating to the securities being distributed. The requirement to
include financial statements or other information will be satisfied by including or incorporating by reference: (a) the financial
statements or other information as set out in Part 8 of NI 51-102, or (b) satisfactory alternative financial statements or other
information, unless at least nine months of the operations of the acquired business or related businesses are incorporated
into our company's current annual financial statements included or incorporated by reference in the prospectus.
Our company is not subject to Canadian insider reporting requirements due to its status as a "SEC Foreign Issuer" under
Canadian securities laws. However, our company is not intending to rely on the exemption that is available to it from the insider
reporting requirements of Canadian securities laws.
Voting Agreements
We and Brookfield have determined that it is advisable for us to have control over certain of the entities through which we
hold our operating businesses. Accordingly, we have entered into voting agreements to provide us, through the BBU General Partner,
with voting rights over the specified entities.
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Pursuant to the voting agreements, voting rights with respect to any of the specified entities will be voted in accordance
with the direction of our company or one of the Holding Entities with respect to certain matters, typically including: (i) the election
of directors; (ii) any sale of all or substantially all of its assets; (iii) any merger, amalgamation, consolidation, business combination
or other material corporate transaction, except in connection with any internal reorganization that does not result in a change of
control; (iv) any plan or proposal for a complete or partial liquidation or dissolution, or any reorganization or any case, proceeding
or action seeking relief under any existing laws or future laws relating to bankruptcy or insolvency; (v) any amendment to its governing
documents; or (vi) any commitment or agreement to do any of the foregoing.
Deposit Agreement
We have in place a deposit agreement with Brookfield whereby we may place funds on deposit with Brookfield as approved
by the Board of Directors. Any deposit balance is due on demand and earns an agreed upon rate of interest based on market terms.
As at December 31, 2018, the amount of the deposit was $244 million and was included in cash and cash equivalents. For the fiscal
year ended December 31, 2018, we earned interest income of approximately $12 million on monies deposited with Brookfield under
this agreement.
INDEBTEDNESS OF DIRECTORS AND EXECUTIVE OFFICERS
To our knowledge, no current or former director, officer of employee of our company, nor any associate or affiliate of any
of them is or was indebted to our company at any time.
INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS
Except as disclosed in this Form 20-F, no director or officer of the BBU General Partner or the Service Providers or other
insider of our company, nor any associate or affiliate of the foregoing persons, has any existing or potential material conflict of
interest with our company, the Holding LP or any of its subsidiaries or interest in any material transaction involving our company,
the Holding LP or any of its subsidiaries.
7.C. INTERESTS OF EXPERTS AND COUNSEL
Not applicable.
ITEM 8. FINANCIAL INFORMATION
8.A. CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION
See Item 18., "Financial Statements".
8.B. SIGNIFICANT CHANGES
Not applicable.
ITEM 9. THE OFFER AND LISTING
9.A. OFFER AND LISTING DETAILS
Our units are listed on the NYSE and the TSX under the symbols "BBU" and "BBU.UN", respectively.
9.B. PLAN OF DISTRIBUTION
Not applicable.
9.C. MARKETS
See Item 9.A "Offer and Listing Details".
9.D. SELLING SHAREHOLDERS
Not applicable.
9.E. DILUTION
Not applicable.
9.F. EXPENSES OF THE ISSUE
Not applicable.
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ITEM 10. ADDITIONAL INFORMATION
10.A. SHARE CAPITAL
Not applicable.
10.B. MEMORANDUM AND ARTICLES OF ASSOCIATION
DESCRIPTION OF OUR UNITS AND OUR LIMITED PARTNERSHIP AGREEMENT
The following is a description of the material terms of our units and our Limited Partnership Agreement. Because this
description is only a summary of the terms of our units and our Limited Partnership Agreement, it does not contain all of the information
that you may find useful. For more complete information, you should read our Limited Partnership Agreement. The Limited
Partnership Agreement is filed as exhibit to this Form 20-F and is also available on our SEDAR profile at www.sedar.com. See also
Item 10.C., "Material Contracts", Item 10.H., "Documents on Display" and Item 19., "Exhibits".
Formation and Duration
Our company is a Bermuda exempted limited partnership registered under the Bermuda Limited Partnership Act and the
Bermuda Exempted Partnerships Act 1992. Our company has a perpetual existence and will continue as a limited liability partnership
unless terminated or dissolved in accordance with our Limited Partnership Agreement. The partnership interests consist of our units,
which represent limited partnership interests in our company, and any additional partnership interests representing limited partnership
interests that we may issue in the future as described below under "—Issuance of Additional Partnership Interests".
Management
As required by law, our Limited Partnership Agreement provides for the management and control of our company by a
general partner, the BBU General Partner.
Nature and Purpose
Under our Limited Partnership Agreement, the purpose of our company is to: acquire and hold interests in the Holding LP
and, subject to the approval of the BBU General Partner, interests in any other entity; engage in any activity related to the capitalization
and financing of our company's interests in such entities; serve as the managing general partner of the Holding LP and execute and
deliver, and perform the functions of a managing general partner of the Holding LP specified in, the Holding LP Limited Partnership
Agreement; and engage in any activity that is incidental to or in furtherance of the foregoing and that is approved by the BBU General
Partner and that lawfully may be conducted by a limited partnership organized under the Bermuda Limited Partnership Act, the
Bermuda Exempted Partnerships Act 1992 and our Limited Partnership Agreement.
Our Units
Our units are non-voting limited partnership interests in our company. A holder of our units does not hold a share of a body
corporate. As holders of units of our company, holders do not have statutory rights normally associated with ownership of shares of
a corporation including, for example, the right to bring "oppression" or "derivative" actions. The rights of holders of our units are
based on our Limited Partnership Agreement, amendments to which may be proposed only by or with the consent of the BBU General
Partner as described below under "—Amendment of Our Limited Partnership Agreement".
Our units represent a fractional limited partnership interest in our company and do not represent a direct investment in our
assets and should not be viewed by investors as direct securities of our assets. Holders of our units are not entitled to the withdrawal
or return of capital contributions in respect of our units, except to the extent, if any, that distributions are made to such holders
pursuant to our Limited Partnership Agreement or upon the liquidation of our company as described below under "—Liquidation
and Distribution of Proceeds" or as otherwise required by applicable law. Except to the extent expressly provided in our Limited
Partnership Agreement, a holder of our units does not have priority over any other holder of our units, either as to the return of capital
contributions or as to profits, losses or distributions. Our units have no par or other stated value.
Holders of our units do not have the ability to call meetings of unitholders, and holders of our units are not entitled to vote
on matters relating to our company except as described below under "—No Management or Control; No Voting". Any action that
may be taken at a meeting of unitholders may be taken without a meeting if written consent is solicited by or on behalf of the BBU
General Partner and it receives approval of not less than the minimum percentage of support necessary to authorize or take such
action at a meeting as described below under "—Meetings".
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Redemption-Exchange Units
The redemption-exchange units are exchangeable into our units in accordance with the Redemption-Exchange Mechanism.
For a further explanation of the Redemption-Exchange Mechanism, see Item 10.B., "Description of the Holding LP Limited
Partnership Agreement—Redemption-Exchange Mechanism".
Issuance of Additional Partnership Interests
The BBU General Partner has broad rights to cause our company to issue additional partnership interests and may cause us
to issue additional partnership interests (including new classes of partnership interests and options, rights, warrants and appreciation
rights relating to such interests) for any partnership purpose, at any time and on such terms and conditions as it may determine at its
sole discretion without the approval of any limited partners. Any additional partnership interests may be issued in one or more classes,
or one or more series of classes, with such designations, preferences, rights, powers and duties (which may be senior to existing
classes and series of partnership interests) as may be determined by the BBU General Partner in its sole discretion, all without the
approval of our limited partners.
Investments in the Holding LP
If and to the extent that our company raises funds by way of the issuance of equity or debt securities, or otherwise, pursuant
to a public offering, private placement or otherwise, an amount equal to the proceeds will be invested in securities of the Holding LP,
unless otherwise agreed by us and the Holding LP.
Capital Contributions
No partner has the right to withdraw any or all of its capital contribution. The limited partners have no liability for further
capital contributions to our company. Each limited partner's liability will be limited to the amount of capital such partner is obligated
to contribute to our company for its limited partner interest plus its share of any undistributed profits and assets, subject to certain
exceptions. See "—Limited Liability" below.
Distributions
Distributions to partners of our company will be made only as determined by the BBU General Partner in its sole discretion.
In general, quarterly cash distributions will be made from the distributions received by our company as a result of its ownership of
Managing General Partner Units in Holding LP. However, the BBU General Partner will not be permitted to cause our company to
make a distribution if it does not have sufficient cash on hand to make the distribution (including as a result of borrowing), the
distribution would render it insolvent, or if, in the opinion of the BBU General Partner, the distribution would or might leave it with
insufficient funds to meet any future or contingent obligations, or the distribution would contravene the Bermuda Limited Partnership
Act. For greater certainty, our company, the Holding LP or one or more of the Holding Entities may (but none is obligated to) borrow
money in order to obtain sufficient cash to make a distribution. The amount of taxes withheld or paid by us in respect of our units
held by limited partners or the BBU General Partner shall be treated either as a distribution to such partner or as a general expense
of our company, as determined by the BBU General Partner in its sole discretion.
Any distributions from our company will be made to the limited partners, and to the BBU General Partner on a pro rata
basis. The BBU General Partner's pro rata share is currently 0.1%. Each limited partner will receive a pro rata share of the distributions
made to all limited partners in accordance with the proportion of all outstanding units held by that limited partner. Except for receiving
its pro rata share of distributions from our company, the BBU General Partner shall not be compensated for its services as the BBU
General Partner but it shall be reimbursed for certain expenses.
Allocations of Income and Losses
Limited partners share in our net profits and net losses, generally in accordance with their respective percentage interest in
our company.
Net income and net losses for U.S. federal income tax purposes will be allocated for each taxable year or other relevant
period among our partners using a monthly, quarterly or other permissible convention pro rata on a per unit basis, except to the extent
otherwise required by law or pursuant to tax elections made by our company. Each item of income, gain, loss and deduction so
allocated to a partner of our company, generally will have the same source and character as though such partner had realized the
item directly.
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The income for Canadian federal income tax purposes of our company for a given fiscal year will be allocated to each
partner in an amount calculated by multiplying such income by a fraction, the numerator of which is the sum of the distributions
received by such partner with respect to such fiscal year and the denominator of which is the aggregate amount of the distributions
made by our company to partners with respect to such fiscal year. To such end, any person who was a partner at any time during
such fiscal year but who has transferred all of their units before the last day of that fiscal year may be deemed to be a partner on the
last day of such fiscal year for the purposes of subsection 96(1) of the Tax Act. Generally, the source and character of items of income
so allocated to a partner with respect to a fiscal year of our company will be the same source and character as the distributions received
by such partner with respect to such fiscal year. The BBU General Partner may adjust allocations of items that would otherwise be
made pursuant to the terms of our Limited Partnership Agreement to the extent necessary to avoid an adverse effect on our company's
limited partners, subject to the approval of a committee of the board of directors of the BBU General Partner made up of independent
directors.
If, with respect to a given fiscal year, no distribution is made by our company or we have a loss for Canadian federal income
tax purposes, one quarter of the income, or loss, as the case may be, for Canadian federal income tax purposes of our company for
such fiscal year, will be allocated to the partners of record at the end of each calendar quarter ending in such fiscal year pro rata to
their respective percentage interests in our company. Generally, the source and character of such income or losses so allocated to a
partner at the end of each calendar quarter will be the same source and character as the income or loss earned or incurred by us in
such calendar quarter.
Limited Liability
Assuming that a limited partner does not participate in the control or management of our company or conduct the affairs
of, sign or execute documents for or otherwise bind our company within the meaning of the Bermuda Limited Partnership Act and
otherwise acts in conformity with the provisions of our Limited Partnership Agreement, such partner's liability under the Bermuda
Limited Partnership Act and our Limited Partnership Agreement will be limited to the amount of capital such partner is obligated to
contribute to our company for its limited partner interest plus its share of any undistributed profits and assets, except as described
below.
If it were determined, however, that a limited partner was participating in the control or management of our company or
conducting the affairs of, signing or executing documents for or otherwise binding our company (or purporting to do any of the
foregoing) within the meaning of the Bermuda Limited Partnership Act or the Bermuda Exempted Partnerships Act 1992, such
limited partner would be liable as if it were a general partner of our company in respect of all debts of our company incurred while
that limited partner was so acting or purporting to act. Neither our Limited Partnership Agreement nor the Bermuda Limited Partnership
Act specifically provides for legal recourse against the BBU General Partner if a limited partner were to lose limited liability through
any fault of the BBU General Partner. While this does preclude a limited partner from seeking legal recourse, we are not aware of
any precedent for such a claim in Bermuda case law.
No Management or Control; Limited Voting
Our company's limited partners, in their capacities as such, may not take part in the management or control of the activities
and affairs of our company and do not have any right or authority to act for or to bind our company or to take part or interfere in the
conduct or management of our company. Limited partners are not entitled to vote on matters relating to our company or have access
to the books and records of our company, although holders of units are entitled to consent to certain matters with respect to certain
amendments to our Limited Partnership Agreement and certain matters with respect to the withdrawal of the BBU General Partner
as described in further detail below. In addition, limited partners have consent rights with respect to certain fundamental matters and
related party transactions (in accordance with MI 61-101) and on any other matters that require their approval in accordance with
applicable laws and stock exchange rules. Each unit entitles the holder thereof to one vote for the purposes of any approvals of
holders of units.
Meetings
The BBU General Partner may call special meetings of the limited partners at a time and place outside of Canada determined
by the BBU General Partner on a date not less than 10 days nor more than 60 days after the mailing of notice of the meeting. The
limited partners do not have the ability to call a special meeting. Only holders of record on the date set by the BBU General Partner
(which may not be less than 10 nor more than 60 days before the meeting) are entitled to notice of any meeting.
Written consents may be solicited only by or on behalf of the BBU General Partner. Any such consent solicitation may
specify that any written consents must be returned to us within the time period, which may not be less than 20 days, specified by the
BBU General Partner.
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For purposes of determining holders of partnership interests entitled to notice of, and participation in, a meeting, or to
provide consents or give approvals to any action described above, the BBU General Partner may set a record date, which may be
not less than 10 nor more than 60 days before the date by which record holders are requested in writing by the BBU General Partner
to provide such consents. Only those holders of partnership interests on the record date established by the BBU General Partner will
be entitled to provide consents with respect to matters as to which a consent right applies.
Amendment of Our Limited Partnership Agreement
Amendments to our Limited Partnership Agreement may be proposed only by or with the consent of the BBU General
Partner. To adopt a proposed amendment, other than the amendments that do not require limited partner approval discussed below,
the BBU General Partner must seek approval of a majority of our outstanding units required to approve the amendment, either by
way of a meeting of the limited partners to consider and vote upon the proposed amendment or by written approval.
Prohibited Amendments
No amendment may be made that would:
1. enlarge the obligations of any limited partner without its consent, except that any amendment that would have a material
adverse effect on the rights or preferences of any class of partnership interests in relation to other classes of partnership
interests may be consented to or approved by at least a majority of the type or class of partnership interests so affected; or
2. enlarge the obligations of, restrict in any way any action by or rights of or reduce in any way the amounts distributable,
reimbursable or otherwise payable by our company to the BBU General Partner or any of its affiliates without the consent
of the BBU General Partner, which may be given or withheld in its sole discretion.
The provision of our Limited Partnership Agreement preventing the amendments having the effects described in clauses (1)
and (2) above can be amended only upon the approval of the holders of at least 90% of the outstanding units.
No Limited Partner Approval
Subject to applicable law, the BBU General Partner may generally make amendments to our Limited Partnership Agreement
without the approval of any limited partner to reflect:
1. a change in the name of our company, the location of our registered office or our registered agent;
2.
the admission, substitution or withdrawal of partners in accordance with our Limited Partnership Agreement;
3. a change that the BBU General Partner determines is reasonable and necessary or appropriate for our company to qualify
or to continue our company's qualification as an exempted limited partnership under the laws of Bermuda or a partnership
in which the limited partners have limited liability under the laws of any jurisdiction, or is necessary or advisable in the
opinion of the BBU General Partner to ensure that our company will not be treated as an association taxable as a corporation
or otherwise taxed as an entity for tax purposes;
4. an amendment that the BBU General Partner determines to be necessary or appropriate to address changes in tax
regulations, legislation or interpretation;
5. an amendment that is necessary, in the opinion of our counsel, to prevent our company or the BBU General Partner or
its directors or officers from in any manner being subjected to the provisions of the U.S. Investment Company Act of 1940,
as amended (the "Investment Company Act"), or similar legislation in other jurisdictions;
6. an amendment that the BBU General Partner determines in its sole discretion to be necessary or appropriate in connection
with the creation, authorization or issuance of any class or series of partnership interests or options, rights, warrants or
appreciation rights relating to partnership securities;
7. any amendment expressly permitted in our Limited Partnership Agreement to be made by the BBU General Partner
acting alone;
8. any amendment that the BBU General Partner determines in its sole discretion to be necessary or appropriate to reflect
and account for the formation by our company of, or its investment in, any corporation, partnership, joint venture, limited
liability company or other entity, as otherwise permitted by our Limited Partnership Agreement;
9. a change in our company's fiscal year and related changes; or
10. any other amendments substantially similar to any of the matters described in (1) through (9) above.
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In addition, the BBU General Partner may make amendments to our Limited Partnership Agreement without the approval
of any limited partner if those amendments, in the discretion of the BBU General Partner:
1. do not adversely affect our company's limited partners considered as a whole (including any particular class of partnership
interests as compared to other classes of partnership interests) in any material respect;
2. are necessary or appropriate to satisfy any requirements, conditions or guidelines contained in any opinion, directive,
order, ruling or regulation of any governmental agency or judicial authority;
3. are necessary or appropriate to facilitate the trading of our units or to comply with any rule, regulation, guideline or
requirement of any securities exchange on which our units or any other partnership interests are or will be listed for trading;
4. are necessary or appropriate for any action taken by the BBU General Partner relating to splits or combinations of units
under the provisions of our Limited Partnership Agreement; or
5. are required to effect the intent expressed in the final registration statement and prospectus filed in connection with the
spin-off or the intent of the provisions of our Limited Partnership Agreement or are otherwise contemplated by our Limited
Partnership Agreement.
Opinion of Counsel and Limited Partner Approval
The BBU General Partner will not be required to obtain an opinion of counsel that an amendment will not result in a loss
of limited liability to the limited partners if one of the amendments described above under "—No Limited Partner Approval" should
occur. No other amendments to our Limited Partnership Agreement will become effective without the approval of holders of at least
90% of our units, unless we obtain an opinion of counsel to the effect that the amendment will not (i) cause our company to be treated
as an association taxable as a corporation or otherwise taxable as an entity for tax purposes (provided that for U.S. tax purposes the
BBU General Partner has not made the election described below under "—Election to be Treated as a Corporation") or (ii) affect the
limited liability under the Bermuda Limited Partnership Act of any of our company's or the Holding LP's limited partners.
In addition to the above restrictions, any amendment that would have a material adverse effect on the rights or preferences
of any type or class of partnership interests in relation to other classes of partnership interests will also require the approval or consent
of the holders of at least a majority of the outstanding partnership interests of the class so affected.
In addition, any amendment that reduces the voting percentage required to take any action must be approved by the written
consent or affirmative vote of limited partners whose aggregate outstanding voting units constitute not less than the voting requirement
sought to be reduced.
Sale or Other Disposition of Assets
Our Limited Partnership Agreement generally prohibits the BBU General Partner, without the prior approval of the holders
of at least 66 2/3% of the voting power of our units, from causing us to, among other things, sell, exchange or otherwise dispose of
all or substantially all of our assets in a single transaction or a series of related transactions. However, the BBU General Partner, in
its sole discretion, may mortgage, pledge, hypothecate or grant a security interest in all or substantially all of our assets (including
for the benefit of third parties) without that approval. The BBU General Partner may also sell all or substantially all of our assets
under any forced sale of any or all of our assets pursuant to the foreclosure of, or other realization upon, those encumbrances without
that approval.
Take-Over Bids
If, within 120 days after the date of a take-over bid, as defined in the Securities Act (Ontario), the take-over bid is accepted
by holders of not less than 90% of our outstanding units, other than our units held at the date of the take-over bid by the offeror or
any affiliate or associate of the offeror, and the offeror acquires the units deposited or tendered under the take-over bid, the offeror
will be entitled to acquire our units not deposited under the take-over bid on the same terms as the units acquired under the take-
over bid.
Election to be Treated as a Corporation
If the BBU General Partner determines in its sole discretion that it is no longer in our company's best interests to continue
as a partnership for U.S. federal income tax purposes, the BBU General Partner may elect to treat our company as an association or
as a publicly traded partnership taxable as a corporation for U.S. federal (and applicable state) income tax purposes.
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Termination and Dissolution
Our company will terminate upon the earlier to occur of: (i) the date on which all of our company's assets have been disposed
of or otherwise realized by us and the proceeds of such disposals or realizations have been distributed to partners; (ii) the service of
notice by the BBU General Partner, with the special approval of a majority of its independent directors, that in its opinion the coming
into force of any law, regulation or binding authority renders illegal or impracticable the continuation of our company; or (iii) at the
election of the BBU General Partner, if our company, as determined by the BBU General Partner, is required to register as an
"investment company" under the Investment Company Act or similar legislation in other jurisdictions.
Our company will be dissolved upon the withdrawal of the BBU General Partner as the general partner of our company
(unless a successor entity becomes the general partner as described in the following sentence or the withdrawal is effected in compliance
with the provisions of our Limited Partnership Agreement that are described below under "—Withdrawal of the BBU General
Partner") or the date on which any court of competent jurisdiction enters a decree of judicial dissolution of our company or an order
to wind-up or liquidate the BBU General Partner without the appointment of a successor in compliance with the provisions of our
Limited Partnership Agreement that are described below under "—Withdrawal of the BBU General Partner". Our company will be
reconstituted and continue without dissolution if, within 30 days of the date of dissolution (and provided a notice of dissolution has
not been provided to the Bermuda Monetary Authority), a successor general partner executes a transfer deed pursuant to which the
new general partner assumes the rights and undertakes the obligations of the original general partner, but only if we receive an opinion
of counsel that the admission of the new general partner will not result in the loss of limited liability of any limited partner.
Liquidation and Distribution of Proceeds
Upon dissolution, unless our company is continued as a new limited partnership, the liquidator authorized to wind-up our
company's affairs will, acting with all of the powers of the BBU General Partner that the liquidator deems necessary or appropriate
in its judgment, liquidate our company's assets and apply the proceeds of the liquidation first, to discharge our company's liabilities
as provided in our Limited Partnership Agreement and by law and thereafter to the partners pro rata according to the percentages of
their respective partnership interests as of a record date selected by the liquidator. The liquidator may defer liquidation of our assets
for a reasonable period of time or distribute assets to partners in kind if it determines that an immediate sale or distribution of all or
some of our company's assets would be impractical or would cause undue loss to the partners.
Withdrawal of the BBU General Partner
The BBU General Partner may withdraw as the general partner without first obtaining approval of our unitholders by giving
written notice to the other partners, and that withdrawal will not constitute a violation of our Limited Partnership Agreement.
Upon the withdrawal of a general partner, the holders of at least a majority of our units may select a successor to that
withdrawing general partner. If a successor is not selected, or is selected but an opinion of counsel regarding limited liability, tax
matters and the Investment Company Act (and similar legislation in other jurisdictions) cannot be obtained, our company will be
dissolved, wound up and liquidated. See "—Termination and Dissolution" above.
In the event of the withdrawal of a general partner, where such withdrawal will violate our Limited Partnership Agreement,
a successor general partner will have the option to purchase the general partnership interest of the departing general partner for a
cash payment equal to its fair market value. Under all other circumstances where a general partner withdraws, the departing general
partner will have the option to require the successor general partner to purchase the general partnership interest of the departing
general partner for a cash payment equal to its fair market value. In each case, this fair market value will be determined by agreement
between the departing general partner and the successor general partner. If no agreement is reached within 30 days of the general
partner's departure, an independent investment banking firm or other independent expert selected by the departing general partner
and the successor general partner will determine the fair market value. If the departing general partner and the successor general
partner cannot agree upon an expert within 45 days of the general partner's departure, then an expert chosen by agreement of the
experts selected by each of them will determine the fair market value.
If the option described above is not exercised by either the departing general partner or the successor general partner, the
departing general partner's general partnership interest will automatically convert into units pursuant to a valuation of those interests
as determined by an investment banking firm or other independent expert selected in the manner described in the preceding paragraph.
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Transfer of the General Partnership Interest
The BBU General Partner may transfer all or any part of its general partnership interests without first obtaining approval
of any unitholder. As a condition of this transfer, the transferee must: (i) agree to assume the rights and duties of the BBU General
Partner to whose interest that transferee has succeeded; (ii) agree to assume and be bound by the provisions of our Limited Partnership
Agreement; and (iii) furnish an opinion of counsel regarding limited liability, tax matters and the Investment Company Act (and similar
legislation in other jurisdictions). Any transfer of the general partnership interest is subject to prior notice to and approval of the
relevant Bermuda regulatory authorities. At any time, the members of the BBU General Partner may sell or transfer all or part of
their shares in the BBU General Partner without the approval of the unitholders.
Partnership Name
If the BBU General Partner ceases to be the general partner of our company and our new general partner is not an affiliate
of Brookfield, our company will be required by our Limited Partnership Agreement to change its name to a name that does not
include "Brookfield" and which could not be capable of confusion in any way with such name. Our Limited Partnership Agreement
explicitly provides that this obligation shall be enforceable and waivable by the BBU General Partner notwithstanding that it may
have ceased to be the general partner of our company.
Transactions with Interested Parties
The BBU General Partner, its affiliates and their respective partners, members, directors, officers, employees and
shareholders, which we refer to as "interested parties," may become limited partners or beneficially interested in limited partners
and may hold, dispose of or otherwise deal with our units with the same rights they would have if the BBU General Partner was not
a party to our Limited Partnership Agreement. An interested party will not be liable to account either to other interested parties or
to our company, our company's partners or any other persons for any profits or benefits made or derived by or in connection with
any such transaction.
Our Limited Partnership Agreement permits an interested party to sell investments to, purchase assets from, vest assets in
and contract or enter into any contract, arrangement or transaction with our company, the Holding LP, any of the Holding Entities,
any operating business or, in general, any entity established by our company and may be interested in any such contract, transaction
or arrangement and shall not be liable to account to any of our company, the Holding LP, any of the Holding Entities, any operating
business or, in general, any entity established by our company or any other person in respect of any such contract, transaction or
arrangement, or any benefits or profits made or derived therefrom, by virtue only of the relationship between the parties concerned,
subject to the bye-laws of the BBU General Partner.
Outside Activities of the BBU General Partner; Conflicts of Interest
Under our Limited Partnership Agreement, the BBU General Partner is required to maintain as its sole activity the activity
of acting as the general partner of our company and undertaking activities that are ancillary or related thereto. The BBU General
Partner is not permitted to engage in any business or activity or incur or guarantee any debts or liabilities except in connection with
or incidental to its performance as general partner or incurring, guaranteeing, acquiring, owning or disposing of debt or equity
securities of the Holding LP, a Holding Entity or any other holding entity established by our company.
Our Limited Partnership Agreement provides that each person who is entitled to be indemnified by our company (other
than the BBU General Partner), as described below under "—Indemnification; Limitation on Liability", will have the right to engage
in businesses of every type and description and other activities for profit, and to engage in and possess interests in business ventures
of any and every type or description, irrespective of whether: (i) such activities are similar to our activities; or (ii) such businesses
and activities directly compete with, or disfavor or exclude, the BBU General Partner, our company, the Holding LP, any Holding
Entity, any operating business or, in general, any entity established by us. Such business interests, activities and engagements will
be deemed not to constitute a breach of our Limited Partnership Agreement or any duties stated or implied by law or equity, including
fiduciary duties, owed to any of the BBU General Partner, our company, the Holding LP, any Holding Entity, any operating business
and, in general, any entity established by us (or any of their respective investors), and shall be deemed not to be a breach of the BBU
General Partner's fiduciary duties or any other obligation of any type whatsoever of the BBU General Partner. None of the BBU
General Partner, our company, the Holding LP, any Holding Entity, any operating business, or, in general, any entity established by
us or any other person shall have any rights by virtue of our Limited Partnership Agreement or our company relationship established
thereby or otherwise in any business ventures of any person who is entitled to be indemnified by us as described below under "—
Indemnification; Limitations on Liability".
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The BBU General Partner and the other indemnified persons described in the preceding paragraph do not have any obligation
under our Limited Partnership Agreement or as a result of any duties stated or implied by law or equity, including fiduciary duties,
to present business or investment opportunities to our company, our limited partners, the Holding LP, any Holding Entity, any
operating business or, in general, any entity established by us. These provisions do not affect any obligation of an indemnified person
to present business or investment opportunities to our company, the Holding LP, any Holding Entity, any operating business or, in
general, any entity established by our company pursuant to the Relationship Agreement or a separate written agreement between
such persons.
Any conflicts of interest and potential conflicts of interest that are approved by the BBU General Partner's governance and
nominating committee from time to time will be deemed to have been approved by all partners. Pursuant to our conflicts policy, by
a majority vote, independent directors may grant approvals for any of the transactions described above in the form of general
guidelines, policies or procedures in which case no further special approval will be required in connection with a particular transaction
or matter permitted thereby. See Item 7.B., "Related Party Transactions—Conflicts of Interest and Fiduciary Duties".
Indemnification; Limitations on Liability
Under our Limited Partnership Agreement, our company is required to indemnify to the fullest extent permitted by law the
BBU General Partner and any of its affiliates (and their respective officers, directors, agents, shareholders, partners, members and
employees), any person who serves on a governing body of the Holding LP, a Holding Entity, operating business or, in general, any
entity established by us and any other person designated by the BBU General Partner as an indemnified person, in each case, against
any and all losses, claims, damages, liabilities, costs and expenses (including legal fees and expenses), judgments, fines, penalties,
interest, settlements and other amounts arising from any and all claims, demands, actions, suits or proceedings, whether civil, criminal,
administrative or investigative, incurred by an indemnified person in connection with our activities or by reason of their holding
such positions, except to the extent that the claims, liabilities, losses, damages, costs or expenses are determined to have resulted
from the indemnified person's bad faith, fraud or willful misconduct, or in the case of a criminal matter, action that the indemnified
person knew to have been unlawful. In addition, under our Limited Partnership Agreement: (i) the liability of such persons has been
limited to the fullest extent permitted by law, except to the extent that their conduct involves bad faith, fraud or willful misconduct,
or in the case of a criminal matter, action that the indemnified person knew to have been unlawful; and (ii) any matter that is approved
by the independent directors of the BBU General Partner will not constitute a breach of our Limited Partnership Agreement or any
duties stated or implied by law or equity, including fiduciary duties. Our Limited Partnership Agreement requires us to advance funds
to pay the expenses of an indemnified person in connection with a matter in which indemnification may be sought until it is determined
that the indemnified person is not entitled to indemnification.
Accounts, Reports and Other Information
Under our Limited Partnership Agreement, within the time required by applicable laws and regulations, including any rules
of any applicable securities exchange, the BBU General Partner is required to prepare financial statements in accordance with IFRS
or such other appropriate accounting principles as determined from time to time and make publicly available as of a date selected
by the BBU General Partner in its sole discretion our financial statements together with a statement of the accounting policies used
in their preparation, such information as may be required by applicable laws and regulations and such information as the BBU General
Partner deems appropriate. Our annual financial statements must be audited by an independent accounting firm of international
standing. Our quarterly financial statements may be unaudited and will be made available publicly as and within the time period
required by applicable laws and regulations, including any rules of any applicable securities exchange.
The BBU General Partner is also required to use commercially reasonable efforts to prepare and send to the limited partners
of our company on an annual basis a Schedule K-1 (or equivalent). However, unitholders that do not ordinarily have U.S. federal
tax filing requirements will not receive a Schedule K-1 and related information unless such unitholders request it within 60 days
after the close of each calendar year. The BBU General Partner will, where reasonably possible, prepare and send information required
by the non-U.S. limited partners of our company for U.S. federal income tax reporting purposes. The BBU General Partner will also
use commercially reasonable efforts to supply information required by limited partners of our company for Canadian federal income
tax purposes.
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Governing Law; Submission to Jurisdiction
Our Limited Partnership Agreement is governed by and will be construed in accordance with the laws of Bermuda. Under
our Limited Partnership Agreement, each of our company's partners (other than governmental entities prohibited from submitting
to the jurisdiction of a particular jurisdiction) will submit to the non-exclusive jurisdiction of any court in Bermuda in any dispute,
suit, action or proceeding arising out of or relating to our Limited Partnership Agreement. Each partner waives, to the fullest extent
permitted by law, any immunity from jurisdiction of any such court or from any legal process therein and further waives, to the fullest
extent permitted by law, any claim of inconvenient forum, improper venue or that any such court does not have jurisdiction over the
partner. Any final judgment against a partner in any proceedings brought in any court in Bermuda will be conclusive and binding
upon the partner and may be enforced in the courts of any other jurisdiction of which the partner is or may be subject, by suit upon
such judgment. The foregoing submission to jurisdiction and waivers will survive the dissolution, liquidation, winding up and
termination of our company.
Transfers of Units
We are not required to recognize any transfer of our units until certificates, if any, evidencing such units are surrendered
for registration of transfer. Each person to whom a unit is transferred (including any nominee holder or an agent or representative
acquiring such unit for the account of another person) will be admitted to our company as a partner with respect to the unit so
transferred subject to and in accordance with the terms of our Limited Partnership Agreement. Any transfer of a unit will not entitle
the transferee to share in the profits and losses of our company, to receive distributions, to receive allocations of income, gain, loss,
deduction or credit or any similar item or to any other rights to which the transferor was entitled until the transferee becomes a partner
and a party to our Limited Partnership Agreement.
By accepting a unit for transfer in accordance with our Limited Partnership Agreement, each transferee will be deemed
to have:
•
•
executed our Limited Partnership Agreement and become bound by the terms thereof;
granted an irrevocable power of attorney to the BBU General Partner or the liquidator of our company and any officer
thereof to act as such partner's agent and attorney-in-fact to execute, swear to, acknowledge, deliver, file and record in
the appropriate public offices: (i) all certificates, documents or other instruments relating to the existence or qualification
of our company as an exempted limited partnership (or a partnership in which the limited partners have limited liability)
in Bermuda and in all jurisdictions in which our company may conduct activities and affairs or own property; any
amendment, change, modification or restatement of our Limited Partnership Agreement, subject to the requirements of
our Limited Partnership Agreement; the dissolution and liquidation of our company; the admission or withdrawal of any
partner of our company or any capital contribution of any partner of our company; the determination of the rights,
preferences and privileges of any class or series of units or other partnership interests of our company, and any tax election
with any limited partner or general partner on behalf of our company or its partners; and (ii) subject to the requirements
of our Limited Partnership Agreement, all ballots, consents, approvals, waivers, certificates, documents and other
instruments necessary or appropriate, in the sole discretion of the BBU General Partner or the liquidator of our company,
to make, evidence, give, confirm or ratify any voting consent, approval, agreement or other action that is made or given
by our company's partners or is consistent with the terms of our Limited Partnership Agreement or to effectuate the terms
or intent of our Limited Partnership Agreement;
• made the consents and waivers contained in our Limited Partnership Agreement, including with respect to the approval
of the transactions and agreements entered into in connection with our formation and the spin-off; and
•
ratified and confirmed all contracts, agreements, assignments and instruments entered into on behalf of our company in
accordance with our Limited Partnership Agreement, including the granting of any charge or security interest over the
assets of our company and the assumption of any indebtedness in connection with the affairs of our company.
The transfer of any unit and the admission of any new partner to our company will not constitute any amendment to our
Limited Partnership Agreement.
Book-Based System
Our units may be represented in the form of one or more fully registered unit certificates held by, or on behalf of, CDS or
DTC, as applicable, as custodian of such certificates for the participants of CDS or DTC, registered in the name of CDS or DTC or
their respective nominee, and registration of ownership and transfers of our units may be effected through the book-based system
administered by CDS or DTC as applicable.
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DESCRIPTION OF THE HOLDING LP LIMITED PARTNERSHIP AGREEMENT
The following is a description of the material terms of the Holding LP Limited Partnership Agreement. You are not a limited
partner of the Holding LP and do not have any rights under the Holding LP Limited Partnership Agreement. However, our company
is the managing general partner of the Holding LP and is responsible for the management and control of the Holding LP.
We have included a summary of what we believe are the most important provisions of the Holding LP Limited Partnership
Agreement because we conduct our operations through the Holding LP and the Holding Entities and our rights with respect to our
company's interest in the Holding LP are governed by the terms of the Holding LP Limited Partnership Agreement. Because this
description is only a summary of the terms of the agreement, it does not contain all of the information that you may find useful. For
more complete information, you should read the Holding LP Limited Partnership Agreement. The agreement is filed as exhibit to
this Form 20-F and is also available on our SEDAR profile at www.sedar.com. See also Item 10.C., "Material Contracts", Item 10.H.,
"Documents on Display" and Item 19., "Exhibits".
Formation and Duration
The Holding LP is a Bermuda exempted limited partnership registered under the Bermuda Limited Partnership Act and the
Bermuda Exempted Partnerships Act 1992. The Holding LP has a perpetual existence and will continue as a limited liability partnership
unless our company is terminated or dissolved in accordance with the Holding LP Limited Partnership Agreement.
Management
As required by law, the Holding LP Limited Partnership Agreement provides for the management and control of the
Holding LP by its managing general partner, our company.
Nature and Purpose
Under the Holding LP Limited Partnership Agreement, the purpose of the Holding LP is to: acquire and hold interests in
the Holding Entities and, subject to the approval of our company, interests in any other entity; engage in any activity related to the
capitalization and financing of the Holding LP's interests in such entities; and engage in any other activity that is incidental to or in
furtherance of the foregoing and that is approved by our company and that lawfully may be conducted by a limited partnership
organized under the Bermuda Limited Partnership Act, the Bermuda Exempted Partnerships Act 1992 and our Limited Partnership
Agreement.
Units
The Holding LP's units are non-voting limited partnership interests in the Holding LP. Holders of units are not entitled to
the withdrawal or return of capital contributions in respect of their units, except to the extent, if any, that distributions are made to
such holders pursuant to the Holding LP Limited Partnership Agreement or upon the dissolution of the Holding LP as described
below under "—Dissolution" or as otherwise required by applicable law. Holders of the Holding LP's units are not entitled to vote
on matters relating to the Holding LP except as described below under "—No Management or Control; No Voting". Except to the
extent expressly provided in the Holding LP Limited Partnership Agreement, a holder of Holding LP units will not have priority over
any other holder of the Holding LP units, either as to the return of capital contributions or as to profits, losses or distributions. The
Holding LP Limited Partnership Agreement does not contain any restrictions on ownership of the Holding LP units. The units of the
Holding LP have no par or other stated value.
In connection with the spin-off, Brookfield's units in the Holding LP became the Special LP Units, the Managing General
Partner Units were issued to our company and the redemption-exchange units were issued to Brookfield.
Issuance of Additional Partnership Interests
The Holding LP may issue additional partnership interests (including Managing General Partner Units, Special LP Units
and redemption-exchange units as well as new classes of partnership interests and options, rights, warrants and appreciation rights
relating to such interests) for any partnership purpose (including in connection with any distribution reinvestment plan or the
Redemption-Exchange Mechanism), at any time and on such terms and conditions as our company may determine at its sole discretion
without the approval of any limited partners. Any additional partnership interests may be issued in one or more classes, or one or
more series of classes, with such designations, preferences, rights, powers and duties (which may be senior to existing classes and
series of partnership interests) as may be determined by our company in its sole discretion, all without the approval of our limited
partners.
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Redemption-Exchange Mechanism
Brookfield has the right to require the Holding LP to redeem all or a portion of the redemption-exchange units for cash,
subject to our company's right to acquire such interests for our units as described below. Brookfield may exercise its right of redemption
by delivering a notice of redemption to the Holding LP and our company.
A holder of redemption-exchange units who delivers a notice of redemption will receive, on the redemption-exchange date
and subject to our company's right to acquire such interests (in lieu of redemption) in exchange for our units, cash in an amount equal
to the market value of one of our units (as determined by reference to the five day volume-weighted average trading price of our
units on the principal stock exchange for our units based on trading volumes) multiplied by the number of units to be redeemed.
Upon its receipt of the redemption notice, our company will have a right to elect, at its sole discretion, to acquire all (but not less
than all) redemption-exchange units presented to the Holding LP for redemption in exchange for units of our company on a one-for-
one basis. Upon a redemption, the holder's right to receive distributions with respect to the redemption-exchange units so redeemed
will cease.
The date of exchange specified in any redemption notice may not be less than five business days nor more than twenty
business days after the date upon which the redemption notice is received by the Holding LP and our company. At any time prior to
the applicable redemption-exchange date, any holder of redemption-exchange units who delivers a redemption notice will be entitled
to withdraw such redemption notice.
Brookfield's aggregate limited partnership interest in our company is approximately 68% as of the date of this Form 20-F
if Brookfield exercised its redemption right on the redemption-exchange units in full and our company exercised our right to acquire
such interests in exchange for our units.
Distributions
Distributions by the Holding LP will be made in the sole discretion of our company. However, our company will not be
permitted to cause the Holding LP to make a distribution if the Holding LP does not have sufficient cash on hand to make the
distribution, the distribution would render the Holding LP insolvent or if, in the opinion of our company, the distribution would or
might leave the Holding LP with insufficient funds to meet any future or contingent obligations, or the distribution would contravene
the Bermuda Limited Partnership Act. For greater certainty, the Holding LP or one or more of the Holding Entities may (but neither
is obligated to) borrow money in order to obtain sufficient cash to make a distribution.
Except as set forth below, prior to the dissolution of the Holding LP, distributions of available cash (if any), including cash
that has been borrowed for such purpose, in any given quarter will be made by the Holding LP as follows, referred to as the Regular
Distribution Waterfall:
•
•
•
•
•
first, 100% of any available cash to our company until our company has been distributed an amount equal to our expenses
and outlays for the quarter properly incurred;
second, to the extent distributions in respect of redemption-exchange units have accrued in previous quarters (as described
below), 100% to all the holders of redemption-exchange units pro rata in proportion to their respective percentage interests
(which will be calculated using redemption-exchange units only) of all amounts that have been accrued in previous
quarters and not yet recovered;
third, to the extent that incentive distributions have been deferred in previous quarters, 100% to the holder of the Special
LP Units of all amounts that have been accrued in previous quarters and not yet recovered;
fourth, to all owners of the Holding LP's partnership interests, pro rata to their percentage interests up to the amount per
unit of the then regular quarterly distribution (currently $0.0625 per unit) for such quarter;
fifth, 100% to the holder of the Special LP Units until an amount equal to the incentive distribution amount (see below
for an explanation of the calculation of the incentive distribution amount) for the preceding quarter has been distributed
provided that for any quarter in which our company determines that there is insufficient cash to pay the incentive
distribution, our company may elect to pay all or a portion of this distribution in redemption-exchange units or may elect
to defer all or a portion of the amount distributable for payment from available cash in future quarters; and
•
thereafter, any available cash then remaining to the owners of the Holding LP's partnership interests, pro rata to their
percentage interests.
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The expenses and outlays described in the first bullet point of the Regular Distribution Waterfall (as well as in the first bullet
point below describing distributions in the context of a dissolution) include expenses that are to be incurred and paid by its company
directly and are generally comprised of expenses that by their nature must be incurred by our company and not by any of our
subsidiaries, such as stock exchange and listing fees, expenses related to capital market transactions, organizational expenses and
similar customary expenses that would be incurred by a public holding entity that has no independent means of generating revenue.
Such expenses and outlays do not include amounts payable to Brookfield, the Service Providers or any of their affiliates, including
the base management fee, as those amounts, if any, will be paid by the Holding LP or one or more of its direct or indirect subsidiaries.
The incentive distribution amount for a quarter will be equal to (a) 20% of the growth in the market value of our units
quarter-over-quarter (but only after the market value exceeds the "Incentive Distribution Threshold" being initially $25.00 and
adjusted at the beginning of each quarter to be equal to the greater of (i) our unit's market value for the previous quarter and (ii) the
Incentive Distribution Threshold at the end of the previous quarter) multiplied by (b) the number of units outstanding at the end of
the last business day of the applicable quarter (assuming full conversion of the redemption-exchange units into units). For the purposes
of calculating incentive distributions, the market value of our units will be equal to the quarterly volume-weighted average price of
our units on the principal stock exchange for our units (based on trading volumes). The incentive distribution amount, if any, will
be calculated at the end of each calendar quarter. The Incentive Distribution Threshold is $41.96 at the end of December 2018. The
Incentive Distribution Threshold will be adjusted in accordance with the Holding LP Limited Partnership Agreement in the event of
transactions with a dilutive effect on the value of the units including any quarterly cash distributions above the initial amount of
$0.0625/unit.
If, prior to the dissolution of the Holding LP, available cash in any quarter is not sufficient to pay the regular quarterly
distribution (currently $0.0625/unit), to the owners of all the Holding LP interests, pro rata to their percentage interest, then our
company may elect to pay the distribution first to our company, in respect of the Managing General Partner Units of the Holding LP
held by our company, and then to the holders of the redemption-exchange units to the extent practicable, and shall accrue any such
deficiency for payment from available cash in future quarters as described above.
If, prior to the dissolution of the Holding LP, available cash is deemed by our company, in its sole discretion, to be
(i) attributable to sales or other dispositions of the Holding LP's assets, and (ii) representative of unrecovered capital, then such
available cash shall be distributed to the partners of the Holding LP in proportion to the unrecovered capital attributable to the
Holding LP interests held by the partners until such time as the unrecovered capital attributable to each such partnership interest is
equal to zero. Thereafter, distributions of available cash made by the Holding LP (to the extent made prior to dissolution) will be
made in accordance with the Regular Distribution Waterfall.
Upon the occurrence of an event resulting in the dissolution of the Holding LP, all cash and property of the Holding LP in
excess of that required to discharge the Holding LP's liabilities will be distributed as follows: (i) to the extent such cash and/or
property is attributable to a realization event occurring prior to the event of dissolution, such cash and/or property will be distributed
in accordance with the Regular Distribution Waterfall and/or the distribution waterfall applicable to unrecovered capital, (ii) the
aggregate amount of distributions previously deferred in respect of the redemption-exchange units and not previously recovered and
(iii) all other cash and/or property will be distributed in the manner set forth below:
•
•
•
•
•
•
first, 100% to our company until our company has received an amount equal to the excess of: (i) the amount of our outlays
and expenses incurred during the term of the Holding LP; over (ii) the aggregate amount of distributions received by our
company pursuant to the first tier of the Regular Distribution Waterfall during the term of the Holding LP;
second, 100% to the partners of the Holding LP, in proportion to their respective amounts of unrecovered capital in the
Holding LP;
third, to the extent that incentive distributions have been deferred in previous quarters, 100% to the holder of the Special
LP Units of all amounts that have been accrued in previous quarters and not yet recovered;
fourth, to all owners of the Holding LP's partnership interests, pro rata to their percentage interests up to the amount per
unit of the then regular quarterly distribution (currently $0.0625 per unit) for such quarter;
fifth, 100% to the holder of the Special LP Units until an amount equal to the incentive distribution amount (see above
for an explanation of the calculation of the incentive distribution amount) for the preceding quarter has been distributed; and
thereafter, any available cash then remaining to the owners of the Holding LP's partnership interests, pro rata to their
percentage interests.
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Each partner's percentage interest is determined by the relative portion of all outstanding partnership interests held by that
partner from time to time and is adjusted upon and reflects the issuance of additional partnership interests of the Holding LP. In
addition, the unreturned capital attributable to each of our partnership interests, as well as certain of the distribution thresholds set
forth above, may be adjusted pursuant to the terms of the Holding LP Limited Partnership Agreement so as to ensure the uniformity
of the economic rights and entitlements of: (i) the previously outstanding Holding LP's partnership interests; and (ii) the subsequently-
issued Holding LP's partnership interests.
The Holding LP Limited Partnership Agreement provides that, to the extent that any Holding Entity or any operating business
pays to Brookfield any comparable performance or incentive distribution, the amount of any incentive distributions paid to the holder
of the Special LP Units in accordance with the distribution entitlements described above will be reduced in an equitable manner to
avoid duplication of distributions.
The holder of the Special LP Units may elect, at its sole discretion, to reinvest incentive distributions in redemption-exchange
units or our units.
No Management or Control; No Voting
The Holding LP limited partners, in their capacities as such, may not take part in the management or control of the activities
and affairs of the Holding LP and do not have any right or authority to act for or to bind the Holding LP or to take part or interfere
in the conduct or management of the Holding LP. Limited partners are not entitled to vote on matters relating to the Holding LP,
although holders of units are entitled to consent to certain matters as described below under "—Amendment of the Holding LP
Limited Partnership Agreement", "Amendment of the Holding LP Limited Partnership Agreement—Opinion of Counsel and Limited
Partner Approval" and "—Withdrawal of the Managing General Partner" which may be effected only with the consent of the holders
of the percentages of outstanding units of the Holding LP specified below. For purposes of any approval required from holders of
the Holding LP's units, if holders of redemption-exchange units are entitled to vote, they will be entitled to one vote per unit held
subject to a maximum number of votes equal to 49% of the total voting power of all units of the Holding LP then issued and
outstanding. Each unit entitles the holder thereof to one vote for the purposes of any approvals of holders of units.
Meetings
Our company may call special meetings of the limited partners of the Holding LP at a time and place outside of Canada
determined by us on a date not less than 10 days nor more than 60 days after the mailing of notice of the meeting. Special meetings
of the limited partners may also be called by limited partners owning 50% or more of the outstanding partnership interests of the
class or classes for which a meeting is proposed. For this purpose, our outstanding partnership interests do not include partnership
interests owned by our company or Brookfield. Only holders of record on the date set by our company (which may not be less than
10 days nor more than 60 days before the meeting) are entitled to receive notice of any meeting.
Amendment of the Holding LP Limited Partnership Agreement
Amendments to the Holding LP Limited Partnership Agreement may be proposed only by or with the consent of our company.
To adopt a proposed amendment, other than the amendments that do not require limited partner approval discussed below, our
company must seek approval of a majority of the Holding LP's outstanding units required to approve the amendment, either by way
of a meeting of the limited partners to consider and vote upon the proposed amendment or by written approval. For this purpose, the
redemption-exchange units will not constitute a separate class and will vote together with the other outstanding limited partnership
units of the Holding LP.
For purposes of any approval required from holders of the Holding LP's units, if holders of redemption-exchange units are
entitled to vote, they will be entitled to one vote per unit held subject to a maximum number of votes equal to 49% of the total voting
power of all units of the Holding LP then issued and outstanding.
Prohibited Amendments
No amendment may be made that would:
1. enlarge the obligations of any limited partner of the Holding LP without its consent, except that any amendment that
would have a material adverse effect on the rights or preferences of any class of partnership interests in relation to other
classes of partnership interests may be approved by at least a majority of the type or class of partnership interests so
affected; or
2. enlarge the obligations of, restrict in any way any action by or rights of, or reduce in any way the amounts distributable,
reimbursable or otherwise payable by the Holding LP to the BBU General Partner or any of its affiliates without the
consent of the BBU General Partner which may be given or withheld in its sole discretion.
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The provision of the Holding LP Limited Partnership Agreement preventing the amendments having the effects described
in clauses (1) or (2) above can be amended upon the approval of the holders of at least 90% of the outstanding limited partnership
units of the Holding LP.
No Limited Partner Approval
Subject to applicable law, our company may generally make amendments to the Holding LP Limited Partnership Agreement
without the approval of any limited partner to reflect:
1. a change in the name of the Holding LP, the location of the Holding LP's registered office or the Holding LP's registered
agent;
2.
the admission, substitution, withdrawal or removal of partners in accordance with the Holding LP Limited Partnership
Agreement;
3. a change that our company determines is reasonable and necessary or appropriate for the Holding LP to qualify or to
continue its qualification as an exempted limited partnership under the laws of Bermuda or a partnership in which the
limited partners have limited liability under the laws of any jurisdiction, or is necessary or advisable in the opinion of
our company to ensure that the Holding LP will not be treated as an association taxable as a corporation or otherwise
taxed as an entity for tax purposes;
4. an amendment that our company determines to be necessary or appropriate to address certain changes in tax regulations,
legislation or interpretation;
5. an amendment that is necessary, in the opinion of counsel, to prevent the Holding LP or our company or its directors or
officers, from in any manner being subjected to the provisions of the Investment Company Act or similar legislation in
other jurisdictions;
6. an amendment that our company determines in its sole discretion to be necessary or appropriate for the creation,
authorization or issuance of any class or series of partnership interests or options, rights, warrants or appreciation rights
relating to partnership interests;
7. any amendment expressly permitted in the Holding LP Limited Partnership Agreement to be made by our company
acting alone;
8. any amendment that our company determines in its sole discretion to be necessary or appropriate to reflect and account
for the formation or ownership by the Holding LP of, or its investment in, any corporation, partnership, joint venture,
limited liability company or other entity, as otherwise permitted by the Holding LP Limited Partnership Agreement;
9. a change in the Holding LP's fiscal year and related changes;
10. any amendment concerning the computation or allocation of specific items of income, gain, expense or loss among the
partners that, in the sole discretion of our company, is necessary or appropriate to: (i) comply with the requirements of
applicable law; (ii) reflect the partners' interests in the Holding LP; or (iii) consistently reflect the distributions made by
the Holding LP to the partners pursuant to the terms of the Holding LP Limited Partnership Agreement;
11. any amendment that our company determines in its sole discretion to be necessary or appropriate to address any statute,
rule, regulation, notice, or announcement that affects or could affect the U.S. federal income tax treatment of any allocation
or distribution related to any interest of our company in the profits of the Holding LP; or
12. any other amendments substantially similar to any of the matters described in (1) through (11) above.
In addition, our company may make amendments to the Holding LP Limited Partnership Agreement without the approval
of any limited partner if those amendments, in the discretion of our company:
1. do not adversely affect the Holding LP limited partners considered as a whole (including any particular class of partnership
interests as compared to other classes of partnership interests) in any material respect;
2. are necessary or appropriate to satisfy any requirements, conditions or guidelines contained in any opinion or binding
directive, order, ruling or regulation of any governmental agency or judicial authority;
3. are necessary or appropriate for any action taken by our company relating to splits or combinations or units or partnership
interests under the provisions of the Holding LP Limited Partnership Agreement; or
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4. are required to effect the intent expressed in the final registration and prospectus filed in connection with the spin-off or
the intent of the provisions of the Holding LP Limited Partnership Agreement or are otherwise contemplated by the
Holding LP Limited Partnership Agreement.
Opinion of Counsel and Limited Partner Approval
Our company will not be required to obtain an opinion of counsel that an amendment will not result in a loss of limited
liability to the limited partners if one of the amendments described above under "—No Limited Partner Approval" should occur. Any
other amendment to the Holding LP Limited Partnership Agreement will only become effective either with the approval of at least
90% of the Holding LP's units, or if an opinion of counsel is obtained to effect that the amendment will not (i) cause the Holding LP
to be treated as an association taxable as a corporation or otherwise taxable as an entity for tax purposes (provided that for U.S. tax
purposes our company has not made the election described below under "—Election to be Treated as a Corporation"), or (ii) affect
the limited liability under the Bermuda Limited Partnership Act of any of the Holding LP limited partners.
In addition to the above restrictions, any amendment that would have a material adverse effect on the rights or preferences
of any type or class of partnership interests in relation to other classes of partnership interests will also require the approval of the
holders of at least a majority of the outstanding partnership interests of the class so affected.
In addition, any amendment that reduces the voting percentage required to take any action must be approved by the written
consent or affirmative vote of limited partners whose aggregate outstanding voting units constitute not less than the voting requirement
sought to be reduced.
Sale or Other Disposition of Assets
The Holding LP Limited Partnership Agreement generally prohibits our company, without the prior approval of the holders
of a majority of the units of the Holding LP, from causing the Holding LP to, among other things, sell, exchange or otherwise dispose
of all or substantially all of the Holding LP's assets in a single transaction or a series of related transactions, including by approving
on the Holding LP's behalf the sale, exchange or other disposition of all or substantially all of the assets of the Holding LP's subsidiaries.
However, our company, in its sole discretion, may mortgage, pledge, hypothecate or grant a security interest in all or substantially
all of the Holding LP's assets (including for the benefit of persons who are not the Holding LP or the Holding LP's subsidiaries)
without that approval. Our company may also sell all or substantially all of the Holding LP's assets under any forced sale of any or
all of the Holding LP's assets pursuant to the foreclosure or other realization upon those encumbrances without that approval.
Election to be Treated as a Corporation
If we determine that it is no longer in the Holding LP's best interests to continue as a partnership for U.S. federal income
tax purposes, we may elect to treat the Holding LP as an association or as a publicly traded partnership taxable as a corporation for
U.S. federal (and applicable state) income tax purposes.
Dissolution
The Holding LP will dissolve and its affairs will be wound up upon the earlier of: (i) the service of notice by our company,
with the approval of a majority of the members of the independent directors of the BBU General Partner, that in our opinion the
coming into force of any law, regulation or binding authority renders illegal or impracticable the continuation of the Holding LP;
(ii) the election of our company if the Holding LP, as determined by our company, is required to register as an "investment company"
under the Investment Company Act or similar legislation in other jurisdictions; (iii) the date that our company withdraws from the
Holding LP (unless a successor entity becomes the managing general partner of the Holding LP as described below under "—
Withdrawal of the Managing General Partner"); (iv) the date on which any court of competent jurisdiction enters a decree of judicial
dissolution of the Holding LP or an order to wind-up or liquidate our company without the appointment of a successor in compliance
with the provisions of the Holding LP Limited Partnership Agreement that are described below under "—Withdrawal of the Managing
General Partner"; or (v) the date on which our company decides to dispose of, or otherwise realize proceeds in respect of, all or
substantially all of the Holding LP's assets in a single transaction or series of transactions.
The Holding LP will be reconstituted and continue without dissolution if within 30 days of the date of dissolution
(and provided that a notice of dissolution with respect to the Holding LP has not been provided to the Bermuda Monetary Authority),
a successor managing general partner executes a transfer deed pursuant to which the new managing general partner assumes the
rights and undertakes the obligations of the original managing general partner, but only if the Holding LP receives an opinion of
counsel that the admission of the new managing general partner will not result in the loss of limited liability of any limited partner
of the Holding LP.
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Withdrawal of the Managing General Partner
Our company may withdraw as managing general partner of the Holding LP without first obtaining approval of unitholders
of the Holding LP by giving written notice, and that withdrawal will not constitute a violation of the Holding LP Limited Partnership
Agreement.
Upon the withdrawal of our company, the holders of at least a majority of outstanding Special LP Units may select a successor
to that withdrawing managing general partner. If a successor is not selected, or is selected but an opinion of counsel regarding limited
liability, tax matters and the Investment Company Act (and similar legislation in other jurisdictions) cannot be obtained, the
Holding LP will be dissolved, wound up and liquidated.
Our company may not be removed as managing general partner by the partners of the Holding LP.
In the event of the withdrawal of a managing general partner as a result of certain events relating to the bankruptcy, insolvency
or dissolution of that managing general partner, which withdrawal will violate the Holding LP Limited Partnership Agreement, a
successor managing general partner will have the option to purchase the Managing General Partner Units of the departing managing
general partner for a cash payment equal to its fair market value. Under all other circumstances where a managing general partner
withdraws, the departing managing general partner will have the option to require the successor managing general partner to purchase
the Managing General Partner Units of the departing managing general partner for a cash payment equal to its fair market value. In
each case, this fair market value will be determined by agreement between the departing managing general partner and the successor
managing general partner. If no agreement is reached within 30 days of the managing general partner's departure, an independent
investment banking firm or other independent expert selected by the departing managing general partner and the successor managing
general partner will determine the fair market value. If the departing managing general partner and the successor managing general
partner cannot agree upon an expert within 45 days of the managing general partner's departure, then an expert chosen by agreement
of the experts selected by each of them will determine the fair market value.
If the option described above is not exercised by either the departing managing general partner or the successor managing
general partner, the departing managing general partner's Managing General Partner Units will automatically convert into units
pursuant to a valuation of those interests as determined by an investment banking firm or other independent expert selected in the
manner described in the preceding paragraph.
Transfer of the Managing General Partner Units
Our company may transfer all or any part of its Managing General Partner Units without first obtaining approval of any
unitholder of the Holding LP. As a condition of this transfer, the transferee must: (i) agree to assume and be bound by the rights and
duties of the managing general partner to whose interest that transferee has succeeded; (ii) agree to assume and be bound by the
provisions of the Holding LP Limited Partnership Agreement; and (iii) furnish an opinion of counsel regarding limited liability, tax
matters and the Investment Company Act (and similar legislation in other jurisdictions). Any transfer of the Managing General Partner
Units is subject to prior notice to and approval of the relevant Bermuda regulatory authorities. At any time, the BBU General Partner
may transfer all or any part of its general partnership interests in our company without the approval of our unitholders as described
under Item 10.B., "Memorandum and Articles of Association—Description of our Units and our Limited Partnership Agreement—
Transfer of the General Partnership Interest".
Transactions with Interested Parties
Our company, its affiliates and their respective partners, members, directors, officers, employees and shareholders, which
we refer to as "interested parties", may become limited partners or beneficially interested in limited partners and may hold, dispose
of or otherwise deal with units of the Holding LP with the same rights they would have if our company and the BBU General Partner
were not a party to the Holding LP Limited Partnership Agreement. An interested party will not be liable to account either to other
interested parties or to the Holding LP, its partners or any other persons for any profits or benefits made or derived by or in connection
with any such transaction.
The Holding LP Limited Partnership Agreement permits an interested party to sell investments to, purchase assets from,
vest assets in and enter into any contract, arrangement or transaction with our company, the Holding LP, any of the Holding Entities,
any operating business or, in general, any entity established by the Holding LP and may be interested in any such contract, transaction
or arrangement and shall not be liable to account either to the Holding LP, any of the Holding Entities, any operating business or, in
general, any entity established by the Holding LP or any other person in respect of any such contract, transaction or arrangement, or
any benefits or profits made or derived therefrom, by virtue only of the relationship between the parties concerned, subject to the
bye-laws of the BBU General Partner.
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Outside Activities of the Managing General Partner
In accordance with our Limited Partnership Agreement, our company is authorized to: (i) acquire and hold interests in the
Holding LP and, subject to the approval of the BBU General Partner, interests in any other entity; (ii) engage in any activity related
to the capitalization and financing of our company's interests in the Holding LP and such other entities; (iii) serve as the managing
general partner of the Holding LP and execute and deliver, and perform the functions of a managing general partner specified in, the
Holding LP Limited Partnership Agreement; and (iv) engage in any activity that is incidental to or in furtherance of the foregoing
and that is approved by the BBU General Partner and that lawfully may be conducted by a limited partnership organized under the
Bermuda Limited Partnership Act, the Bermuda Exempted Partnerships Act 1992 and our Limited Partnership Agreement.
The Holding LP Limited Partnership Agreement provides that each person who is entitled to be indemnified by the
Holding LP, as described below under "—Indemnification; Limitations on Liability", will have the right to engage in businesses of
every type and description and other activities for profit, and to engage in and possess interests in business ventures of any and every
type or description, irrespective of whether: (i) such businesses and activities are similar to our activities; or (ii) such businesses and
activities directly compete with, or disfavor or exclude, the BBU General Partner, our company, the Holding LP, any Holding Entity,
any operating business, or, in general, any entity established by the Holding LP. Such business interests, activities and engagements
will be deemed not to constitute a breach of the Holding LP Limited Partnership Agreement or any duties stated or implied by law
or equity, including fiduciary duties, owed to any of the BBU General Partner, our company, the Holding LP, any Holding Entity,
any operating business and, in general, any entity established by the Holding LP (or any of their respective investors) and shall be
deemed not to be a breach of our company's fiduciary duties or any other obligation of any type whatsoever of our company. None
of the BBU General Partner, our company, the Holding LP, any Holding Entity, operating business, or, in general, any entity established
by the Holding LP or any other person shall have any rights by virtue of the Holding LP Limited Partnership Agreement or our
company relationship established thereby or otherwise in any business ventures of any person who is entitled to be indemnified by
the Holding LP as described below under "—Indemnification; Limitations on Liability".
Our company and the other indemnified persons described in the preceding paragraph do not have any obligation under the
Holding LP Limited Partnership Agreement or as a result of any duties stated or implied by law or equity, including fiduciary duties,
to present business or investment opportunities to the Holding LP, the limited partners of the Holding LP, any Holding Entity, any
operating business or, in general, any entity established by the Holding LP. These provisions do not affect any obligation of such
indemnified person to present business or acquisition opportunities to our company, the Holding LP, any Holding Entity, any operating
business or, in general, any entity established by the Holding LP pursuant to the Relationship Agreement or any separate written
agreement between such persons.
Accounts, Reports and Other Information
Under the Holding LP Limited Partnership Agreement, our company is required to prepare financial statements in accordance
with IFRS or such other appropriate accounting principles as determined from time to time by our company, in its sole discretion.
Our company is also required to use commercially reasonable efforts to prepare and send to the limited partners of the
Holding LP on an annual basis a Schedule K-1 (or equivalent). Our company will also, where reasonably possible and applicable,
prepare and send information required by the non-U.S. limited partners of the Holding LP for U.S. federal income tax reporting
purposes.
Indemnification; Limitations on Liability
Under the Holding LP Limited Partnership Agreement, it is required to indemnify to the fullest extent permitted by law the
BBU General Partner, our company and any of their respective affiliates (and their respective officers, directors, agents, shareholders,
partners, members and employees), any person who serves on the board of directors or other governing body of the Holding LP, a
Holding Entity, an operating business or, in general, any entity established by our company and any other person designated by its
general partner as an indemnified person, in each case, against any and all losses, claims, damages, liabilities, costs and expenses
(including legal fees and expenses), judgments, fines, penalties, interest, settlements and other amounts arising from any and all
claims, demands, actions, suits or proceedings whether civil, criminal, administrative or investigative, incurred by an indemnified
person in connection with our company's investments and activities or by reason of their holding such positions, except to the extent
that the claims, liabilities, losses, damages, costs or expenses are determined to have resulted from the indemnified person's bad
faith, fraud or willful misconduct, or in the case of a criminal matter, action that the indemnified person knew to have been unlawful.
In addition, under the Holding LP Limited Partnership Agreement: (i) the liability of such persons has been limited to the fullest
extent permitted by law, except to the extent that their conduct involves bad faith, fraud or willful misconduct, or in the case of a
criminal matter, action that the indemnified person knew to have been unlawful; and (ii) any matter that is approved by the independent
directors will not constitute a breach of any duties stated or implied by law or equity, including fiduciary duties. The Holding LP
Limited Partnership Agreement requires Holding LP to advance funds to pay the expenses of an indemnified person in connection
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with a matter in which indemnification may be sought until it is determined that the indemnified person is not entitled to
indemnification.
Governing Law
The Holding LP Limited Partnership Agreement is governed by and will be construed in accordance with the laws
of Bermuda.
10.C. MATERIAL CONTRACTS
The following are the only material contracts, other than the contracts entered into in the ordinary course of business, which
have been entered into by us since our formation or which are proposed to be entered into by us:
1. Master Services Agreement, dated June 1, 2016, by and among Brookfield Asset Management, the Service Recipients
and the Service Providers described under the heading Item 7.B., "Related Party Transactions—Our Master Services
Agreement";
2. Relationship Agreement, dated June 1, 2016, by and among Brookfield Asset Management, our company, the Holding LP,
the Holding Entities and the Service Providers described under the heading Item 7.B., "Related Party Transactions—
Relationship Agreement";
3. Registration Rights Agreement, dated June 1, 2016, between our company and Brookfield Asset Management described
under the heading Item 7.B., "Related Party Transactions—Registration Rights Agreement";
4. Credit Agreement, dated October 19, 2017, between BGIS US Inc. as lender, our company as guarantor and Holding LP,
CanHoldco, Bermuda Holdco and US Holdco as borrowers described under the heading Item 7.B., "Related Party
Transactions-Credit Facilities";
5. Amended and Restated Limited Partnership Agreement of our company, dated May 31, 2016, described under the heading
Item 10.B., "Memorandum and Articles of Association—Description of our Units and our Limited Partnership
Agreement";
6. Amended and Restated Limited Partnership Agreement of Holding LP, dated May 31, 2016, described under the heading
Item 10.B., "Description of the Holding LP Limited Partnership Agreement";
7. Voting Agreement, dated June 1, 2016, by and among Brookfield Asset Management, Brookfield CanGP Limited,
Brookfield Canadian GP LP and CanHoldco described under the heading Item 7.B., "Related Party Transactions—Voting
Agreements"; and
8. Trade-Mark Sublicense Agreement, dated May 24, 2016, by and among Brookfield Asset Management Holdings Ltd.,
our company, and the Holding LP.
Copies of the agreements noted above are available, free of charge, from the BBU General Partner and are available
electronically on the website of the SEC at www.sec.gov and on our SEDAR profile at www.sedar.com. Written requests for such
documents should be directed to our Corporate Secretary at 73 Front Street, 5th Floor, Hamilton HM 12, Bermuda.
10.D. EXCHANGE CONTROLS
There are currently no governmental laws, decrees, regulations or other legislation of Bermuda which restrict the import
or export of capital or the remittance of dividends, interest or other payments to non-residents of Bermuda holding our units.
10.E. TAXATION
The following summary discusses certain material U.S., Canadian, and Bermudian tax considerations related to the holding
and disposition of our units as of the date hereof. Prospective purchasers of our units are advised to consult their own tax advisers
concerning the consequences under the tax laws of the country of which they are resident or in which they are otherwise subject to
tax of making an investment in our units.
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Certain Material U.S. Federal Income Tax Considerations
The following is a summary of certain material U.S. federal income tax considerations to unitholders relating to the receipt,
holding and disposition of our units as of the date hereof. This summary is based on provisions of the U.S. Internal Revenue Code,
on the regulations promulgated thereunder, or Treasury Regulations, and on published administrative rulings, judicial decisions and
other applicable authorities, all as in effect on the date hereof and all of which are subject to change at any time, possibly with
retroactive effect. This summary is necessarily general and may not apply to all categories of investors, some of whom may be subject
to special rules, including, without limitation, persons that own (directly or indirectly, applying certain attribution rules) 5% or more
of our units, dealers in securities or currencies, financial institutions or financial services entities, mutual funds, life insurance
companies, persons that hold our units as part of a straddle, hedge, constructive sale or conversion transaction with other investments,
persons whose units are loaned to a short seller to cover a short sale of units, persons whose functional currency is not the U.S. dollar,
persons who have elected mark-to-market accounting, persons who hold our units through a partnership or other entity treated as a
pass-through entity for U.S. federal income tax purposes, persons for whom our units are not a capital asset, persons who are liable
for the alternative minimum tax and certain U.S. expatriates or former long-term residents of the United States. Tax-exempt
organizations are addressed separately below. The actual tax consequences of the ownership and disposition of our units will vary
depending on your individual circumstances.
For purposes of this discussion, a "U.S. Holder" is a beneficial owner of one or more of our units that is for U.S. federal
tax purposes: (i) an individual citizen or resident of the United States; (ii) a corporation (or other entity treated as a corporation for
U.S. federal income tax purposes) created or organized in or under the laws of the United States, any state thereof or the District of
Columbia; (iii) an estate the income of which is subject to U.S. federal income taxation regardless of its source; or (iv) a trust (a) that
is subject to the primary supervision of a court within the United States and all substantial decisions of which one or more U.S. persons
have the authority to control or (b) that has a valid election in effect under applicable Treasury Regulations to be treated as a
U.S. person.
A "Non-U.S. Holder" is a beneficial owner of one or more of our units, other than a U.S. Holder or an entity classified as
a partnership or other fiscally transparent entity for U.S. federal tax purposes.
If a partnership holds our units, the tax treatment of a partner of such partnership generally will depend upon the status of
the partner and the activities of the partnership. Partners of partnerships that hold our units should consult their own tax advisers.
This discussion does not constitute tax advice and is not intended to be a substitute for tax planning. You should
consult your own tax adviser concerning the U.S. federal, state and local income tax consequences particular to your ownership
and disposition of our units, as well as any tax consequences under the laws of any other taxing jurisdiction.
Partnership Status of Our Company and the Holding LP
Each of our company and the Holding LP has made a protective election to be classified as a partnership for U.S. federal
tax purposes. An entity that is treated as a partnership for U.S. federal tax purposes generally incurs no U.S. federal income tax
liability. Instead, each partner is generally required to take into account its allocable share of items of income, gain, loss, deduction
or credit of the partnership in computing its U.S. federal income tax liability, regardless of whether cash distributions are made.
Distributions of cash by a partnership to a partner generally are not taxable unless the amount of cash distributed to a partner is in
excess of the partner's adjusted basis in its partnership interest.
Legislation that became effective for taxable years beginning after December 31, 2017, may impose liability for adjustments
to a partnership’s tax returns on the partnership itself in certain circumstances, absent an election to the contrary. The effects of the
application of this legislation on us are uncertain, and you should consult your own tax advisers regarding all aspects of this legislation
as it affects your particular circumstances. See below under “ -Administrative Matters-Information Returns and Audit Procedures”.
An entity that would otherwise be classified as a partnership for U.S. federal income tax purposes may nonetheless be
taxable as a corporation if it is a "publicly traded partnership", unless an exception applies. Our company is publicly traded. However,
an exception, referred to as the "Qualifying Income Exception", exists with respect to a publicly traded partnership if (i) at least 90%
of such partnership's gross income for every taxable year consists of "qualifying income" and (ii) the partnership would not be
required to register under the Investment Company Act if it were a U.S. corporation. Qualifying income includes certain interest
income, dividends, real property rents, gains from the sale or other disposition of real property and any gain from the sale or disposition
of a capital asset or other property held for the production of income that otherwise constitutes qualifying income.
The BBU General Partner intends to manage the affairs of our company and the Holding LP so that our company will meet
the Qualifying Income Exception in each taxable year. Accordingly, the BBU General Partner believes that our company will be
treated as a partnership and not as an association taxable as a corporation for U.S. federal income tax purposes.
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If our company fails to meet the Qualifying Income Exception, other than a failure which is determined by the IRS to be
inadvertent and which is cured within a reasonable time after discovery, or if our company is required to register under the Investment
Company Act, our company will be treated as if it had transferred all of its assets, subject to liabilities, to a newly formed corporation,
on the first day of the year in which our company fails to meet the Qualifying Income Exception, in return for stock in such corporation,
and then distributed the stock to our unitholders in liquidation. This deemed contribution and liquidation could result in the recognition
of gain (but not loss) to U.S. Holders, except that U.S. Holders generally would not recognize the portion of such gain attributable
to stock or securities of non-U.S. corporations held by us. If, at the time of such contribution, our company were to have liabilities
in excess of the tax basis of its assets, U.S. Holders generally would recognize gain in respect of such excess liabilities upon the
deemed transfer. Thereafter, our company would be treated as a corporation for U.S. federal income tax purposes.
If our company were treated as a corporation in any taxable year, either as a result of a failure to meet the Qualifying Income
Exception or otherwise, our company's items of income, gain, loss, deduction or credit would be reflected only on our company's
tax return rather than being passed through to our unitholders, and our company would be subject to U.S. corporate income tax and
potentially branch profits tax with respect to its income, if any, effectively connected with a U.S. trade or business. Moreover, under
certain circumstances, our company might be classified as a PFIC for U.S. federal income tax purposes, and a U.S. Holder would
be subject to the rules applicable to PFICs discussed below. See "—Consequences to U.S. Holders—Passive Foreign Investment
Companies". Subject to the PFIC rules, distributions made to U.S. Holders would be treated as taxable dividend income to the extent
of our company's current or accumulated earnings and profits. Any distribution in excess of current and accumulated earnings and
profits would first be treated as a tax-free return of capital to the extent of a U.S. Holder's adjusted tax basis in its units. Thereafter,
to the extent such distribution were to exceed a U.S. Holder's adjusted tax basis in its units, the distribution would be treated as a
gain from the sale or exchange of such units. The amount of a distribution treated as a dividend could be eligible for reduced rates
of taxation, provided certain conditions are met. In addition, dividends, interest and certain other passive income received by our
company with respect to U.S. subsidiaries generally would be subject to U.S. withholding tax at a rate of 30% (although certain Non-
U.S. Holders nevertheless might be entitled to certain treaty benefits in respect of their allocable share of such income) and
U.S. Holders would not be allowed a tax credit with respect to any such tax withheld. In addition, the "portfolio interest" exemption
would not apply to certain interest income of our company (although certain Non-U.S. Holders nevertheless might be entitled to
certain treaty benefits in respect of their allocable share of such income). Depending on the circumstances, additional adverse
U.S. federal income tax consequences could result under the anti-inversion rules described in Section 7874 of the U.S. Internal
Revenue Code, the Treasury Regulations under Section 385 of the U.S. Internal Revenue Code, or other provisions of the U.S.
Internal Revenue Code, as implemented by the Treasury Regulations and IRS administrative guidance.
Based on the foregoing consequences, the treatment of our company as a corporation could materially reduce a holder's
after-tax return and therefore could result in a substantial reduction of the value of our units. If the Holding LP were to be treated as
a corporation for U.S. federal income tax purposes, consequences similar to those described above would apply.
The remainder of this summary assumes that our company and the Holding LP will be treated as partnerships for U.S. federal
tax purposes. Our company expects that a substantial portion of the items of income, gain, deduction, loss or credit realized by our
company will be realized in the first instance by the Holding LP and allocated to our company for reallocation to our unitholders.
Unless otherwise specified, references in this section to realization of our company's items of income, gain, loss, deduction or credit
include a realization of such items by the Holding LP and the allocation of such items to our company.
Consequences to U.S. Holders
Holding of Our Units
Income and Loss
If you are a U.S. Holder, you will be required to take into account, as described below, your allocable share of our company's
items of income, gain, loss, deduction and credit for each of our company's taxable years ending with or within your taxable year.
Each item generally will have the same character and source as though you had realized the item directly. You must report such items
without regard to whether any distribution has been or will be received from our company. Our company intends to make cash
distributions to all unitholders on a quarterly basis in amounts generally expected to be sufficient to permit U.S. Holders to fund
their estimated U.S. tax obligations (including U.S. federal, state and local income taxes) with respect to their allocable shares of
our company's net income or gain. However, based upon your particular tax situation and simplifying assumptions that our company
will make in determining the amount of such distributions, and depending upon whether you elect to reinvest such distributions
pursuant to the distribution reinvestment plan, if available, your tax liability might exceed cash distributions made to you, in which
case any tax liabilities arising from your ownership of our units would need to be satisfied from your own funds.
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With respect to U.S. Holders who are individuals, certain dividends paid by a corporation (including certain qualified foreign
corporations) to our company and that are allocable to such U.S. Holders may qualify for reduced rates of taxation. A qualified
foreign corporation includes a foreign corporation that is eligible for the benefits of specified income tax treaties with the United States.
In addition, a foreign corporation is treated as a qualified corporation with respect to its shares that are readily tradable on an established
securities market in the United States. Among other exceptions, U.S. Holders who are individuals will not be eligible for reduced
rates of taxation on any dividends if the payer is a PFIC for the taxable year in which such dividends are paid or for the preceding
taxable year. Dividends received by non-corporate U.S. Holders may be subject to an additional Medicare tax on unearned income
of 3.8% (see "—Medicare Tax" below). U.S. Holders that are corporations may be entitled to a "dividends received deduction" in
respect of dividends paid by U.S. corporations in which our company (through the Holding LP) owns stock. You should consult your
own tax adviser regarding the application of the foregoing rules in light of your particular circumstances.
For U.S. federal income tax purposes, your allocable share of our company's items of income, gain, loss, deduction or credit
will be governed by our Limited Partnership Agreement if such allocations have "substantial economic effect" or are determined to
be in accordance with your interest in our company. Similarly, our company's allocable share of items of income, gain, loss, deduction
or credit of the Holding LP will be governed by the Holding LP Limited Partnership Agreement if such allocations have "substantial
economic effect" or are determined to be in accordance with our company's interest in the Holding LP. The BBU General Partner
believes that, for U.S. federal income tax purposes, such allocations should be given effect, and the BBU General Partner intends to
prepare and file tax returns based on such allocations. If the IRS were to successfully challenge the allocations made pursuant to
either our Limited Partnership Agreement or the Holding LP Limited Partnership Agreement, then the resulting allocations for
U.S. federal income tax purposes might be less favorable than the allocations set forth in such agreements.
Basis
In general, you will have an initial tax basis in your units equal to the sum of (i) the amount of cash paid for our units and
(ii) your share of our company's liabilities, if any. That basis will be increased by your share of our company's income and by increases
in your share of our company's liabilities, if any. That basis will be decreased, but not below zero, by distributions you receive from
our company, by your share of our company's losses and by any decrease in your share of our company's liabilities. Under applicable
U.S. federal income tax rules, a partner in a partnership has a single, or "unitary", tax basis in his or her partnership interest. As a
result, any amount you pay to acquire additional units (including through the distribution reinvestment plan, if available) will be
averaged with the adjusted tax basis of units owned by you prior to the acquisition of such additional units.
For purposes of the foregoing rules, the rules discussed immediately below, and the rules applicable to a sale or exchange
of our units, our company's liabilities generally will include our company's share of any liabilities of the Holding LP.
Limits on Deductions for Losses and Expenses
Your deduction of your allocable share of our company's losses will be limited to your tax basis in our units and, if you are
an individual or a corporate holder that is subject to the "at risk" rules, to the amount for which you are considered to be "at risk"
with respect to our company's activities, if that is less than your tax basis. In general, you will be at risk to the extent of your tax
basis in our units, reduced by (i) the portion of that basis attributable to your share of our company's liabilities for which you will
not be personally liable (excluding certain qualified non-recourse financing) and (ii) any amount of money you borrow to acquire
or hold our units, if the lender of those borrowed funds owns an interest in our company, is related to you, or can look only to your
units for repayment. Your at-risk amount generally will increase by your allocable share of our company's income and gain and
decrease by distributions you receive from our company and your allocable share of losses and deductions. You must recapture losses
deducted in previous years to the extent that distributions cause your at-risk amount to be less than zero at the end of any taxable
year. Losses disallowed or recaptured as a result of these limitations will carry forward and will be allowable to the extent that your
tax basis or at-risk amount, whichever is the limiting factor, subsequently increases. Upon the taxable disposition of our units, any
gain recognized by you can be offset by losses that were previously suspended by the at-risk limitation, but may not be offset by
losses suspended by the basis limitation. Any excess loss above the gain previously suspended by the at-risk or basis limitations may
no longer be used. Under the Tax Cuts and Jobs Act, non-corporate taxpayers are not permitted to deduct “excess business losses”
for taxable years beginning after December 31, 2017, and before January 1, 2026. You should consult your own tax adviser regarding
the limitations on the deductibility of losses under the U.S. Internal Revenue Code.
Limitations on Deductibility of Organizational Expenses and Syndication Fees
In general, neither our company nor any U.S. Holder may deduct organizational or syndication expenses. Similar rules
apply to organizational or syndication expenses incurred by the Holding LP. Syndication fees (which would include any sales or
placement fees or commissions) must be capitalized and cannot be amortized or otherwise deducted.
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Limitations on Interest Deductions
Your share of our company's interest expense, if any, is likely to be treated as "investment interest" expense. For a non-
corporate U.S. Holder, the deductibility of "investment interest" expense generally is limited to the amount of such holder's "net
investment income". Net investment income includes gross income from property held for investment and amounts treated as portfolio
income under the passive loss rules, less deductible expenses, other than interest, directly connected with the production of investment
income, but generally does not include gains attributable to the disposition of property held for investment. Your share of our company's
dividend and interest income will be treated as investment income, although "qualified dividend income" subject to reduced rates
of tax in the hands of an individual will only be treated as investment income if such individual elects to treat such dividend as
ordinary income not subject to reduced rates of tax. In addition, state and local tax laws may disallow deductions for your share of
our company's interest expense. Under Section 163(j) of the U.S. Internal Revenue Code, additional limitations may apply to a
corporate U.S. Holder's share of our company's interest expense, if any.
Deductibility of Partnership Investment Expenditures by Individual Partners and by Trusts and Estates
Under the Tax Cuts and Jobs Act, individuals and certain estates and trusts will not be permitted to claim miscellaneous
itemized deductions for taxable years beginning after December 31, 2017, and before January 1, 2026. Such miscellaneous itemized
deductions may include the operating expenses of our company, including our company's allocable share of the base management
fee or any other management fees.
Treatment of Distributions
Distributions of cash by our company generally will not be taxable to you to the extent of your adjusted tax basis (described
above) in our units. Any cash distributions in excess of your adjusted tax basis generally will be considered to be gain from the sale
or exchange of our units (described below). Such gain generally will be treated as capital gain and will be long-term capital gain if
your holding period for our units exceeds one year. A reduction in your allocable share of our liabilities, and certain distributions of
marketable securities by our company, if any, will be treated similar to cash distributions for U.S. federal income tax purposes.
Sale or Exchange of Our Units
You will recognize gain or loss on the sale or taxable exchange of our units equal to the difference, if any, between the
amount realized and your tax basis in our units sold or exchanged. Your amount realized will be measured by the sum of the cash or
the fair market value of other property received plus your share of our company's liabilities, if any.
Gain or loss recognized by you upon the sale or exchange of our units generally will be taxable as capital gain or loss and
will be long-term capital gain or loss if our units were held for more than one year as of the date of such sale or exchange. Assuming
you have not elected to treat your share of our company's interest in any PFIC as a "qualified electing fund", gain attributable to such
interest in a PFIC would be taxable in the manner described below in "—Passive Foreign Investment Companies". In addition, certain
gain attributable to "unrealized receivables" or "inventory items" could be characterized as ordinary income rather than capital gain.
For example, if our company were to hold debt acquired at a market discount, accrued market discount on such debt would be treated
as "unrealized receivables". The deductibility of capital losses is subject to limitations.
Each U.S. Holder who acquires our units at different times and intends to sell all or a portion of our units within a year of
the most recent purchase should consult its own tax adviser regarding the application of certain "split holding period" rules to such
sale and the treatment of any gain or loss as long-term or short-term capital gain or loss.
Medicare Tax
U.S. Holders that are individuals, estates or trusts may be required to pay a 3.8% Medicare tax on the lesser of (i) the excess
of such U.S. Holders' "modified adjusted gross income" (or "adjusted gross income" in the case of estates and trusts) over certain
thresholds and (ii) such U.S. Holders' "net investment income" (or "undistributed net investment income" in the case of estates and
trusts). Net investment income generally includes your allocable share of our company's income, as well as gain realized by you
from a sale of our units. You should consult your own tax adviser regarding the implications of the 3.8% Medicare tax for your
ownership and disposition of our units.
Foreign Tax Credit Limitations
If you are a U.S. Holder, you generally will be entitled to a foreign tax credit with respect to your allocable share of creditable
foreign taxes paid on our company's income and gain. Complex rules may, depending on your particular circumstances, limit the
availability or use of foreign tax credits. Gain from the sale of our company's assets may be treated as U.S.-source gain. Consequently,
you may not be able to use the foreign tax credit arising from any foreign taxes imposed on such gain unless the credit can be applied
(subject to applicable limitations) against U.S. tax due on other income treated as derived from foreign sources. Certain losses that
our company incurs may be treated as foreign-source losses, which could reduce the amount of foreign tax credits otherwise available.
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Deduction for Qualified Business Income
Under the Tax Cuts and Jobs Act, for taxable years beginning after December 31, 2017, and before January 1, 2026, U.S.
taxpayers who have domestic “qualified business income” from a partnership generally are entitled to deduct the lesser of such
qualified business income or 20% of taxable income. The 20% deduction is also allowed for “qualified publicly traded partnership
income”. A U.S. Holder’s allocable share of our company’s income is not expected to be treated as qualified business income or as
qualified publicly traded partnership income.
Section 754 Election
Our company and the Holding LP have each made the election permitted by Section 754 of the U.S. Internal Revenue Code,
or Section 754 Election. The Section 754 Election cannot be revoked without the consent of the IRS. The Section 754 Election
generally requires our company to adjust the tax basis in its assets, or inside basis, attributable to a transferee of our units under
Section 743(b) of the U.S. Internal Revenue Code to reflect the purchase price paid by the transferee for our units. This election does
not apply to a person who purchases units directly from us. For purposes of this discussion, a transferee's inside basis in our company's
assets will be considered to have two components: (i) the transferee's share of our company's tax basis in our company's assets, or
common basis, and (ii) the adjustment under Section 743(b) of the U.S. Internal Revenue Code to that basis. The foregoing rules
would also apply to the Holding LP.
Generally, a Section 754 Election would be advantageous to a transferee U.S. Holder if such holder's tax basis in its units
were higher than such units' share of the aggregate tax basis of our company's assets immediately prior to the transfer. In that case,
as a result of the Section 754 Election, the transferee U.S. Holder would have a higher tax basis in its share of our company's assets
for purposes of calculating, among other items, such holder's share of any gain or loss on a sale of our company's assets. Conversely,
a Section 754 Election would be disadvantageous to a transferee U.S. Holder if such holder's tax basis in its units were lower than
such units' share of the aggregate tax basis of our company's assets immediately prior to the transfer. Thus, the fair market value of
our units may be affected either favorably or adversely by the election.
Whether or not the Section 754 Election is made, if our units are transferred at a time when our company has a "substantial
built-in loss" in its assets, our company will be obligated to reduce the tax basis in the portion of such assets attributable to such units.
The calculations involved in the Section 754 Election are complex, and the BBU General Partner advises that it will make
such calculations on the basis of assumptions as to the value of our company assets and other matters. Each U.S. Holder should
consult its own tax adviser as to the effects of the Section 754 Election.
Uniformity of Our Units
Because we cannot match transferors and transferees of our units, we must maintain the uniformity of the economic and
tax characteristics of our units to a purchaser of our units. In the absence of uniformity, we may be unable to comply fully with a
number of U.S. federal income tax requirements. A lack of uniformity can result from a literal application of certain Treasury
Regulations to our company's Section 743(b) adjustments, a determination that our company's Section 704(c) allocations are
unreasonable or other reasons. Section 704(c) allocations would be intended to reduce or eliminate the disparity between tax basis
and the value of our company's assets in certain circumstances, including on the issuance of additional units. In order to maintain
the fungibility of all of our units at all times, we will seek to achieve the uniformity of U.S. tax treatment for all purchasers of our
units which are acquired at the same time and price (irrespective of the identity of the particular seller of our units or the time when
our units are issued by our company), through the application of certain tax accounting principles that the BBU General Partner
believes are reasonable for our company. However, the IRS may disagree with us and may successfully challenge our application of
such tax accounting principles. Any non-uniformity could have a negative impact on the value of our units.
Foreign Currency Gain or Loss
Our company's functional currency is the U.S. dollar, and our company's income or loss is calculated in U.S. dollars. It is
likely that our company will recognize "foreign currency" gain or loss with respect to transactions involving non-U.S. dollar
currencies. In general, foreign currency gain or loss is treated as ordinary income or loss. You should consult your own tax adviser
regarding the tax treatment of foreign currency gain or loss.
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Passive Foreign Investment Companies
U.S. Holders may be subject to special rules applicable to indirect investments in foreign corporations, including an
investment through our company in a PFIC. A PFIC is defined as any foreign corporation with respect to which (after applying certain
look-through rules) either (i) 75% or more of its gross income for a taxable year is "passive income" or (ii) 50% or more of its assets
in any taxable year (generally based on the quarterly average of the value of its assets) produce or are held for the production of
"passive income". There are no minimum stock ownership requirements for PFICs. If you hold an interest in a foreign corporation
for any taxable year during which the corporation is classified as a PFIC with respect to you, then the corporation will continue to
be classified as a PFIC with respect to you for any subsequent taxable year during which you continue to hold an interest in the
corporation, even if the corporation's income or assets would not cause it to be a PFIC in such subsequent taxable year, unless an
exception applies.
Subject to certain elections described below, any gain on the disposition of stock of a PFIC owned by you indirectly through
our company, as well as income realized on certain "excess distributions" by such PFIC, would be treated as though realized ratably
over the shorter of your holding period of our units or our company's holding period for the PFIC. Such gain or income generally
would be taxable as ordinary income, and dividends paid by the PFIC would not be eligible for the preferential tax rates for dividends
paid to non-corporate U.S. Holders. In addition, an interest charge would apply, based on the tax deemed deferred from prior years.
If you were to elect to treat your share of our company's interest in a PFIC as a "qualified electing fund", or QEF Election,
for the first year you were treated as holding such interest, then in lieu of the tax consequences described in the paragraph immediately
above, you would be required to include in income each year a portion of the ordinary earnings and net capital gains of the PFIC,
even if not distributed to our company or to you. A QEF Election must be made by you on an entity-by-entity basis. To the extent
reasonably practicable, we intend to timely provide you with information related to the PFIC status of each entity we are able to
identify as a PFIC, including information necessary to make a QEF Election with respect to each such entity. Any such election
should be made for the first year our company holds an interest in such entity or for the first year in which you hold our units, if later.
In the case of a PFIC that is a publicly traded foreign company, and in lieu of making a QEF Election, an election may be
made to "mark to market" the stock of such publicly traded foreign company on an annual basis. Pursuant to such an election, you
would include in each year as ordinary income the excess, if any, of the fair market value of such stock over its adjusted basis at the
end of the taxable year. However, no assurance can be provided that any Holding Entity or operating business classified as a PFIC
will be publicly traded. Thus, the mark-to-market election may not be available to a U.S. Holder in respect of its indirect ownership
interest through our company in a PFIC.
Based on our organizational structure, as well as our expected income and assets, the BBU General Partner currently believes
that a U.S. Holder is unlikely to be regarded as owning an interest in a PFIC solely by reason of owning our units for the taxable
year ending December 31, 2019. However, there can be no assurance that a future entity in which our company acquires an interest
will not be classified as a PFIC with respect to a U.S. Holder, because PFIC status is a factual determination that depends on the
assets and income of a given entity and must be made on an annual basis. Moreover, we may decide to hold an existing or future
operating business through a Holding Entity that would be a PFIC in order to ensure that our company satisfies the Qualifying Income
Exception, among other reasons. See "—Corporate Structure" below. Accordingly, there can be no assurance that a current or future
subsidiary will not qualify as a PFIC.
Subject to certain exceptions, a U.S. person who directly or indirectly owns an interest in a PFIC generally is required to
file an annual report with the IRS, and the failure to file such report could result in the imposition of penalties on such U.S. person
and in the extension of the statute of limitations with respect to federal income tax returns filed by such U.S. person. You should
consult your own tax adviser regarding the PFIC rules, including the foregoing filing requirements, as well as the advisability of
making a QEF Election or a mark-to-market election with respect to any PFIC in which you are treated as owning an interest through
our company.
Corporate Structure
To ensure that our company meets the Qualifying Income Exception for publicly traded partnerships (discussed above) and
complies with certain requirements in our Limited Partnership Agreement, among other reasons, our company may structure certain
acquisitions through an entity classified as a corporation for U.S. federal income tax purposes. Such acquisitions will be structured
as determined in the sole discretion of the BBU General Partner generally to be efficient for our unitholders. However, because our
unitholders will be located in numerous taxing jurisdictions, no assurance can be given that any such structure will benefit all our
unitholders to the same extent, and such a structure might even result in additional tax burdens on some unitholders. As discussed
above, if any such entity were a non-U.S. corporation, it might be considered a PFIC. If any such entity were a U.S. corporation, it
would be subject to U.S. federal net income tax on its income, including any gain recognized on the disposition of its assets. In
addition, if the asset were to involve U.S. real property, gain recognized on the disposition of the asset by a corporation generally
would be subject to corporate-level tax, whether the corporation were a U.S. or a non-U.S. corporation.
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U.S. Withholding Taxes
Although each U.S. Holder is required to provide us with an IRS Form W-9, we nevertheless may be unable to accurately
or timely determine the tax status of our unitholders for purposes of determining whether U.S. withholding applies to payments made
by our company to some or all of our unitholders. In such a case, payments made by our company to U.S. Holders might be subject
to U.S. "backup" withholding at the applicable rate or other U.S. withholding taxes. You would be able to treat as a credit your
allocable share of any U.S. withholding taxes paid in the taxable year in which such withholding taxes were paid and, as a result,
you might be entitled to a refund of such taxes from the IRS. In the event you transfer or otherwise dispose of some or all of your
units, special rules might apply for purposes of determining whether you or the transferee of such units were subject to U.S. withholding
taxes in respect of income allocable to, or distributions made on account of, such units or entitled to refunds of any such taxes
withheld. See below "Administrative Matters—Certain Effects of a Transfer of Units". You should consult your own tax adviser
regarding the treatment of U.S. withholding taxes.
Transferor/Transferee Allocations
Our company may allocate items of income, gain, loss and deduction using a monthly convention, whereby any such items
recognized in a given month by our company are allocated to our unitholders as of a specified date of such month. As a result, if you
transfer your units, you might be allocated income, gain, loss and deduction realized by our company after the date of the transfer.
Similarly, if you acquire additional units, you might be allocated income, gain, loss and deduction realized by our company prior to
your ownership of such units.
Section 706 of the U.S. Internal Revenue Code generally governs allocations of items of partnership income and deductions
between transferors and transferees of partnership interests, and the Treasury Regulations provide a safe harbor allowing a publicly
traded partnership to use a monthly simplifying convention for such purposes. However, it is not clear that our company's allocation
method complies with the requirements. If our company's convention were not permitted, the IRS might contend that our company's
taxable income or losses must be reallocated among our unitholders. If such a contention were sustained, your tax liabilities might
be adjusted to your detriment. The BBU General Partner is authorized to revise our company's method of allocation between transferors
and transferees (as well as among investors whose interests otherwise vary during a taxable period).
U.S. Federal Estate Tax Consequences
If our units are included in the gross estate of a U.S. citizen or resident for U.S. federal estate tax purposes, then a U.S. federal
estate tax might be payable in connection with the death of such person. Individual U.S. Holders should consult their own tax advisers
concerning the potential U.S. federal estate tax consequences with respect to our units.
Certain Reporting Requirements
A U.S. Holder who invests more than $100,000 in our company may be required to file IRS Form 8865 reporting the
investment with such U.S. Holder's U.S. federal income tax return for the year that includes the date of the investment. You may be
subject to substantial penalties if you fail to comply with this and other information reporting requirements with respect to an
investment in our units. You should consult your own tax adviser regarding such reporting requirements.
U.S. Taxation of Tax-Exempt U.S. Holders of Our Units
Income recognized by a U.S. tax-exempt organization is exempt from U.S. federal income tax except to the extent of the
organization's UBTI. UBTI is defined generally as any gross income derived by a tax-exempt organization from an unrelated trade
or business that it regularly carries on, less the deductions directly connected with that trade or business. In addition, income arising
from a partnership (or other entity treated as a partnership for U.S. federal income tax purposes) that holds operating assets or is
otherwise engaged in a trade or business generally will constitute UBTI. Notwithstanding the foregoing, UBTI generally does not
include any dividend income, interest income, certain other categories of passive income or capital gains realized by a tax-exempt
organization, so long as such income is not "debt-financed", as discussed below. The BBU General Partner currently believes that
our company should not be regarded as engaged in a trade or business, and anticipates that any operating assets held by our company
will be held through entities that are treated as corporations for U.S. federal income tax purposes.
The exclusion from UBTI does not apply to income from "debt-financed property", which is treated as UBTI to the extent
of the percentage of such income that the average acquisition indebtedness with respect to the property bears to the average tax basis
of the property for the taxable year. If an entity treated as a partnership for U.S. federal income tax purposes incurs acquisition
indebtedness, a tax-exempt partner in such partnership will be deemed to have acquisition indebtedness equal to its allocable portion
of such acquisition indebtedness. If any such indebtedness were used by our company or by the Holding LP to acquire property, such
property generally would constitute debt-financed property, and any income from or gain from the disposition of such debt-financed
property allocated to a tax-exempt organization generally would constitute UBTI to such tax-exempt organization. In addition, even
if such indebtedness were not used either by our company or by the Holding LP to acquire property but were instead used to fund
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distributions to our unitholders, if a tax-exempt organization subject to taxation in the United States were to use such proceeds to
make an investment outside our company, the IRS might assert that such investment constitutes debt-financed property to such
unitholder with the consequences noted above. The BBU General Partner does not expect our company or the Holding LP to directly
incur debt to acquire property, and the BBU General Partner does not believe that our company or the Holding LP will generate
UBTI attributable to debt-financed property in the future. Moreover, the BBU General Partner intends to use commercially reasonable
efforts to structure our activities to avoid generating UBTI. However, neither our company nor the Holding LP is prohibited from
incurring indebtedness, and no assurance can be provided that neither our company nor the Holding LP will generate UBTI attributable
to debt-financed property in the future. Tax-exempt U.S. Holders should consult their own tax advisers regarding the tax consequences
of an investment in our units.
Consequences to Non-U.S. Holders
Holding of Units and Other Considerations
Based on our organizational structure, as well as our company's expected income and assets, the BBU General Partner
currently believes that our company is unlikely to earn income treated as effectively connected with a U.S. trade or business, including
effectively connected income attributable to the sale of a "United States real property interest", as defined in the U.S. Internal Revenue
Code. Moreover, the BBU General Partner intends to use commercially reasonable efforts to structure our activities to avoid the
realization by our company and the Holding LP of income treated as effectively connected with a U.S. trade or business. If, as
anticipated, our company is not treated as engaged in a U.S. trade or business or as deriving income which is treated as effectively
connected with a U.S. trade or business, and provided that a Non-U.S. Holder is not itself engaged in a U.S. trade or business, then
such Non-U.S. Holder generally will not be subject to U.S. tax return filing requirements solely as a result of owning our units and
generally will not be subject to U.S. federal income tax on its allocable share of our company's interest and dividends from non-
U.S. sources or gain from the sale or other disposition of securities or real property located outside of the United States.
However, there can be no assurance that the law will not change or that the IRS will not deem our company to be engaged
in a U.S. trade or business. If, contrary to the BBU General Partner's expectations, our company is treated as engaged in a U.S. trade
or business, then a Non-U.S. Holder generally would be required to file a U.S. federal income tax return, even if no effectively
connected income were allocable to it. If our company were to have income treated as effectively connected with a U.S. trade or
business, then a Non-U.S. Holder would be required to report that income and would be subject to U.S. federal income tax at the
regular graduated rates. In addition, our company might be required to withhold U.S. federal income tax on such Non-U.S. Holder's
distributive share of such income. A corporate Non-U.S. Holder might also be subject to branch profits tax at a rate of 30%, or at a
lower treaty rate, if applicable. If, contrary to expectation, our company were engaged in a U.S. trade or business, then gain or loss
from the sale of our units by a Non-U.S. Holder would be treated as effectively connected with such trade or business to the extent
that such Non-U.S. Holder would have had effectively connected gain or loss had our company sold all of its assets at their fair
market value as of the date of such sale. In such case, any such effectively connected gain generally would be taxable at the regular
graduated U.S. federal income tax rates, and the amount realized from such sale generally would be subject to a 10% U.S. federal
withholding tax. The 10% U.S. federal withholding tax temporarily is suspended with respect to the disposition of an interest in a
publicly traded partnership until regulations or other guidance has been made final.
In general, even if our company is not engaged in a U.S. trade or business, and assuming you are not otherwise engaged in
a U.S. trade or business, you will nonetheless be subject to a withholding tax of 30% on the gross amount of certain U.S.-source
income which is not effectively connected with a U.S. trade or business. Income subjected to such a flat tax rate is income of a fixed
or determinable annual or periodic nature, including dividends and certain interest income. Such withholding tax may be reduced
or eliminated with respect to certain types of income under an applicable income tax treaty between the United States and your
country of residence or under the "portfolio interest" rules or other provisions of the U.S. Internal Revenue Code, provided that you
provide proper certification as to your eligibility for such treatment. Notwithstanding the foregoing, and although each Non-
U.S. Holder is required to provide us with an IRS Form W-8, we nevertheless may be unable to accurately or timely determine the
tax status of our investors for purposes of establishing whether reduced rates of withholding apply to some or all of our investors.
In such a case, your allocable share of distributions of U.S.-source dividend and interest income will be subject to U.S. withholding
tax at a rate of 30%. Further, if you would not be subject to U.S. tax based on your tax status or otherwise were eligible for a reduced
rate of U.S. withholding, you might need to take additional steps to receive a credit or refund of any excess withholding tax paid on
your account, which could include the filing of a non-resident U.S. income tax return with the IRS. Among other limitations applicable
to claiming treaty benefits, if you reside in a treaty jurisdiction which does not treat our company as a pass-through entity, you might
not be eligible to receive a refund or credit of excess U.S. withholding taxes paid on your account. In the event you transfer or
otherwise dispose of some or all of your units, special rules may apply for purposes of determining whether you or the transferee of
such units are subject to U.S. withholding taxes in respect of income allocable to, or distributions made on account of, such units or
entitled to refunds of any such taxes withheld. See "—Administrative Matters—Certain Effects of a Transfer of Units" below. You
should consult your own tax adviser regarding the treatment of U.S. withholding taxes.
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Special rules may apply to any Non-U.S. Holder (i) that has an office or fixed place of business in the United States; (ii) that
is present in the United States for 183 days or more in a taxable year; or (iii) that is (a) a former citizen or long-term resident of the
United States, (b) a foreign insurance company that is treated as holding a partnership interest in our company in connection with
its U.S. business, (c) a PFIC, (d) a CFC, or (e) a corporation that accumulates earnings to avoid U.S. federal income tax. You should
consult your own tax adviser regarding the application of these special rules.
Taxes in Other Jurisdictions
Based on our expected method of operation and the ownership of our operating businesses indirectly through corporate
Holding Entities, we do not expect any unitholder, solely as a result of owning our units, to be subject to any additional income taxes
imposed on a net basis or additional tax return filing requirements in any jurisdiction in which we conduct activities or own property.
However, our method of operation and current structure may change, and there can be no assurance that, solely as a result of owning
our units, you will not be subject to certain taxes, including non-U.S., state and local income taxes, unincorporated business taxes
and estate, inheritance or intangible taxes imposed by the various jurisdictions in which we do business or own property now or in
the future, even if you do not reside in any of these jurisdictions. Consequently, you may also be required to file non-U.S., state and
local income tax returns in some or all of these jurisdictions. Further, you may be subject to penalties for failure to comply with these
requirements. It is your responsibility to file all U.S. federal, state, local and non-U.S. tax returns that may be required of you.
Income or gain from assets held by our company may be subject to withholding or other taxes in jurisdictions outside the
United States, except to the extent an income tax treaty applies. If you wish to claim the benefit of an applicable income tax treaty,
you might be required to submit information to one or more of our company, an intermediary or a tax authority in such jurisdiction.
You should consult your own tax adviser regarding the U.S. federal, state, local and non-U.S. tax consequences of an investment in
our company.
Administrative Matters
Information Returns and Audit Procedures
We have agreed to use commercially reasonable efforts to furnish to you, within 90 days after the close of each calendar
year, U.S. tax information (including IRS Schedule K-1) which describes on a U.S. dollar basis your share of our company's income,
gain, loss and deduction for our preceding taxable year. However, providing this U.S. tax information to our unitholders will be
subject to delay in the event of, among other reasons, the late receipt of any necessary tax information from lower-tier entities. It is
therefore possible that, in any taxable year, you will need to apply for an extension of time to file your tax returns. In addition,
unitholders that do not ordinarily have U.S. federal tax filing requirements will not receive a Schedule K-1 and related information
unless such unitholders request it within 60 days after the close of each calendar year. In preparing this U.S. tax information, we will
use various accounting and reporting conventions, some of which have been mentioned in the previous discussion, to determine your
share of income, gain, loss and deduction. The IRS may successfully contend that certain of these reporting conventions are
impermissible, which could result in an adjustment to your income or loss.
Our company may be audited by the IRS. Adjustments resulting from an IRS audit could require you to adjust a prior year's
tax liability and result in an audit of your own tax return. Any audit of your tax return could result in adjustments not related to our
company's tax returns, as well as those related to our company's tax returns. For taxable years beginning after December 31, 2017,
if the IRS makes an audit adjustment to our income tax returns, it may assess and collect any taxes (including penalties and interest)
resulting from such audit adjustment directly from our company instead of unitholders (as under prior law). We may be permitted
to elect to have the BBU General Partner and our unitholders take such audit adjustment into account in accordance with their interests
in us during the taxable year under audit. However, there can be no assurance that we will choose to make such election or that it
will be available in all circumstances. If we do not make the election, we may be required to pay taxes, penalties or interest as a
result of an audit adjustment. As a result, our current unitholders might bear some or all of the cost of the tax liability resulting from
such audit adjustment, even if our current unitholders did not own our units during the taxable year under audit. The foregoing
considerations also apply with respect to our company's interest in the Holding LP.
For taxable years beginning on or before December 31, 2017, the BBU General Partner will act as our company's "tax
matters partner". As the tax matters partner, the BBU General Partner will have the authority, subject to certain restrictions, to act
on behalf of our company in connection with any administrative or judicial review of our company's items of income, gain, loss,
deduction or credit. For taxable years beginning after December 31, 2017, a "partnership representative" designated by our company
will have the sole authority to act on behalf of our company in connection with such administrative or judicial review. In Particular,
our partnership representative will have the sole authority to bind both our former and current unitholders and to make certain elections
on behalf of our company pursuant to the partnership audit rules.
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The application of the partnership audit rules to our company and our unitholders is uncertain and remains subject to Treasury
Regulations and IRS guidance yet to be made final. You should consult your own tax adviser regarding the implications of the
partnership audit rules for an investment in our units.
Tax Shelter Regulations and Related Reporting Requirements
If we were to engage in a "reportable transaction", we (and possibly our unitholders) would be required to make a detailed
disclosure of the transaction to the IRS in accordance with regulations governing tax shelters and other potentially tax-motivated
transactions. A transaction may be a reportable transaction based upon any of several factors, including the fact that it is a type of
tax avoidance transaction publicly identified by the IRS as a "listed transaction" or "transaction of interest", or that it produces certain
kinds of losses exceeding certain thresholds. An investment in our company may be considered a "reportable transaction" if, for
example, our company were to recognize certain significant losses in the future. In certain circumstances, a unitholder who disposes
of an interest in a transaction resulting in the recognition by such holder of significant losses in excess of certain threshold amounts
may be obligated to disclose its participation in such transaction. Certain of these rules are unclear, and the scope of reportable
transactions can change retroactively. Therefore, it is possible that the rules may apply to transactions other than significant loss
transactions.
Moreover, if we were to participate in a reportable transaction with a significant purpose to avoid or evade tax, or in any
listed transaction, you might be subject to significant accuracy-related penalties with a broad scope, for those persons otherwise
entitled to deduct interest on federal tax deficiencies, non-deductibility of interest on any resulting tax liability, and in the case of a
listed transaction, an extended statute of limitations. We do not intend to participate in any reportable transaction with a significant
purpose to avoid or evade tax, nor do we intend to participate in any listed transactions. However, no assurance can be provided that
the IRS will not assert that we have participated in such a transaction.
You should consult your own tax adviser concerning any possible disclosure obligation under the regulations governing tax
shelters with respect to the disposition of our units.
Taxable Year
Our company uses the calendar year as its taxable year for U.S. federal income tax purposes. Under certain circumstances
which we currently believe are unlikely to apply, a taxable year other than the calendar year may be required for such purposes.
Withholding and Backup Withholding
For each calendar year, we will report to you and to the IRS the amount of distributions that we pay, and the amount of tax
(if any) that we withhold on these distributions. The proper application to our company of the rules for withholding under Sections 1441
through 1446 of the U.S. Internal Revenue Code (applicable to certain dividends, interest and amounts treated as effectively connected
with a U.S. trade or business, among other items) is unclear. Because the documentation we receive may not properly reflect the
identities of unitholders at any particular time (in light of possible sales of our units), we may over-withhold or under-withhold with
respect to a particular unitholder. For example, we may impose withholding, remit such amount to the IRS and thus reduce the amount
of a distribution paid to a Non-U.S. Holder. It may be the case, however, that the corresponding amount of our income was not
properly allocable to such holder, and the appropriate amount of withholding should have been less than the actual amount withheld.
Such Non-U.S. Holder would be entitled to a credit against the holder's U.S. federal income tax liability for all withholding, including
any such excess withholding. However, if the withheld amount were to exceed the holder's U.S. federal income tax liability, the
holder would need to apply for a refund to obtain the benefit of such excess withholding. Similarly, we may fail to withhold on a
distribution, and it may be the case that the corresponding income was properly allocable to a Non-U.S. Holder and that withholding
should have been imposed. In such case, we intend to pay the under-withheld amount to the IRS, and we may treat such under-
withholding as an expense that will be borne indirectly by all unitholders on a pro rata basis (since we may be unable to allocate any
such excess withholding tax cost to the relevant Non-U.S. Holder).
Under the backup withholding rules, you may be subject to backup withholding tax with respect to distributions paid unless:
(i) you are an exempt recipient and demonstrate this fact when required; or (ii) provide a taxpayer identification number, certify as
to no loss of exemption from backup withholding tax, and otherwise comply with the applicable requirements of the backup
withholding tax rules. A U.S. Holder that is exempt should certify such status on a properly completed IRS Form W-9. A Non-
U.S. Holder may qualify as an exempt recipient by submitting a properly completed IRS Form W-8. Backup withholding is not an
additional tax. The amount of any backup withholding from a payment to you will be allowed as a credit against your U.S. federal
income tax liability and may entitle you to a refund from the IRS, provided you supply the required information to the IRS in a
timely manner.
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If you do not timely provide our company, or the applicable nominee, broker, clearing agent or other intermediary, with
IRS Form W-9 or IRS Form W-8, as applicable, or such form is not properly completed, then our company may become subject to
U.S. backup withholding taxes in excess of what would have been imposed had our company or the applicable intermediary received
properly completed forms from all unitholders. For administrative reasons, and in order to maintain the fungibility of our units, such
excess U.S. backup withholding taxes, and if necessary similar items, may be treated by our company as an expense that will be
borne indirectly by all unitholders on a pro rata basis (e.g., since it may be impractical for us to allocate any such excess withholding
tax cost to the unitholders that failed to timely provide the proper U.S. tax forms).
Foreign Account Tax Compliance
FATCA imposes a 30% withholding tax on "withholdable payments" made to a "foreign financial institution" or a "non-
financial foreign entity", unless such financial institution or entity satisfies certain information reporting or other requirements.
Withholdable payments include certain U.S.-source income, such as interest, dividends and other passive income. Recently proposed
Treasury Regulations eliminate the requirement to withhold tax under FATCA on gross proceeds from the sale or disposition of
property that can produce U.S.-source interest or dividends. The IRS has announced that taxpayers are permitted to rely on the
proposed regulations until final Treasury Regulations are issued. The BBU General Partner intends to ensure that our company
complies with FATCA, including by entering into an agreement with the IRS if necessary, so as to ensure that the 30% withholding
tax does not apply to any withholdable payments received by our company, the Holding LP, the Holding Entities, or the operating
businesses. Nonetheless, the 30% withholding tax may also apply to your allocable share of distributions attributable to withholdable
payments, unless you properly certify your FATCA status on IRS Form W-8 or IRS Form W-9 (as applicable) and satisfy any additional
requirements under FATCA.
In compliance with FATCA, information regarding certain unitholders' ownership of our units may be reported to the IRS
or to a non-U.S. governmental authority. FATCA remains subject to modification by an applicable intergovernmental agreement
between the United States and another country, such as the agreement in effect between the United States and Bermuda for cooperation
to facilitate the implementation of FATCA, or by future Treasury Regulations or guidance. You should consult your own tax adviser
regarding the consequences under FATCA of an investment in our units.
Information Reporting with Respect to Foreign Financial Assets
Under Treasury Regulations, certain U.S. persons that own "specified foreign financial assets" with an aggregate fair market
value exceeding either $50,000 on the last day of the taxable year or $75,000 at any time during the taxable year generally are required
to file an information report with respect to such assets with their tax returns. Significant penalties may apply to persons who fail to
comply with these rules. Specified foreign financial assets include not only financial accounts maintained in foreign financial
institutions, but also, unless held in accounts maintained by a financial institution, any stock or security issued by a non-U.S. person,
any financial instrument or contract held for investment that has an issuer or counterparty other than a U.S. person and any interest
in a foreign entity. The failure to report information required under the current regulations could result in substantial penalties and
in the extension of the statute of limitations with respect to federal income tax returns filed by you. You should consult your own
tax adviser regarding the possible implications of these Treasury Regulations for an investment in our units.
Certain Effects of a Transfer of Units
Our company may allocate items of income, gain, loss, deduction and credit using a monthly convention, whereby any such
items recognized in a given month by our company are allocated to our unitholders as of a specified date of such month. Any
U.S. withholding taxes applicable to dividends received by the Holding LP (and, in turn, our company) generally will be withheld
by our company only when such dividends are paid. Because our company generally intends to distribute amounts received in respect
of dividends shortly after receipt of such amounts, it is generally expected that any U.S. withholding taxes withheld by our company
on such amounts will correspond to our unitholders who were allocated income and who received the distributions in respect of such
amounts. The Holding LP may acquire debt obligations or other securities for which the accrual of interest or income thereon is not
matched by a contemporaneous receipt of cash. Any such accrued interest or other income would be allocated pursuant to such
monthly convention. Consequently, our unitholders may recognize income in excess of cash distributions received from our company,
and any income so included by a unitholder would increase the basis such unitholder has in our units and would offset any gain
(or increase the amount of loss) realized by such unitholder on a subsequent disposition of its units. In addition, U.S. withholding
taxes generally would be withheld by our company only on the payment of cash in respect of such accrued interest or other income,
and, therefore, it is possible that some unitholders would be allocated income which might be distributed to a subsequent unitholder,
and such subsequent unitholder would be subject to withholding at the time of distribution. As a result, the subsequent unitholder,
and not the unitholder who was allocated income, would be entitled to claim any available credit with respect to such withholding.
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The Holding LP owns and will continue to own certain Holding Entities and operating businesses organized in non-
U.S. jurisdictions, and income and gain from such entities and businesses may be subject to withholding and other taxes in such
jurisdictions. If any such non-U.S. taxes were imposed on income allocable to a U.S. Holder, and such holder were thereafter to
dispose of its units prior to the date distributions were made in respect of such income, under applicable provisions of the U.S. Internal
Revenue Code and Treasury Regulations, the unitholder to whom such income was allocated (and not the unitholder to whom
distributions were ultimately made) would, subject to other applicable limitations, be the party permitted to claim a credit for such
non-U.S. taxes for U.S. federal income tax purposes. Thus, a unitholder may be affected either favorably or adversely by the foregoing
rules. Complex rules may, depending on a unitholder's particular circumstances, limit the availability or use of foreign tax credits,
and you are urged to consult your own tax adviser regarding all aspects of foreign tax credits.
Nominee Reporting
Persons who hold an interest in our company as a nominee for another person may be required to furnish to us:
(i)
the name, address and taxpayer identification number of the beneficial owner and the nominee;
(ii) whether the beneficial owner is (a) a person that is not a U.S. person, (b) a foreign government, an international
organization, or any wholly-owned agency or instrumentality of either of the foregoing, or (c) a tax-exempt entity;
(iii) the amount and description of units held, acquired, or transferred for the beneficial owner; and
(iv) specific information including the dates of acquisitions and transfers, means of acquisitions and transfers and acquisition
cost for purchases, as well as the amount of net proceeds from sales.
Brokers and financial institutions may be required to furnish additional information, including whether they are U.S. persons
and specific information on units they acquire, hold, or transfer for their own account. A penalty of $250 per failure (as adjusted for
inflation), up to a maximum of $3,000,000 per calendar year (as adjusted for inflation), generally is imposed by the U.S. Internal
Revenue Code for the failure to report such information to us. The nominee is required to supply the beneficial owner of our units
with the information furnished to us.
New Legislation or Administrative or Judicial Action
The U.S. federal income tax treatment of our unitholders depends, in some instances, on determinations of fact and
interpretations of complex provisions of U.S. federal income tax law for which no clear precedent or authority may be available.
You should be aware that the U.S. federal income tax rules, particularly those applicable to partnerships, are constantly under review
(including currently) by the Congressional tax-writing committees and other persons involved in the legislative process, the IRS,
the Treasury Department and the courts, frequently resulting in revised interpretations of established concepts, statutory changes,
revisions to regulations and other modifications and interpretations, any of which could adversely affect the value of our units and
be effective on a retroactive basis. For example, changes to the U.S. federal tax laws and interpretations thereof could make it more
difficult or impossible for our company to be treated as a partnership that is not taxable as a corporation for U.S. federal income tax
purposes, change the character or treatment of portions of our company's income, reduce the net amount of distributions available
to our unitholders, or otherwise affect the tax considerations of owning our units. Such changes could also affect or cause our company
to change the way it conducts its activities and adversely affect the value of our units.
Our company's organizational documents and agreements permit the BBU General Partner to modify our Limited Partnership
Agreement from time to time, without the consent of our unitholders, to elect to treat our company as a corporation for U.S. federal
tax purposes, or to address certain changes in U.S. federal income tax regulations, legislation or interpretation. In some circumstances,
such revisions could have a material adverse impact on some or all of our unitholders.
THE FOREGOING DISCUSSION IS NOT INTENDED AS A SUBSTITUTE FOR CAREFUL TAX PLANNING.
THE TAX MATTERS RELATING TO OUR COMPANY AND UNITHOLDERS ARE COMPLEX AND ARE SUBJECT
TO VARYING INTERPRETATIONS. MOREOVER, THE EFFECT OF EXISTING INCOME TAX LAWS, THE
MEANING AND IMPACT OF WHICH IS UNCERTAIN, AND OF PROPOSED CHANGES IN INCOME TAX LAWS WILL
VARY WITH THE PARTICULAR CIRCUMSTANCES OF EACH UNITHOLDER, AND IN REVIEWING THIS ANNUAL
REPORT ON FORM 20-F THESE MATTERS SHOULD BE CONSIDERED. EACH UNITHOLDER SHOULD CONSULT
ITS OWN TAX ADVISER WITH RESPECT TO THE U.S. FEDERAL, STATE, LOCAL, AND OTHER TAX
CONSEQUENCES OF ANY INVESTMENT IN OUR UNITS.
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Certain Material Canadian Federal Income Tax Considerations
The following is a summary of the principal Canadian federal income tax consequences under the Tax Act of the holding
and disposition of units of our company generally applicable to a unitholder who, for purposes of the Tax Act and at all relevant
times, holds our units as capital property, deals at arm's length with and is not affiliated with our company, the Holding LP, the BBU
General Partner and their respective affiliates (a “Holder”). Generally, our units will be considered to be capital property to a Holder,
provided that the Holder does not use or hold our units in the course of carrying on a business of trading or dealing in securities and
has not acquired them in one or more transactions considered to be an adventure or concern in the nature of trade.
This summary is not applicable to a Holder (i) that is a "financial institution" as defined in the Tax Act for purposes of the
"mark-to-market" property rules, (ii) that is a "specified financial institution" as defined in the Tax Act, (iii) who makes or has made
a functional currency reporting election pursuant to section 261 of the Tax Act, (iv) an interest in which would be a "tax shelter
investment" as defined in the Tax Act or who acquires our units as a "tax shelter investment" (and this summary assumes that no
such persons hold our units), (v) that has, directly or indirectly, a "significant interest" as defined in subsection 34.2(1) of the Tax Act
in our company, (vi) if any affiliate of our company is, or becomes as part of a series of transactions that includes the acquisition of
units of our company, a "foreign affiliate" for purposes of the Tax Act of such Holder or of any corporation that does not deal at arm's
length with such Holder for purposes of the Tax Act; or (vii) that has entered or will enter into a "derivative forward agreement", as
defined in the Tax Act, in respect of our units. Any such Holders should consult their own tax advisors with respect to an investment
in our units.
This summary is based on the current provisions of the Tax Act, all specific proposals to amend the Tax Act publicly
announced by or on behalf of the Minister of Finance (Canada) prior to the date hereof (the "Tax Proposals"), and the current
published administrative and assessing policies and practices of the CRA. This summary assumes that all Tax Proposals will be
enacted in the form proposed but no assurance can be given that the Tax Proposals will be enacted in the form proposed or at all.
This summary does not otherwise take into account or anticipate any changes in law, whether by judicial, administrative or legislative
decision or action, or changes in the CRA's administrative and assessing policies and practices, nor does it take into account provincial,
territorial or foreign income tax legislation or considerations, which may differ significantly from those described herein. This
summary is not exhaustive of all possible Canadian federal income tax consequences that may affect unitholders. Holders should
consult their own tax advisors in respect of the provincial, territorial or foreign income tax consequences to them of holding and
disposing of our units.
This summary also assumes that neither our company nor the Holding LP is a "tax shelter" as defined in the Tax Act or a
"tax shelter investment". However, no assurance can be given in this regard.
This summary also assumes that neither our company nor the Holding LP will be a "SIFT partnership" at any relevant time
for purposes of the SIFT Rules on the basis that neither our company nor the Holding LP will be a "Canadian resident partnership"
at any relevant time. However, there can be no assurance that the SIFT Rules will not be revised or amended such that the SIFT
Rules will apply.
This summary does not describe the deductibility of interest on money borrowed to acquire our units nor whether any
amounts in respect of our units could be “split income” for the purposes of the Tax Act.
This summary is of a general nature only and is not intended to be, nor should it be construed to be, legal or tax
advice to any particular Holder, and no representation with respect to the Canadian federal income tax consequences to
any particular Holder is made. Consequently, Holders are advised to consult their own tax advisors with respect to their
particular circumstances. See also Item 3.D., "Risk Factors-Risks Relating to Taxation-Canada".
For purposes of the Tax Act, all amounts relating to the acquisition, holding or disposition of our units must be expressed
in Canadian dollars including any distributions, adjusted cost base and proceeds of disposition. For purposes of the Tax Act, amounts
denominated in a currency other than the Canadian dollar generally must be converted into Canadian dollars using the appropriate
exchange rate determined in accordance with the detailed rules in the Tax Act in that regard.
Taxation of Canadian Resident Limited Partners
The following portion of the summary is generally applicable to a Holder who, for purposes of the Tax Act and at all relevant
times, is resident or deemed to be resident in Canada (a "Canadian Limited Partner").
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Computation of Income or Loss
Each Canadian Limited Partner is required to include (or, subject to the "at-risk rules" discussed below, entitled to deduct)
in computing his or her income for a particular taxation year the Canadian Limited Partner's share of the income (or loss) of our
company for its fiscal year ending in, or coincidentally with, the Canadian Limited Partner's taxation year end, whether or not any
of that income is distributed to the Canadian Limited Partner in the taxation year and regardless of whether or not our units were
held throughout such year.
Our company will not itself be a taxable entity and is not expected to be required to file an income tax return in Canada for
any taxation year. However, the income (or loss) of our company for a fiscal period for purposes of the Tax Act will be computed as
if it were a separate person resident in Canada and the partners will be allocated a share of that income (or loss) in accordance with
our Limited Partnership Agreement. The income (or loss) of our company will include our company's share of the income (or loss)
of the Holding LP for a fiscal year determined in accordance with the Holding LP's Limited Partnership Agreement. For this purpose,
our company's fiscal year end and that of the Holding LP will be December 31.
The income for tax purposes of our company for a given fiscal year will be allocated to each Canadian Limited Partner in
an amount calculated by multiplying such income that is allocable to unitholders by a fraction, the numerator of which is the sum
of the distributions received by such Canadian Limited Partner with respect to such fiscal year and the denominator of which is the
aggregate amount of the distributions made by our company to all partners with respect to such fiscal year.
If, with respect to a given fiscal year, no distribution is made by our company to unitholders or our company has a loss for
tax purposes, one quarter of the income, or loss, as the case may be, for tax purposes for such fiscal year that is allocable to unitholders
will be allocated to the unitholders of record at the end of each calendar quarter ending in such fiscal year in the proportion that the
number of units of our company held at each such date by a unitholder is of the total number of units of our company that are issued
and outstanding at each such date.
The income of our company as determined for purposes of the Tax Act may differ from its income as determined for
accounting purposes and may not be matched by cash distributions. In addition, for purposes of the Tax Act, all income (or losses)
of our company and the Holding LP must be calculated in Canadian currency. Where our company (or the Holding LP) holds
investments denominated in U.S. dollars or other foreign currencies, gains and losses may be realized by our company (or the
Holding LP) as a consequence of fluctuations in the relative values of the Canadian and foreign currencies.
In computing the income (or loss) of our company, deductions may be claimed in respect of reasonable administrative costs,
interest and other expenses incurred by our company for the purpose of earning income, subject to the relevant provisions of the
Tax Act. Our company may also deduct from its income for the year a portion of the reasonable expenses, if any, incurred by our
company to issue our units. The portion of such issue expenses deductible by our company in a taxation year is 20% of such issue
expenses, pro-rated where our company's taxation year is less than 365 days.
In general, a Canadian Limited Partner's share of any income (or loss) of our company from a particular source will be
treated as if it were income (or loss) of the Canadian Limited Partner from that source, and any provisions of the Tax Act applicable
to that type of income (or loss) will apply to the Canadian Limited Partner. Our company will hold managing general partnership
units of the Holding LP. In computing our company's income (or loss) under the Tax Act, the Holding LP will itself be deemed to
be a separate person resident in Canada which computes its income (or loss) and allocates to its partners their respective share of
such income (or loss). Accordingly, the source and character of amounts included in (or deducted from) the income of Canadian
Limited Partners on account of income (or loss) earned by the Holding LP generally will be determined by reference to the source
and character of such amounts when earned by the Holding LP.
A Canadian Limited Partner's share of taxable dividends received or considered to be received by our company in a fiscal
year from a corporation resident in Canada will be treated as a dividend received by the Canadian Limited Partner and will be subject
to the normal rules in the Tax Act applicable to such dividends, including the enhanced gross-up and dividend tax credit for "eligible
dividends" as defined in the Tax Act when the dividend received by the Holding LP is designated as an "eligible dividend".
Foreign taxes paid by our company or the Holding LP and taxes withheld at source on amounts paid or credited to our
company or the Holding LP (other than for the account of a particular partner) will be allocated pursuant to the governing partnership
agreement. Each Canadian Limited Partner's share of the "business-income tax" and "non-business-income tax" paid to the government
of a foreign country for a year will be creditable against its Canadian federal income tax liability to the extent permitted by the
detailed foreign tax credit rules contained in the Tax Act. Although the foreign tax credit rules are designed to avoid double taxation,
the maximum credit is limited. Because of this, and because of timing differences in recognition of expenses and income and other
factors, the foreign tax credit rules may not provide a full foreign tax credit for the "business-income tax" and "non-business-income
tax" paid by our company or the Holding LP to the government of a foreign country. The Tax Act contains anti-avoidance rules to
address certain foreign tax credit generator transactions. Under the Foreign Tax Credit Generator Rules, the foreign "business-income
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tax" or "non-business-income tax" allocated to a Canadian Limited Partner for the purpose of determining such Canadian Limited
Partner's foreign tax credit for any taxation year may be limited in certain circumstances, including where a Canadian Limited
Partner's share of the income of our company or the Holding LP under the income tax laws of any country (other than Canada) under
whose laws the income of our company or the Holding LP is subject to income taxation (the "Relevant Foreign Tax Law"), is less
than the Canadian Limited Partner's share of such income for purposes of the Tax Act. For this purpose, a Canadian Limited Partner
is not considered to have a lesser direct or indirect share of the income of our company or the Holding LP under the Relevant Foreign
Tax Law than for the purposes of the Tax Act solely because, among other reasons, of a difference between the Relevant Foreign
Tax Law and the Tax Act in the manner of computing the income of our company or the Holding LP or in the manner of allocating
the income of our company or the Holding LP because of the admission or withdrawal of a partner. No assurance can be given that
the Foreign Tax Credit Generator Rules will not apply to any Canadian Limited Partner. If the Foreign Tax Credit Generator Rules
apply, the allocation to a Canadian Limited Partner of foreign "business-income tax" or "non-business-income tax" paid by our
company or the Holding LP, and therefore such Canadian Limited Partner's foreign tax credits, will be limited.
Our company and the Holding LP will each be deemed to be a non-resident person in respect of certain amounts paid or
credited or deemed to be paid or credited to them by a person resident or deemed to be resident in Canada, including dividends or
interest. Dividends or interest (other than interest not subject to Canadian federal withholding tax) paid or deemed to be paid by a
person resident or deemed to be resident in Canada to the Holding LP will be subject to withholding tax under Part XIII of the Tax Act
at the rate of 25%. However, the CRA's administrative practice in similar circumstances is to permit the rate of Canadian federal
withholding tax applicable to such payments to be computed by looking through the partnership and taking into account the residency
of the partners (including partners who are resident in Canada) and any reduced rates of Canadian federal withholding tax that any
non-resident partners may be entitled to under an applicable income tax treaty or convention, provided that the residency status and
entitlement to the treaty benefits can be established. In determining the rate of Canadian federal withholding tax applicable to amounts
paid by the Holding Entities to the Holding LP, the BBU General Partner expects the Holding Entities to look-through the Holding LP
and our company to the residency of the partners of our company (including partners who are resident in Canada) and to take into
account any reduced rates of Canadian federal withholding tax that non-resident partners may be entitled to under an applicable
income tax treaty or convention in order to determine the appropriate amount of Canadian federal withholding tax to withhold from
dividends or interest paid to the Holding LP. However, there can be no assurance that the CRA will apply its administrative practice
in this context. Under the Treaty, a Canadian resident payer is required in certain circumstances to look-through fiscally transparent
partnerships, such as our company and the Holding LP, to the residency and Treaty entitlements of their partners and to take into
account the reduced rates of Canadian federal withholding tax that such partners may be entitled to under the Treaty.
If our company incurs losses for tax purposes, each Canadian Limited Partner will be entitled to deduct in the computation
of income for tax purposes the Canadian Limited Partner's share of any net losses for tax purposes of our company for its fiscal year
to the extent that the Canadian Limited Partner's investment is "at-risk" within the meaning of the Tax Act. The Tax Act contains "at-
risk rules" which may, in certain circumstances, restrict the deduction of a limited partner's share of any losses of a limited partnership.
The BBU General Partner does not anticipate that our company or the Holding LP will incur losses but no assurance can be given
in this regard. Accordingly, Canadian Limited Partners should consult their own tax advisors for specific advice with respect to the
potential application of the "at-risk rules".
Section 94.1 of the Tax Act contains rules relating to interests held by a taxpayer in Non-Resident Entities that could, in
certain circumstances, cause income to be imputed to Canadian Limited Partners, either directly or by way of allocation of such
income imputed to our company or the Holding LP. These rules would apply if it is reasonable to conclude, having regard to all the
circumstances, that one of the main reasons for the Canadian Limited Partner, our company or the Holding LP acquiring, holding or
having an investment in a Non-Resident Entity is to derive a benefit from "portfolio investments" in certain assets from which the
Non-Resident Entity may reasonably be considered to derive its value in such a manner that taxes under the Tax Act on income,
profits and gains from such assets for any year are significantly less than they would have been if such income, profits and gains had
been earned directly. In determining whether this is the case, section 94.1 of the Tax Act provides that consideration must be given
to, among other factors, the extent to which the income, profits and gains for any fiscal period are distributed in that or the immediately
following fiscal period. No assurance can be given that section 94.1 of the Tax Act will not apply to a Canadian Limited Partner, our
company or the Holding LP. If these rules apply to a Canadian Limited Partner, our company or the Holding LP, income, determined
by reference to a prescribed rate of interest plus two percent applied to the "designated cost", as defined in section 94.1 of the Tax Act,
of the interest in the Non-Resident Entity, will be imputed directly to the Canadian Limited Partners or to our company or the
Holding LP and allocated to the Canadian Limited Partner in accordance with the rules in section 94.1 of the Tax Act. The rules in
section 94.1 of the Tax Act are complex and Canadian Limited Partners should consult their own tax advisors regarding the application
of these rules to them in their particular circumstances.
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Any Non-Resident Subsidiaries in which the Holding LP directly invests are expected to be CFAs of the Holding LP.
Dividends paid to the Holding LP by a CFA of the Holding LP will be included in computing the income of the Holding LP. To the
extent that any CFA or Indirect CFA of the Holding LP earns income that is characterized as FAPI in a particular taxation year of the
CFA or Indirect CFA, the FAPI allocable to the Holding LP under the rules in the Tax Act must be included in computing the income
of the Holding LP for Canadian federal income tax purposes for the fiscal period of the Holding LP in which the taxation year of
that CFA or Indirect CFA ends, whether or not the Holding LP actually receives a distribution of that FAPI. Our company will include
its share of such FAPI of the Holding LP in computing its income for Canadian federal income tax purposes and Canadian Limited
Partners will be required to include their proportionate share of such FAPI allocated from our company in computing their income
for Canadian federal income tax purposes. As a result, Canadian Limited Partners may be required to include amounts in their income
even though they have not and may not receive an actual cash distribution of such amounts. If an amount of FAPI is included in
computing the income of the Holding LP for Canadian federal income tax purposes, an amount may be deductible in respect of the
"foreign accrual tax" applicable to the FAPI. Any amount of FAPI included in income net of the amount of any deduction in respect
of "foreign accrual tax" will increase the adjusted cost base to the Holding LP of its shares of the particular CFA in respect of which
the FAPI was included. At such time as the Holding LP receives a dividend of this type of income that was previously included in
the Holding LP's income as FAPI, such dividend will effectively not be included in computing the income of the Holding LP and
there will be a corresponding reduction in the adjusted cost base to the Holding LP of the particular CFA shares.
Under the Foreign Tax Credit Generator Rules, the "foreign accrual tax" applicable to a particular amount of FAPI included
in the Holding LP's income in respect of a particular "foreign affiliate" of the Holding LP may be limited in certain specified
circumstances, including where the direct or indirect share of the income of any member of the Holding LP (which is deemed for
this purpose to include a Canadian Limited Partner) that is a person resident in Canada or a "foreign affiliate" of such a person is,
under a Relevant Foreign Tax Law, less than such member's share of such income for purposes of the Tax Act. No assurance can be
given that the Foreign Tax Credit Generator Rules will not apply to the Holding LP. For this purpose, a Canadian Limited Partner is
not considered to have a lesser direct or indirect share of the income of the Holding LP under the Relevant Foreign Tax Law than
for the purposes of the Tax Act solely because, among other reasons, of a difference between the Relevant Foreign Tax Law and the
Tax Act in the manner of computing the income of the Holding LP or in the manner of allocating the income of the Holding LP
because of the admission or withdrawal of a partner. If the Foreign Tax Credit Generator Rules apply, the "foreign accrual tax"
applicable to a particular amount of FAPI included in the Holding LP's income in respect of a particular "foreign affiliate" of the
Holding LP will be limited.
Disposition of Our Units
The disposition (or deemed disposition) by a Canadian Limited Partner of our units will result in the realization of a capital
gain (or capital loss) by such Canadian Limited Partner in the amount, if any, by which the proceeds of disposition of our units, less
any reasonable costs of disposition, exceed (or are exceeded by) the adjusted cost base of such units. Subject to the general rules on
averaging of cost base, the adjusted cost base of a Canadian Limited Partner's units of our company would generally be equal to:
(i) the actual cost of our units (excluding any portion thereof financed with limited recourse indebtedness); plus (ii) the share of the
income of our company allocated to the Canadian Limited Partner for fiscal years of our company ending before the relevant time
in respect of our units; less (iii) the aggregate of the pro rata share of losses of our company allocated to the Canadian Limited Partner
(other than losses which cannot be deducted because they exceed the Canadian Limited Partner's "at-risk" amount) for the fiscal
years of our company ending before the relevant time in respect of our units; and less (iv) the Canadian Limited Partner's distributions
received from our company made before the relevant time in respect of our units.
Where a Canadian Limited Partner disposes of all of its units of our company, it will no longer be a partner of our company.
If, however, a Canadian Limited Partner is entitled to receive a distribution from our company after the disposition of all such units,
then the Canadian Limited Partner will be deemed to dispose of such units at the later of: (i) the end of the fiscal year of our company
during which the disposition occurred; and (ii) the date of the last distribution made by our company to which the Canadian Limited
Partner was entitled. The share of the income (or loss) of our company for tax purposes for a particular fiscal year which is allocated
to a Canadian Limited Partner who has ceased to be a partner will generally be added (or deducted) in the computation of the adjusted
cost base of the Canadian Limited Partner's units of our company immediately prior to the time of the disposition.
A Canadian Limited Partner will generally realize a deemed capital gain if, and to the extent that, the adjusted cost base of
the Canadian Limited Partner's units of our company is negative at the end of any fiscal year of our company. In such a case, the
adjusted cost base of the Canadian Limited Partner's units of our company will be nil at the beginning of the next fiscal year of
our company.
Canadian Limited Partners should consult their own tax advisors for advice with respect to the specific tax consequences
to them of disposing of units of our company.
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Taxation of Capital Gains and Capital Losses
In general, one-half of a capital gain realized by a Canadian Limited Partner must be included in computing such Canadian
Limited Partner's income as a taxable capital gain. One-half of a capital loss is deducted as an allowable capital loss against taxable
capital gains realized in the year and any remainder may be deducted against net taxable capital gains in any of the three years
preceding the year or any year following the year to the extent and under the circumstances described in the Tax Act.
Special rules in the Tax Act may apply to disallow the one-half treatment on all or a portion of a capital gain realized on a
disposition of our units if a partnership interest is acquired by a tax-exempt person or a non-resident person (or by a partnership or
trust (other than certain trusts) of which a tax-exempt person or a non-resident person is a member or beneficiary, directly or indirectly
through one or more partnerships or trusts (other than certain trusts)). Canadian Limited Partners contemplating such a disposition
should consult their own tax advisors in this regard.
A Canadian Limited Partner that is throughout the relevant taxation year a "Canadian-controlled private corporation" as
defined in the Tax Act may be liable to pay an additional refundable tax on its "aggregate investment income", as defined in the
Tax Act, for the year, which is defined to include taxable capital gains.
Alternative Minimum Tax
Canadian Limited Partners that are individuals or trusts may be subject to the alternative minimum tax rules. Such Canadian
Limited Partners should consult their own tax advisors.
Eligibility for Investment
Provided that our units are listed on a "designated stock exchange" (which currently includes the NYSE and the TSX), our
units will be "qualified investments" under the Tax Act for a trust governed by an RRSP, deferred profit sharing plan, RRIF, RESP,
RDSP, and a TFSA.
Notwithstanding the foregoing, an annuitant under an RRSP or RRIF, a holder of a TFSA or RDSP or a subscriber of an
RESP, as the case may be, will be subject to a penalty tax if our units held in the RRSP, RRIF, TFSA, RDSP or RESP, are a "prohibited
investment" for the RRSP, RRIF, TFSA, RDSP or RESP, as the case may be. Generally, our units will not be a "prohibited investment"
for a trust governed by an RRSP, RRIF, TFSA, RDSP or RESP provided that the annuitant under the RRSP or RRIF, the holder of
the TFSA, or RDSP or the subscriber of the RESP, as applicable, deals at arm's length with our company for purposes of the Tax Act
and does not have a "significant interest", for purposes of the prohibited investment rules, in our company. Canadian Limited Partners
who will hold our units in an RRSP, RRIF, TFSA, RDSP or RESP should consult with their own tax advisors regarding the application
of the foregoing prohibited investment rules having regard to their particular circumstances.
Taxation of Non-Canadian Limited Partners
The following portion of the summary is generally applicable to a Holder who, for purposes of the Tax Act and at all relevant
times, is not, and is not deemed to be, resident in Canada and who does not use or hold and is not deemed to use or hold our units
in connection with a business carried on in Canada (a "Non-Canadian Limited Partner").
The following portion of the summary assumes that (i) our units are not, and will not at any relevant time constitute, "taxable
Canadian property" of any Non-Canadian Limited Partner, and (ii) our company and the Holding LP will not dispose of property
that is "taxable Canadian property". "Taxable Canadian property" includes, but is not limited to, property that is used or held in a
business carried on in Canada and shares of corporations that are not listed on a "designated stock exchange" if more than 50% of
the fair market value of the shares is derived from certain Canadian properties in the 60-month period immediately preceding the
particular time. In general, our units will not constitute "taxable Canadian property" of any Non-Canadian Limited Partner at the
time of disposition or deemed disposition, unless (a) at any time in the 60-month period immediately preceding the disposition or
deemed disposition, more than 50% of the fair market value of our units was derived, directly or indirectly (excluding through a
corporation, partnership or trust, the shares or interests in which were not themselves "taxable Canadian property"), from one or any
combination of: (i) real or immovable property situated in Canada; (ii) "Canadian resource properties"; (iii) "timber resource
properties"; and (iv) options in respect of, or interests in, or for civil law rights in, such property, whether or not such property exists,
or (b) our units are otherwise deemed to be "taxable Canadian property". Since our company's assets will consist principally of units
of the Holding LP, our units would generally be "taxable Canadian property" at a particular time if our units of the Holding LP held
by our company, derived, directly or indirectly (excluding through a corporation, partnership or trust, the shares or interests in which
were not themselves "taxable Canadian property"), more than 50% of their fair market value from properties described in (i) to
(iv) above, at any time in the 60-month period preceding the particular time. The BBU General Partner does not expect our units to
be "taxable Canadian property" of any Non-Canadian Limited Partner and does not expect our company or the Holding LP to dispose
of "taxable Canadian property". However, no assurance can be given in this regard. See Item 3.D. "Risk Factors-Risks relating to
Taxation-Canada".
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The following portion of the summary also assumes that neither our company nor the Holding LP will be considered to
carry on business in Canada. The BBU General Partner intends to organize and conduct the affairs of each of these entities, to the
extent possible, so that neither of these entities should be considered to carry on business in Canada for purposes of the Tax Act.
However, no assurance can be given in this regard. If either of these entities carry on business in Canada, the tax implications to our
company or the Holding LP and to Non-Canadian Limited Partners may be materially and adversely different than as set out herein.
Special rules, which are not discussed in this summary, may apply to a Non-Canadian Limited Partner that is an insurer
carrying on business in Canada and elsewhere.
Taxation of Income or Loss
A Non-Canadian Limited Partner will not be subject to Canadian federal income tax under Part I of the Tax Act on its share
of income from a business carried on by our company (or the Holding LP) outside Canada or the non-business income earned by
our company (or the Holding LP) from sources in Canada. However, a Non-Canadian Limited Partner may be subject to Canadian
federal withholding tax under Part XIII of the Tax Act, as described below.
Our company and the Holding LP will each be deemed to be a non-resident person in respect of certain amounts paid or
credited or deemed to be paid or credited to them by a person resident or deemed to be resident in Canada, including dividends or
interest. Dividends or interest (other than interest not subject to Canadian federal withholding tax) paid or deemed to be paid by a
person resident or deemed to be resident in Canada to the Holding LP will be subject to withholding tax under Part XIII of the Tax Act
at the rate of 25%. However, the CRA's administrative practice in similar circumstances is to permit the rate of Canadian federal
withholding tax applicable to such payments to be computed by looking through the partnership and taking into account the residency
of the partners (including partners who are resident in Canada) and any reduced rates of Canadian federal withholding tax that any
non-resident partners may be entitled to under an applicable income tax treaty or convention, provided that the residency status and
entitlement to the treaty benefits can be established. In determining the rate of Canadian federal withholding tax applicable to amounts
paid by the Holding Entities to the Holding LP, the BBU General Partner expects the Holding Entities to look-through the Holding LP
and our company to the residency of the partners of our company (including partners who are resident in Canada) and to take into
account any reduced rates of Canadian federal withholding tax that Non-Canadian Limited Partners may be entitled to under an
applicable income tax treaty or convention in order to determine the appropriate amount of Canadian federal withholding tax to
withhold from dividends or interest paid to the Holding LP. However, there can be no assurance that the CRA will apply its
administrative practice in this context. Under the Treaty, a Canadian resident payer is required in certain circumstances to look-
through fiscally transparent partnerships, such as our company and the Holding LP, to the residency and Treaty entitlements of their
partners and take into account the reduced rates of Canadian federal withholding tax that such partners may be entitled to under
the Treaty.
Bermuda Tax Considerations
In Bermuda there are no taxes on profits, income or dividends, nor is there any capital gains tax, estate duty or death duty.
Profits can be accumulated and it is not obligatory to pay dividends. As "exempted undertakings", exempted partnerships and overseas
partnerships are entitled to apply for (and will ordinarily receive) an assurance pursuant to the Exempted Undertakings Tax Protection
Act 1966 that, in the event that legislation introducing taxes computed on profits or income, or computed on any capital asset, gain
or appreciation, is enacted, such taxes shall not be applicable to our company or any of its operations until March 31, 2015. Such an
assurance may include the assurance that any tax in the nature of estate duty or inheritance tax shall not be applicable to the units,
debentures or other obligations of our company.
Exempted partnerships and overseas partnerships fall within the definition of "international businesses" for the purposes
of the Stamp Duties (International Businesses Relief) Act 1990, which means that instruments executed by or in relation to an
exempted partnership or an overseas partnership are exempt from stamp duties (such duties were formerly applicable under the
Stamp Duties Act 1976). Thus, stamp duties are not payable upon, for example, an instrument which effects the transfer or assignment
of a unit in an exempted partnership or an overseas partnership, or the sale or mortgage of partnership assets; nor are they payable
upon the partnership capital.
10.F. DIVIDENDS AND PAYING AGENTS
Not applicable.
10.G. STATEMENT BY EXPERTS
Not applicable.
Brookfield Business Partners
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10.H. DOCUMENTS ON DISPLAY
Our company is subject to the information filing requirements of the Exchange Act, and accordingly we are required to file
periodic reports and other information with the SEC. As a foreign private issuer under the SEC's regulations, we file annual reports
on Form 20-F and furnish other reports on Form 6-K. The information disclosed in our reports may be less extensive than that required
to be disclosed in annual and quarterly reports on Forms 10-K and 10-Q required to be filed with the SEC by U.S. issuers. Moreover,
as a foreign private issuer, we are not subject to the proxy requirements under Section 14 of the Exchange Act, and the BBU General
Partner's directors and our principal unitholders are not subject to the insider short swing profit reporting and recovery rules under
Section 16 of the Exchange Act. The SEC maintains an Internet site that contains reports, proxy and information statements and
other information regarding issuers that file electronically with the SEC. You may obtain our SEC filings on the SEC website or on
our website at https://bbu.brookfield.com.
In addition, our company is required by Canadian securities laws to file documents electronically with Canadian securities
regulatory authorities and these filings are available on our SEDAR profile at www.sedar.com. Written requests for such documents
should be directed to our Corporate Secretary at 73 Front Street, 5th Floor, Hamilton HM 12, Bermuda.
10.I. SUBSIDIARY INFORMATION
Not applicable.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See the information contained in this Form 20-F under Item 5.B., "Operating and Financial Review and Prospects—Liquidity
and Capital Resources—Market Risks".
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not applicable.
PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
None.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
None.
ITEM 15. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
As at December 31, 2018, an evaluation of the effectiveness of our "disclosure controls and procedures" (as defined in
Rules 13a-15(e) and 15d-15(e) of the Exchange Act) was carried out under the supervision and with the participation of persons
performing the functions of principal executive and principal financial officers for us and our Service Providers. Based upon that
evaluation, the persons performing the functions of principal executive and principal financial officers for us have concluded that,
as at December 31, 2018, our disclosure controls and procedures were effective: (i) to ensure that information required to be disclosed
by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commission's rules and forms; and (ii) to ensure that information required to be
disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management,
including the persons performing the functions of principal executive and principal financial officers for us, to allow timely decisions
regarding required disclosure.
It should be noted that while our management, including persons performing the functions of principal executive and
principal financial officers for us, believe our disclosure controls and procedures provide a reasonable level of assurance that such
controls and procedures are effective, they do not expect that our disclosure controls and procedures or internal controls will prevent
all error and all fraud. A control system, no matter how well conceived or operated, can provide only reasonable, not absolute,
assurance that the objectives of the control system are met.
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Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such
term is defined in Rule 13a-15(f) under the Exchange Act. Under the supervision and with the participation of our management,
including persons performing the functions of principal executive and principal financial officers for us, we conducted an evaluation
of the effectiveness of our internal control over financial reporting as of December 31, 2018, 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 evaluation under Internal Control—Integrated Framework, our management concluded that our internal control over financial
reporting was effective as of December 31, 2018. Excluded from our evaluation were controls over financial reporting at Schoeller
Allibert Group B.V., for which control was acquired on May 15, 2018; Teekay Offshore L.P., for which control was acquired on July
3, 2018; and Westinghouse Electric Company, for which control was acquired on August 1, 2018. The financial statements of these
entities constitute 45% of total assets, 43% of net assets, 8% of revenue and 21% of net income of the consolidated financial statements
of our partnership as of and for the year ending December 31, 2018.
Internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined
to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes
in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Report of Independent Registered Public Accounting Firm
The effectiveness of our internal control over financial reporting as of December 31, 2018 has been audited by Deloitte
LLP, Independent Registered Public Accounting Firm, who have also audited the financial statements of our partnership, as stated
in their reports which are included herein.
Changes in Internal Control
There was no change in our internal control over financial reporting during the year ended December 31, 2018, that has
materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
ITEM 16.
16A. AUDIT COMMITTEE FINANCIAL EXPERT
Our board of directors has determined that Patricia Zuccotti possesses specific accounting and financial management
expertise and that she is an audit committee financial expert as defined by the SEC and is independent within the meaning of the
rules of the NYSE. Our board of directors has also determined that other members of the Audit Committee have sufficient experience
and ability in finance and compliance matters to enable them to adequately discharge their responsibilities.
16B. CODE OF ETHICS
In March 2018, the BBU General Partner updated its Code of Business Conduct and Ethics, or the Code, that applies to the
members of the board of directors of the BBU General Partner, our company, any officers or employees of the BBU General Partners
and any employees of the Services Providers performing obligations under the Master Services Agreement. The Code is reviewed
and updated annually. We have posted a copy of the Code on our website at www.bbu.brookfield.com.
16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The BBU General Partner has retained Deloitte LLP to act as our company's independent registered public accounting firm.
Brookfield Business Partners
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The table below summarizes the fees for professional services rendered by Deloitte LLP for the audit of our annual financial
statements for the period ended December 31, 2018.
(US$ Millions)
Audit fees (1) (4)
Audit-related fees (2) (4)
Tax fees (3)
Total
____________________________________
December 31, 2018
December 31, 2017
USD
%
USD
%
$
$
11.1
11.8
0.8
23.7
47% $
50%
3%
100% $
5.4
4.4
0.5
10.3
52%
43%
5%
100%
(1)
(2)
(3)
(4)
Audit fees include fees for services that would normally be provided by the external auditor in connection with our statutory audit of the partnership,
including fees for services necessary to perform an audit or review in accordance with generally accepted auditing standards. This category also includes
services that generally only the external auditor reasonably can provide, including comfort letters, attest services, consents and assistance with and review
of certain documents filed with securities regulatory authorities.
Audit-related fees are for other statutory audits, assurance and related services, such as due diligence services, that traditionally are performed by the
external auditor. More specifically, these services include, among others: statutory audits of our subsidiaries, employee benefit plan audits, audits in
connection with acquisitions, attest services that are not required for the partnership's statutory audit, and consultation concerning financial accounting
and reporting standards.
Tax fees are principally for assistance in tax compliance and tax advisory services.
Audit fees for the period ended December 31, 2017 have been revised to exclude fees related to statutory audits of our subsidiaries, which are now included
in audit-related fees. This change was made to align with the presentation of audit fees and audit-related fees for the period ended December 31, 2018.
The audit committee of the BBU General Partner pre-approves all audit and non-audit services provided to the partnership
by Deloitte LLP.
16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
Not applicable.
16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
On August 10, 2018, we announced that we renewed our normal course issuer bid, or NCIB, for our units. Under the NCIB,
we may repurchase up to 10% of our issued and outstanding units, or 3,371,900 units. Repurchases were authorized to commence
on August 15, 2018 and will terminate on August 14, 2019, or earlier should we complete our repurchases prior to such date. All
purchases will be made through facilities of the TSX or the NYSE, or alternative trading systems in Canada or the United States,
and all of our units acquired under the NCIB will be cancelled. During the year ended December 31, 2018, we did not repurchase
any of our units.
On January 3, 2019, we announced that we had entered into an automatic purchase plan and had amended our NCIB. Under
the amended NCIB, the maximum number of units which may be repurchased is 3,309,289, which equals 5% of our issued and
outstanding units. It also permits the purchase of our units through the facilities of designated exchanges or alternative trading systems
in Canada or the United States.
16F. CHANGE IN REGISTRANT'S CERTIFYING ACCOUNTANT
None.
16G. CORPORATE GOVERNANCE
Our corporate practices are not materially different from those required of U.S. domestic limited partnerships under the
NYSE Listing Standards.
16H. MINING SAFETY DISCLOSURE
Pursuant to Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, issuers that are
operators, or that have a subsidiary that is an operator, of a coal or other mine in the United States are required to disclose in their
periodic reports filed with the SEC information regarding specified health and safety violations, orders and citations, related
assessments and legal actions, and mining-related fatalities under the regulation of the Federal Mine Safety and Health Administration,
or the MSHA, under the Federal Mine Safety and Health Act of 1977, as amended, or the Mine Act. During the fiscal year ended
December 31, 2018, our company did not have any mines in the United States subject to regulation by MSHA under the Mine Act.
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ITEM 17. FINANCIAL STATEMENTS
Not applicable.
ITEM 18. FINANCIAL STATEMENTS
See the list of financial statements beginning on page F-1 which are filed as part of the annual report on Form 20-F.
ITEM 19. EXHIBITS
Number
Description
1.1 Certificate of registration of Brookfield Business Partners L.P., registered as of January 18, 2016(1)
1.2 Amended and Restated Limited Partnership Agreement of Brookfield Business Partners L.P., dated May 31, 2016(2)
1.3 Bye-Laws of Brookfield Business Partners Limited(3)
4.1 Master Services Agreement by and among Brookfield Asset Management Inc., Brookfield Business Partners L.P., and
the other parties thereto, dated June 1, 2016(2)
4.2 Amended and Restated Limited Partnership Agreement of Brookfield Business L.P., dated May 31, 2016(2)
4.3 Relationship Agreement between Brookfield Business Partners L.P. and Brookfield Asset Management Inc., dated
June 1, 2016(2)
4.4 Registration Rights Agreement between Brookfield Business Partners L.P. and Brookfield Asset Management, dated
June 1, 2016(2)
4.5 Second Amended and Restated Credit Agreement between Brookfield Business L.P., Brookfield BBP Canada
Holdings Inc., Brookfield BBP Bermuda Holdings Limited, Brookfield BBP US Holdings LLC and the other
borrowers thereto, Brookfield Business Partners L.P. and BPEG US Inc., dated October 19, 2017(3)
4.6 Voting Agreement, between Brookfield Asset Management Inc., Brookfield CanGP Limited, Brookfield
Canada GP L.P. and Brookfield BBU Canada Holdings Inc., dated June 1, 2016(2)
4.7 Trade-Mark Sublicense Agreement, dated May 24, 2016, by and among Brookfield Asset Management Holdings Ltd.,
our company, and the Holding LP.(2)
8.1 List of subsidiaries of Brookfield Business Partners L.P. (incorporated by reference to Item 4.C., Organizational
Structure)
12.1 Certification of Cyrus Madon, Chief Executive Officer, Brookfield Business Partners L.P., pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002*
12.2 Certification of Jaspreet Dehl, Chief Financial Officer, Brookfield Business Partners L.P., pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002*
13.1 Certification of Cyrus Madon, Chief Executive Officer, Brookfield Business Partners L.P., pursuant to 18 U.S.C.
Section 1350, as adopted to Section 906 of the Sarbanes Oxley Act of 2002*
13.2 Certification of Jaspreet Dehl, Chief Financial Officer, Brookfield Business Partners L.P., pursuant to 18 U.S.C.
Section 1350, as adopted to Section 906 of the Sarbanes Oxley Act of 2002*
15.1 Consent of Deloitte LLP, Independent Registered Public Accounting Firm*
101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
____________________________________
(1)
(2)
(3)
Filed as an exhibit to Amendment No. 3 to the Registration Statement on Form F-1 on February 26, 2016 and incorporated herein by reference.
Incorporated by reference to the company's Current Report on Form 6-K filed on June 22, 2016.
Incorporated by reference to the company's Annual Report on Form 20-F for the year ended December 31, 2017, filed March 9, 2018.
(4) *Filed herewith.
The registrant hereby agrees to furnish to the SEC at its request copies of long-term debt instruments defining the rights of
holders of outstanding long-term debt that are not required to be filed herewith.
Brookfield Business Partners
159
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SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and
authorized the undersigned to sign this annual report on its behalf.
BROOKFIELD BUSINESS PARTNERS L.P., by its general
partner, BROOKFIELD BUSINESS PARTNERS LIMITED
By:
/s/ Jane Sheere
Name:
Title:
Jane Sheere
Secretary
Date: March 15,
2019
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INDEX TO FINANCIAL STATEMENTS
Consolidated financial statements for Brookfield Business Partners L.P. as at December 31, 2018 and 2017 and for
each of the years in the three-years ended December 31, 2018
Page
F-1
Brookfield Business Partners
F-1
Table of Contents
INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR
BROOKFIELD BUSINESS PARTNERS L.P.
Audited Consolidated Financial Statements of Brookfield Business Partners L.P.
Report of the Independent Registered Public Accounting Firm
Consolidated Statements of Financial Position
Consolidated Statements of Operating Results
Consolidated Statements of Comprehensive Income
Consolidated Statements of Changes in Equity
Consolidated Statements of Cash Flow
Notes to the Consolidated Financial Statements
Page
F-3
F-6
F-7
F-8
F-9
F-11
F-12
F-2
Brookfield Business Partners
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Unitholders of Brookfield Business Partners L.P.
Opinion on the Financial Statements
We have audited the accompanying consolidated statements of financial position of Brookfield Business Partners L.P. and
subsidiaries (the “Partnership”) as of December 31, 2018 and 2017, the related consolidated statements of operating results,
comprehensive income, changes in equity, and cash flow, for each of the three years in the period ended December 31, 2018, and
the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in
all material respects, the financial position of the Partnership as of December 31, 2018 and 2017, and the results of its financial
performance and its cash flows for each of the three years in the period ended December 31, 2018, in conformity with International
Financial Reporting Standards as issued by the International Accounting Standards Board.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Partnership’s internal control over financial reporting as of December 31, 2018, based on criteria established in
Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission
and our report dated March 15, 2019, expressed an unqualified opinion on the Partnership’s internal control over financial reporting.
Change in Accounting Principle
As discussed in Note 2 to the financial statements, effective January 1, 2018, the Partnership has changed its method of accounting
for revenue on a modified retrospective basis due to the adoption of IFRS 15, Revenue from Contracts with Customers.
Basis for Opinion
These financial statements are the responsibility of the Partnership’s management. Our responsibility is to express an opinion on
the Partnership’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Partnership in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error
or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether
due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Deloitte LLP
Chartered Professional Accountants
Licensed Public Accountants
Toronto, Canada
March 15, 2019
We have served as the Partnership’s auditor since 2015.
F-3
Brookfield Business Partners
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Unitholders of Brookfield Business Partners L.P.
Opinion on the Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Brookfield Business Partners L.P. and subsidiaries (the “Partnership”)
as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Partnership maintained, in all material
respects, effective internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control
- Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated financial statements as of and for the year ended December 31, 2018 of the Partnership and our report
dated March 15, 2019, expressed an unqualified opinion on those financial statements and included an explanatory paragraph
regarding the Partnership’s change in method of accounting for revenue due to the adoption of IFRS 15, Revenue from Contracts
with Customers.
As described in Management’s Annual Report on Internal Control Over Financial Reporting, management excluded from its
assessment the internal control over financial reporting at Schoeller Allibert Group B.V. (“Schoeller”) which was acquired on May
15, 2018; Teekay Offshore Partners L.P. (“Teekay”) which was acquired on July 3, 2018; and Westinghouse Electric Company
(“Westinghouse”) which was acquired on August 1, 2018 and whose financial statements constitute 45% of total assets, 43% of
net assets, 8% of total revenues and 21% of net income of the consolidated financial statement amounts as of and for the year ended
December 31, 2018. Accordingly, our audit did not include the internal control over financial reporting at Schoeller, Teekay and
Westinghouse.
Basis for Opinion
The Partnership’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 Annual Report on
Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Partnership’s internal control over
financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent
with respect to the Partnership in accordance with the U.S. federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. 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.
Brookfield Business Partners
F-4
Table of Contents
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets
of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that
could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes
in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Deloitte LLP
Chartered Professional Accountants
Licensed Public Accountants
Toronto, Canada
March 15, 2019
F-5
Brookfield Business Partners
Table of Contents
CONSOLIDATED FINANCIAL STATEMENTS FOR
BROOKFIELD BUSINESS PARTNERS L.P.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(US$ MILLIONS)
Assets
Current assets
Cash and cash equivalents
Financial assets
Accounts and other receivable, net
Inventory, net
Assets held for sale
Other assets
Financial assets
Accounts and other receivable, net
Other assets
Property, plant and equipment
Deferred income tax assets
Intangible assets
Equity accounted investments
Goodwill
Liabilities and equity
Current liabilities
Accounts payable and other
Liabilities associated with assets held for sale
Corporate borrowings
Non-recourse subsidiary borrowings
Accounts payable and other
Non-recourse subsidiary borrowings
Deferred income tax liabilities
Equity
Limited partners
Non-controlling interests attributable to:
Redemption-Exchange Units, Preferred Shares and Special
Limited Partnership Units held by Brookfield Asset
Management Inc.
Interest of others in operating subsidiaries
Notes
December 31, 2018 December 31, 2017
4
5
6
7
8
9
5
6
9
11
18
12
14
13
27
15
8
17
17
15
17
18
19
19
10
$
1,949
$
886
4,307
1,562
63
1,014
9,781
483
853
499
6,947
280
5,523
541
2,411
1,106
361
3,454
1,068
14
430
6,433
423
908
79
2,530
174
3,094
609
1,554
$
$
$
$
$
27,318
$
15,804
7,188
$
9
—
1,819
9,016
1,894
9,047
867
20,824
1,548
$
$
1,415
3,531
6,494
27,318
$
4,865
—
—
825
5,690
773
2,440
837
9,740
1,585
1,453
3,026
6,064
15,804
The accompanying notes are an integral part of the consolidated financial statements.
F-6
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Table of Contents
CONSOLIDATED FINANCIAL STATEMENTS FOR
BROOKFIELD BUSINESS PARTNERS L.P.
CONSOLIDATED STATEMENTS OF OPERATING RESULTS
(US$ MILLIONS, except per unit amounts)
Revenues
Direct operating costs
General and administrative expenses
Depreciation and amortization expense
Interest income (expense), net
Equity accounted income, net
Impairment expense, net
Gain on acquisitions/dispositions, net
Other income (expense), net
Income (loss) before income tax
Income tax (expense) recovery
Current
Deferred
Net income (loss)
Attributable to:
Limited partners (1)
Brookfield Asset Management Inc. (2)
Non-controlling interests attributable to:
Redemption-Exchange Units held by Brookfield Asset
Management Inc. (1)
Special Limited Partners
Interest of others in operating subsidiaries
Basic and diluted earnings per limited partner unit
____________________________________
(1)
(2)
For the periods subsequent to June 20, 2016.
For the periods prior to June 20, 2016.
Notes
27
7, 21
27
27
27
14
5, 7, 11, 13
3, 5, 8
3
18
18
19
19
$
$
$
$
$
2018
2017
2016
$
7,960
(7,386)
$
$
$
37,168
(34,134)
(643)
(748)
(498)
10
(218)
500
(136)
1,301
(186)
88
1,203
74
—
70
278
781
22,823
(21,876)
(340)
(371)
(202)
69
(39)
267
(108)
223
(30)
22
215
$
(58) $
—
(60)
142
191
1,203
1.11
$
$
215
$
(1.04) $
(269)
(286)
(90)
68
(261)
57
(11)
(218)
(25)
41
(202)
3
(35)
3
—
(173)
(202)
0.06
The accompanying notes are an integral part of the consolidated financial statements.
F-7
Brookfield Business Partners
Table of Contents
CONSOLIDATED FINANCIAL STATEMENTS FOR
BROOKFIELD BUSINESS PARTNERS L.P.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(US$ MILLIONS)
Net income (loss)
Other comprehensive income (loss):
Items that may be reclassified subsequently to profit or loss:
Foreign currency translation
Available-for-sale securities (1)
Net investment and cash flow hedges
Equity accounted investment
Taxes on the above items
Items that will not be reclassified subsequently to profit or loss:
Revaluation of pension obligations
Fair value through OCI (2)
Taxes on the above items
Total other comprehensive income (loss)
Comprehensive income (loss)
Attributable to:
Limited partners (3)
Brookfield Asset Management Inc. (4)
Non-controlling interests attributable to:
Redemption-Exchange Units held by Brookfield Asset
Management Inc. (1)
Special Limited Partners
Interest of others in operating subsidiaries
Notes
2018
2017
2016
4
14
18
29
$
$
$
$
$
1,203
$
215
$
(202)
(422) $
—
72
(1)
(8)
(359)
(70)
35
6
(388)
815
1
—
1
278
535
815
$
$
$
127
$
8
(25)
(5)
(1)
104
5
—
—
109
324
$
(29) $
—
(28)
142
239
324
$
37
166
(3)
(79)
6
127
6
—
—
133
(69)
(5)
15
(5)
—
(74)
(69)
____________________________________
(1)
(2)
(3)
(4)
The partnership adopted IFRS 9 on January 1, 2018; please refer to Note 2(t) for additional information.
The partnership adopted IFRS 9 on January 1, 2018; please refer to Note 2(t) for additional information.
For the periods subsequent to June 20, 2016.
For the periods prior to June 20, 2016.
The accompanying notes are an integral part of the consolidated financial statements.
F-8
Brookfield Business Partners
Table of Contents
CONSOLIDATED FINANCIAL STATEMENTS FOR
BROOKFIELD BUSINESS PARTNERS L.P.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Brookfield Asset Management Inc.
Limited Partners
Non-controlling interests
Redemption-Exchange Units held by
Brookfield Asset Management Inc.
Special
Limited
Partners
Preferred
Shares
(US$ MILLIONS)
Equity
Accumulated
other
comprehensive
income
(loss) (1)
Brookfield
Asset
Management
Inc.
Capital
Retained
earnings
Ownership
Change (2)
Accumulated
other
comprehensive
income
(loss)(1)
Limited
Partners
Capital
Retained
earnings
Ownership
Change (2)
Accumulated
other
comprehensive
income
(loss) (1)
Redemption-
Exchange
Units
Retained
Earnings
Capital
Interest of
others in
operating
subsidiaries
Total
Equity
Balance as at January 1, 2018
$
— $
— $
— $ 1,766 $
(69) $
— $
(112) $
1,585
$ 1,674 $
(71) $
— $
(165) $
1,438
$
— $
15
$
3,026
$ 6,064
Adoption of new
accounting standards and other (3)
Revised Opening Balance
January 1, 2018
Net income (loss)
Other comprehensive income
(loss)
Total comprehensive income
(loss)
Contributions
Distributions (2)
Ownership change (4)
Acquisition of interest (5)
Balance as at December 31,
2018
Balance as at January 1, 2017
Net income (loss)
Other comprehensive income
Total comprehensive income
(loss)
Contributions
Distributions (2)
Acquisition of Interest (5)
Unit Issuance (2)
Other
Balance as at December 31,
2017
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(133)
1,766
(202)
—
—
—
—
—
—
—
74
—
74
—
(16)
(93)
—
—
—
—
—
—
—
—
205
—
—
(133)
—
(128)
(112)
1,452
1,674
(199)
—
74
(73)
(73)
(73)
—
—
(1)
—
1
—
(16)
111
—
—
—
—
—
—
—
—
70
—
70
—
(16)
(89)
—
—
—
—
—
—
—
—
195
—
—
(128)
(165)
1,310
—
(69)
(69)
—
—
(1)
—
70
(69)
1
—
(16)
105
—
—
—
278
—
278
—
(278)
—
—
$
$
— $
— $
— $
— $
— $ 1,766 $
(237) $
205 $
(186) $
1,548
$ 1,674 $
(234) $
195 $
— $ 1,345 $
2 $
— $
(141) $
1,206
$ 1,474 $
3 $
— $
(235) $
(197) $
1,400
1,280
$
$
— $
— $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
421
—
(58)
—
(58)
—
(15)
—
—
2
—
—
—
—
—
—
—
—
—
29
29
—
—
—
—
—
(58)
29
(29)
—
(15)
—
421
2
—
—
—
—
—
—
200
—
(60)
—
(60)
—
(16)
—
—
2
—
—
—
—
—
—
—
—
—
32
32
—
—
—
—
—
(60)
32
(28)
—
(16)
—
200
2
142
—
142
—
(142)
—
—
—
—
15
—
—
—
—
—
—
—
15
15
—
—
—
—
—
—
—
—
(14)
(275)
3,012
781
5,789
1,203
(246)
(388)
535
85
815
85
(2,370)
(2,680)
1,564
705
1,780
705
$
$
3,531
$ 6,494
1,537
$ 4,038
191
48
239
5
(388)
1,639
—
(6)
215
109
324
5
(561)
1,639
621
(2)
$
— $
— $
— $ 1,766 $
(69) $
— $
(112) $
1,585
$ 1,674 $
(71) $
— $
(165) $
1,438
$
— $
15
$
3,026
$ 6,064
F-9
Brookfield Business Partners
Table of Contents
Brookfield Asset Management Inc.
Limited Partners
Non-controlling interests
Redemption-Exchange Units held by
Brookfield Asset Management Inc.
Special
Limited
Partners
Preferred
Shares
(US$ MILLIONS)
Equity
Accumulated
other
comprehensive
income
(loss) (1)
Brookfield
Asset
Management
Inc.
Capital
Retained
earnings
Ownership
Change (2)
Accumulated
other
comprehensive
income
(loss) (1)
Limited
Partners
Capital
Retained
earnings
Ownership
Change (2)
Accumulated
other
comprehensive
income
(loss) (1)
Redemption-
Exchange
Units
Retained
Earnings
Capital
Interest of
others in
operating
subsidiaries
Total
Equity
Balance as at January 1, 2016
$ 2,147 $
(360) $
1,787
$ — $ — $
— $
— $ — $ — $
— $
— $
— $
— $
— $
— $
1,297
$ 3,084
Net income (loss)
Other comprehensive income
(loss)
Total comprehensive income
(loss)
Contributions
Distributions
Net increase (decrease) in
Brookfield Asset
Management Inc. investment
Ownership Changes (6)
Unit Issuance (2)
Reorganization (7)
Balance as at December 31,
2016
(35)
—
(35)
78
(18)
13
—
—
—
50
50
—
—
(8)
—
—
(35)
50
15
78
(18)
5
—
—
—
—
—
—
—
—
—
192
(2,185)
318
(1,867)
1,153
3
—
3
—
(6)
—
5
—
—
—
—
—
—
—
—
—
—
—
—
(8)
(8)
—
—
—
(2)
—
3
(8)
(5)
—
(6)
—
3
—
—
—
—
—
—
—
192
192
(131)
1,022
1,282
3
—
3
—
(6)
—
6
—
—
—
—
—
—
—
—
—
—
—
—
(8)
(8)
—
—
—
(2)
—
3
(8)
(5)
—
(6)
—
4
192
(187)
1,095
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
15
(173)
(202)
99
133
(74)
456
(40)
(69)
534
(70)
53
58
(155)
(148)
—
—
384
265
$ — $
— $
— $ 1,345 $
2 $
— $
(141) $ 1,206
$ 1,474 $
3 $
— $
(197) $
1,280
$
— $
15
$
1,537
$ 4,038
____________________________________
(1)
(2)
(3)
(4)
(5)
(6)
See Note 20 for additional information.
See Note 19 for additional information on distributions as it relates to the Special Limited Partners and for additional information on the unit issuance.
See Note 2 (ae) for additional information on adoption of new accounting standards. This balance also includes a change in accounting policy recorded at an operating subsidiary of $10 million, which did not have a
significant impact on the partnership's operating results.
Includes gains or losses on changes in ownership interests of consolidated subsidiaries.
See Note 3 Acquisition of Businesses for additional information.
See Note 14 for additional information on ownership changes as it relates to interest of others in operating subsidiaries
(7)
See Note 1(b) and 2(b) for details regarding the spin-off and reorganization.
The accompanying notes are an integral part of the consolidated financial statements.
F-10
Brookfield Business Partners
Table of Contents
CONSOLIDATED FINANCIAL STATEMENTS FOR
BROOKFIELD BUSINESS PARTNERS L.P.
CONSOLIDATED STATEMENTS OF CASH FLOW
(US$ MILLIONS)
Operating Activities
Net income (loss)
Adjusted for the following items:
Equity accounted income, net
Impairment expense, net
Depreciation and amortization expense
Gain on acquisitions/dispositions, net
Provisions and other items
Deferred income tax expense (recovery)
Changes in non-cash working capital, net
Cash from operating activities
Financing Activities
Proceeds from non-recourse subsidiary borrowings
Repayment of non-recourse subsidiary borrowings
(Repayment) / Proceeds from other credit facilities, net
Capital provided by limited partners and Redemption-Exchange
Unitholders
Capital provided by preferred shareholders
Capital provided by others who have interests in operating subsidiaries
Capital provided by Brookfield Asset Management Inc.
Distributions to limited partners and Redemption-Exchange Unitholders
Distributions to Special Limited Partners
Distributions to others who have interests in operating subsidiaries
Distributions to Brookfield Asset Management Inc.
Cash from (used in) financing activities
Investing Activities
Acquisitions
Subsidiaries, net of cash acquired
Property, plant and equipment and intangible assets
Equity accounted investments
Financial assets
Dispositions and distributions
Subsidiaries, net of cash disposed
Property, plant and equipment and intangible assets
Equity accounted investments
Financial assets
Proceeds from sale of assets held for sale
Net settlement of foreign exchange hedges
Restricted cash and deposits
Cash from (used in) investing activities
Cash
Change during the period
Impact of foreign exchange on cash
Cash reclassified as assets held for sale
Balance, beginning of year
Balance, end of year
Notes
2018
2017
2016
$
1,203
$
215
$
(202)
5, 7, 11, 13
3, 5, 8
18
28
19
19
3
7
$
19
218
748
(500)
10
(88)
(269)
1,341
6,860
(2,292)
(48)
—
—
1,395
—
(32)
(327)
(1,995)
—
3,561
(3,422)
(545)
(9)
(465)
—
111
371
8
—
23
(71)
(3,999)
903
(60)
—
1,106
1,949
$
(69)
39
371
(267)
114
(22)
(451)
(70)
1,694
(1,345)
360
621
—
897
—
(31)
(95)
(388)
—
1,713
(1,668)
(240)
(208)
(290)
383
17
60
259
—
(12)
104
(1,595)
48
8
—
1,050
1,106
(68)
261
286
(57)
41
(41)
9
229
474
(1,008)
—
634
15
456
78
(12)
—
(40)
(11)
586
(63)
(144)
—
(447)
—
22
149
327
15
19
26
(96)
719
(15)
(8)
354
1,050
$
Supplemental cash flow information is presented in Note 28
The accompanying notes are an integral part of the consolidated financial statements.
F-11
Brookfield Business Partners
Table of Contents
BROOKFIELD BUSINESS PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As at December 31, 2018 and 2017 and for the years ended December 31, 2018, 2017 and 2016
NOTE 1. NATURE AND DESCRIPTION OF THE PARTNERSHIP
(a)
Brookfield Business Partners L.P.
Brookfield Business Partners L.P. and its subsidiaries, (collectively, "the partnership") own and operate business services
and industrial operations ("the Business") on a global basis. Brookfield Business Partners L.P. was registered as a limited partnership
established under the laws of Bermuda, and organized pursuant to a limited partnership agreement as amended on May 31, 2016,
and as further amended on June 17, 2016. Brookfield Business Partners L.P. is a subsidiary of Brookfield Asset Management Inc.
("Brookfield Asset Management" or "Brookfield" or the "parent company"). Brookfield Business Partners L.P.'s limited partnership
units are listed on the New York Stock Exchange and the Toronto Stock Exchange under the symbols "BBU" and "BBU.UN",
respectively. The registered head office of Brookfield Business Partners L.P. is 73 Front Street, 5th Floor, Hamilton HM
12, Bermuda.
Brookfield Business Partners L.P.’s sole direct investment is a managing general partnership interest (the "Managing GP
Units") in Brookfield Business L.P. (the "Holding LP"), which holds the partnership’s interests in the business services and industrial
operations.
The partnership’s principal business services include construction services, infrastructure services to the power generation
industry, services provider to the offshore oil production industry, residential real estate services, road fuel distribution and
marketing, logistics and facilities management. The partnership’s principal industrial operations are comprised of palladium and
aggregates mining, the production of graphite electrodes, water and wastewater services and manufacturing of returnable plastic
and packaging systems, and oil and gas production. The partnership’s operations are primarily located in Canada, Australia, Europe,
the United States, Brazil and the Middle East.
(b)
Spin-off of business services and industrial operations
On June 20, 2016, Brookfield completed the spin-off of the partnership (the "spin-off"), which was effected by way of a
special dividend of units of Brookfield Business Partners L.P. to holders of Brookfield’s Class A and B limited voting shares as
of June 2, 2016. Each holder of Brookfield shares received one limited partnership unit for approximately every 50 Brookfield
shares. Brookfield shareholders received approximately 45% of the limited partnership units of Brookfield Business Partners L.P.,
with Brookfield retaining the remaining limited partnership units of Brookfield Business Partners L.P.
Prior to the spin-off, Brookfield effected a reorganization so that the partnership’s business services and industrial
operations that were historically owned and operated by Brookfield, both directly and through its operating entities, were acquired
by subsidiaries of the Holding LP, (the ‘‘holding entities’’). In addition, Brookfield transferred $250 million in cash to the holding
entities. The holding entities were established to hold the partnership’s interest in the Business. In consideration, Brookfield received
(i) approximately 55% of the limited partnership ("LP") units and 100% of the general partner units of Brookfield Business Partners
L.P., (ii) special limited partnership units ("Special LP Units") and redemption-exchange units of Holding LP ("redemption-
exchange units"), representing an approximate 52% limited partnership interest in the Holding LP, and (iii) $15 million of preferred
shares of the holding entities, (‘‘preferred shares’’). On spin-off, Brookfield held approximately 79% of the partnership interest
on a fully exchanged basis. As at December 31, 2018, Brookfield's interest in the partnership was 68% on a fully exchanged basis.
Further details are described in Note 19.
Throughout these consolidated financial statements, reference to "attributable to the unitholder" means attributable to
limited partnership unitholders, general partnership unitholders, redemption-exchange unitholders and special limited partnership
unitholders post spin-off and to parent company pre spin-off.
F-12
Brookfield Business Partners
Table of Contents
BROOKFIELD BUSINESS PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at December 31, 2018 and 2017 and for the years ended December 31, 2018, 2017 and 2016
The following describes the agreements resulting from the spin-off:
(i) Redemption-exchange units
As part of the spin-off, Holding LP issued redemption-exchange units for the transfer of the Business. The redemption-
exchange units may, at the request of Brookfield, be redeemed in whole or in part, for cash in an amount equal to the market value
of one of Brookfield Business Partners L.P.’s limited partnership units multiplied by the number of units to be redeemed (subject
to certain customary adjustments). This right is subject to Brookfield Business Partners L.P.’s right, at its sole discretion, to elect
to acquire any unit presented for redemption in exchange for one of Brookfield Business Partners L.P.’s limited partnership units
(subject to certain customary adjustments). If Brookfield Business Partners L.P. elects not to exchange the redemption-exchange
units for limited partnership units of Brookfield Business Partners L.P., the redemption-exchange units are required to be redeemed
for cash. The redemption-exchange units provide the holder the direct economic benefits and exposures to the underlying
performance of Holding LP and accordingly to the variability of the distributions of Holding LP, whereas Brookfield Business
Partners L.P.’s unitholders have indirect access to the economic benefits and exposures of Holding LP through direct ownership
interest in Brookfield Business Partners L.P. which owns a direct interest in Holding LP through its Managing GP Units.
(ii) Preferred shares
As part of the spin-off, Brookfield subscribed for an aggregate of $15 million of preferred shares of three of the partnership’s
subsidiaries. The preferred shares are entitled to receive a cumulative preferential cash dividend equal to 5% of their redemption
value per annum as and when declared by the board of the directors of the applicable entity and are redeemable at the option of
the applicable entity at any time after the twentieth anniversary of their issuance.
(iii) Credit facilities
As part of the spin-off, the partnership entered into a credit agreement with Brookfield (the ‘‘Brookfield Credit
Agreements’’) providing for two, three-year revolving credit facilities. In October 2017, the two credit facilities were combined
into one revolving credit facility that permits borrowings of up to $500 million. Further details of the Brookfield Credit Agreements
are described in Note 17.
(iv) Other arrangements with Brookfield
The partnership entered into a Master Services Agreement (the ‘‘Master Services Agreement’’) with affiliates of
Brookfield, (the ‘‘Service Providers’’), to provide management services to the partnership. Key decision makers of the partnership
are employees of the ultimate parent company and provide management services to the partnership under this Master Services
Agreement. Pursuant to the Master Services Agreement, the partnership pays a base management fee to the Service Providers
equal to 1.25% of the total capitalization of Brookfield Business Partners L.P. per annum (0.3125% per quarter). Through its
holding of Special LP Units in the Holding LP, Brookfield also receives incentive distributions based on a 20% increase in the
unit price of Brookfield Business Partners L.P. over an initial threshold based on the volume weighted average price of the units,
subject to a high watermark. Further details of this arrangement are described in Note 19.
As part of the spin-off, the partnership entered into a Deposit Agreement with Brookfield, (the ‘‘Deposit Agreement’’).
From time to time, the partnership may place funds on deposit with Brookfield. The deposit balance is due on demand and earns
an agreed upon rate of interest. The terms of any such deposit are on market terms.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
(a)
Basis of presentation
These consolidated financial statements of the partnership and its subsidiaries (‘‘financial statements’’) have been prepared
in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards
Board ("IASB"). The financial statements are prepared on a going concern basis and have been presented in U.S. dollars rounded
to the nearest million unless otherwise indicated. The accounting policies and methodologies set out below have been applied
consistently, with the exception of certain comparative figures which have been reclassified to conform to the current period's
presentation. Policies not effective for the current accounting period are described later in Note 2 (ad), under Future Changes in
Accounting Policies.
F-13
Brookfield Business Partners
Table of Contents
BROOKFIELD BUSINESS PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at December 31, 2018 and 2017 and for the years ended December 31, 2018, 2017 and 2016
For the periods prior to June 20, 2016, the partnership’s results represented a carve-out of the assets, liabilities, revenues,
expenses, and cash flows of the Business that was contributed to the partnership and included allocations of general corporate
expenses of the parent company. These expenses, prior to the spin-off, relate to certain operations oversight functions and associated
information technology, facilities and other overhead costs and have been allocated based on headcount. These allocated expenses
have been included as appropriate in the partnership’s consolidated statements of operating results prior to the spin-off. These
allocations may not, however, reflect the expense the partnership would have incurred as an independent publicly-traded company
for the periods presented.
Subsequent to the spin-off, the partnership is no longer allocated general corporate expenses of the parent company as
the functions to which they related are now provided through the Master Services Agreement. The base management fee related
to the services received under the Master Services Agreement has been recorded as part of general and administrative expenses
in the consolidated financial statements.
These financial statements were approved by the partnership’s Board of Directors and authorized for issue on March 15,
2019.
Revision of Comparatives
The comparative cash flow figures for the year ended December 31, 2017, have been revised to correct an immaterial
error identified by management in the audited consolidated statements related to the reclassification of cash flows from bank
overdrafts, resulting from an acquisition completed in May 2017 in our business services segment. As a result, for the year ended
December 31, 2017, $360 million, which was previously reported in accounts payable and other within the operating activities
line item entitled changes in non-cash working capital, net, is now being reported within the financing activities line item entitled
proceeds from credit facilities, net. The 2017 comparative figures in the supplemental cash flow information within Note 28 have
also been updated to remove the bank overdraft which was previously recorded within accounts payable and other. The correction
of the classification in the statement of cash flow is immaterial and had no impact on the partnership’s historical audited statements
of financial position, statements of operating results, statements of comprehensive income, and statements of changes in equity.
Segment Change
Periodically we review the organizational and governance structure of our businesses. Following the acquisitions and
monetizations completed during the year, we have assessed our operations and made updates. In connection with the acquisition
of Westinghouse Electric Company ("Westinghouse") and the disposition of our Australian energy business, we have realigned
the organizational and governance structure of our businesses and have changed how the partnership evaluates financial information
for management decision making which has resulted in a change in our operating segments.
Specifically, our construction services segment and business services segment are presented as a single operating segment
called business services. Infrastructure services is a new operating segment, which includes our investment in Westinghouse and
Teekay Offshore. The energy segment has been eliminated and the remainder of our energy businesses are evaluated with and
presented within our industrial operations segment.
The partnership has retrospectively applied these segment changes for all periods presented.
(b)
Continuity of interests
Brookfield Business Partners L.P. was established on January 18, 2016 by Brookfield and on June 20, 2016 Brookfield
completed the spin-off of the Business to holders of Brookfield’s Class A and B limited voting shares. Brookfield directly and
indirectly controlled the Business prior to the spin-off and continues to control the partnership subsequent to the spin-off through
its interests in the partnership. As a result of this continuing common control, there is insufficient substance to justify a change in
the measurement of the Business. In accordance with the partnership’s and Brookfield’s accounting policy, the partnership has
reflected the Business in its financial position and results of operations using Brookfield’s carrying values, prior to the spin-off.
F-14
Brookfield Business Partners
Table of Contents
BROOKFIELD BUSINESS PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at December 31, 2018 and 2017 and for the years ended December 31, 2018, 2017 and 2016
To reflect this continuity of interests these financial statements provide comparative information of the Business for the
periods prior to the spin-off, as previously reported by Brookfield. The economic and accounting impact of contractual relationships
created or modified in conjunction with the spin-off (see Note 1(b)) have been reflected prospectively from the date of the spin-
off and have not been reflected in the results of operations or financial position of the partnership prior to June 20, 2016, as such
items were in fact not created or modified prior thereto. Accordingly, the financial information for the periods prior to June 20,
2016 is presented based on the historical financial information for the Business as previously reported by Brookfield. For the
period after completion of the spin-off, the results are based on the actual results of the partnership, including the adjustments
associated with the spin-off and the execution of several new and amended agreements including management service and
relationship agreements (see Note 24). Therefore, net income (loss) and comprehensive income (loss) not attributable to interests
of others in operating subsidiaries has been allocated to Brookfield prior to June 20, 2016 and allocated to the limited partners,
the general partner, redemption-exchange unitholders, and special limited partners on and after June 20, 2016.
Prior to June 20, 2016, intercompany transactions between the partnership and Brookfield have been included in these
financial statements and are considered to be forgiven at the time of the transaction, are recorded and reflected as a ‘‘Net increase/
(decrease) in Brookfield Asset Management Inc. investment’’. ‘‘Net increase/(decrease) in Brookfield Asset Management Inc.
investment’’ as shown in the consolidated statements of changes in equity represents the parent company’s historical investment
in the partnership, accumulated net income and the net effect of the transactions and allocations from the parent company. The
total net effect of transactions with the parent company is reflected in the consolidated statements of cash flow as a financing
activity and in the consolidated statements of financial position as ‘‘Equity attributable to Brookfield Asset Management Inc.
(c)
Basis of consolidation
The consolidated financial statements include the accounts of the partnership and its consolidated subsidiaries, which are
the entities over which the partnership has control. An investor controls an investee when it is exposed, or has rights, to variable
returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Non-
controlling interests in the equity of the partnership’s subsidiaries held by others and the redemption-exchange units, Special LP
Units and preferred shares held by Brookfield in the Holding LP and the holding entities respectively are shown separately in
equity in the consolidated statements of financial position. Intercompany transactions within the partnership have been eliminated.
As part of the spin-off, Brookfield Business Partners L.P., through its Managing GP Units, became the managing general
partner of Holding LP, and thus controls Holding LP. The partnership entered into agreements with various affiliates of Brookfield,
whereby the partnership was assigned Brookfield’s voting or general partner kick-out rights and effectively controls the subsidiaries
of Holding LP with respect to which the agreements were put in place. Accordingly, the partnership consolidates the accounts of
Holding LP and its subsidiaries.
(d)
Redemption-exchange units
As described in Note 1(b)(i), the partnership’s equity interests include limited partnership units held by public unitholders
and Brookfield, as well as redemption-exchange units held by Brookfield. The redemption-exchange units have the same economic
attributes in all respects as the limited partnership units, except that the redemption-exchange units provide Brookfield the right
to request that its units be redeemed for cash consideration. In the event that Brookfield exercises this right, the partnership has
the right, at its sole discretion, to satisfy the redemption request with limited partnership units of Brookfield Business Partners
L.P., rather than cash, on a one-for-one basis. The redemption-exchange units provide Brookfield with the direct economic benefits
and exposures to the underlying performance of the Holding LP and accordingly to the variability of the distributions of the Holding
LP, whereas the partnership’s unitholders have indirect access to the economic benefits and exposures of the Holding LP through
direct ownership interest in the partnership which owns a direct interest in the Holding LP. Accordingly, the redemption-exchange
units have been presented within non-controlling interests. The redemption-exchange units are issued capital of the Holding LP
and as a result are not adjusted for changes in market value.
(e)
Preferred shares and Special Limited Partner units
As described in Note 1(b)(ii), the partnership’s equity interests include preferred shares and Special Limited Partner units
held by Brookfield. The partnership and its subsidiaries are not obligated to redeem the preferred shares and accordingly, they
have been determined to be equity of the applicable entities and are reflected as a component of non-controlling interest in the
consolidated statements of financial position.
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BROOKFIELD BUSINESS PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at December 31, 2018 and 2017 and for the years ended December 31, 2018, 2017 and 2016
(f)
(i)
Interests in other entities
Subsidiaries
These consolidated financial statements include the accounts of the partnership and subsidiaries over which the partnership
has control. Subsidiaries are consolidated from the date of acquisition, being the date on which the partnership obtained control,
and continue to be consolidated until the date when control is lost. The partnership controls an investee when it is exposed, or has
rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over
the investee.
Non-controlling interests may be initially measured either at fair value or at the non-controlling interests’ proportionate
share of the fair value of the acquiree’s identifiable net assets. The choice of measurement basis is made on an acquisition by
acquisition basis. Subsequent to acquisition, the carrying amount of non-controlling interests is the amount of those interests at
initial recognition plus the non-controlling interests’ share of subsequent changes in partnership capital in addition to changes in
ownership interests. Total comprehensive income (loss) is attributed to non-controlling interests, even if this results in the non-
controlling interests having a deficit balance.
All intercompany balances, transactions, revenues and expenses are eliminated in full.
The following provides information about our partnership's wholly-owned subsidiaries as of December 31, 2018 and
2017:
Name of entity
Country of
incorporation
Voting interest
(%)
Economic interest
(%)
2018
2017
2018
2017
BFIN
Canada
100%
100%
100%
100%
Brookfield RPS Limited
Canada
United
Kingdom
100%
100%
100%
100%
100%
100%
100%
100%
Defined Name
Business Services
Financial advisory services
business
Residential real estate services
business
Construction services business
Multiplex
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BROOKFIELD BUSINESS PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at December 31, 2018 and 2017 and for the years ended December 31, 2018, 2017 and 2016
The following table presents details of non-wholly owned subsidiaries of our partnership:
Defined Name
Name of entity
Business Services
Condominium management
services business
Crossbridge Condominium
Services Ltd.
IT storage facilities
management business
Fuel marketing business
WatServ
BG Fuels
Facilities management business
Cold storage logistics
Road fuel distribution business
Wireless broadband
Infrastructure services
Infrastructure services provider
to the power generation industry
Services provider to the offshore
oil production industry
Industrial operations
BGIS Global Integrated
Solutions
Nova Cold Logistics
Greenergy Fuels Holding
Limited
Imagine Communications
Group Limited
Westinghouse Electric
Company
Teekay Offshore Partners L.P.
Country of
incorporation
Voting interest
(%)
Economic interest
(%)
2018
2017
2018
2017
Canada
Canada
Canada
Canada
Canada
United
Kingdom
90%
90%
90%
90%
75%
100%
100%
100%
75%
100%
100%
100%
75%
26%
26%
25%
75%
26%
26%
25%
85%
85%
14%
14%
Ireland
55%
—%
31%
—%
United States
of America
United States
of America
100%
—%
44%
—%
51%
—%
25%
—%
Limestone mining operations
Hammerstone Corporation
Canada
100%
100%
39%
39%
Graphite electrode
manufacturing business
GrafTech International Ltd.
United States
of America
79%
100%
27%
34%
Water and wastewater services
BRK Ambiental
Infrastructure support products
manufacturing operation
Palladium mining operation
Provider of returnable plastic
packaging
Canadian well-servicing
operation
AP Infrastructure Solutions
LP
North American Palladium
Ltd.
Brazil
Canada
Canada
70%
70%
26%
26%
100%
100%
25%
25%
91%
92%
23%
23%
Schoeller Allibert Group B.V. Netherlands
52%
—%
14%
—%
CWC Energy Services Corp.
Canada
78%
78%
56%
56%
Canadian energy operation
Ember Resources Inc.
Canada
100%
100%
41%
41%
(ii)
Associates and joint ventures
Associates are entities over which the partnership 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 partnership accounts for
associates and joint ventures using the equity method of accounting within equity accounted investments in the consolidated
statements of financial position.
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BROOKFIELD BUSINESS PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at December 31, 2018 and 2017 and for the years ended December 31, 2018, 2017 and 2016
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 partnership 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 partnership’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 partnership interest in an associate or joint venture is adjusted
for the partnership’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 reporting 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 2(o).
(g)
Foreign currency translation
The U.S. dollar is the functional and presentation currency of the partnership. Each of the partnership’s subsidiaries and
equity accounted investments determines its own functional currency and items included in the financial statements of each
subsidiary and equity accounted investment are measured using that functional currency.
Assets and liabilities of foreign operations having a functional currency other than the U.S. dollar are translated at the
rate of exchange prevailing at the reporting date and revenues and expenses at average rates during the period. Gains or losses on
translation are included as a component of equity.
On disposal of a foreign operation resulting in the loss of control, the component of other comprehensive income due to
accumulated foreign currency translation 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. On partial disposal of a foreign operation in which control is retained, the proportionate share of the component
of other comprehensive income or loss relating to that foreign operation is reclassified to non-controlling interests in that foreign
operation.
Foreign currency denominated monetary assets and liabilities are translated using the rate of exchange prevailing at the
reporting date and non-monetary assets and liabilities are measured at historic cost and are translated at the rate of exchange at
the transaction date. Revenues and expenses are measured at average rates during the period. Gains or losses on translation of
these items are included in the consolidated statement of operating results. Gains and losses on transactions which hedge these
items are also included in the consolidated statement of operating results.
(h)
Business combinations
Business acquisitions, in which control is acquired, are accounted for using the acquisition method, other than those
between and among entities under common control. The consideration of each acquisition is measured at the aggregate of the fair
values at the acquisition date of assets transferred by the acquirer, liabilities incurred or assumed, and equity instruments issued
by the partnership in exchange for control of the acquiree. Acquisition related costs are recognized in the consolidated statements
of operating results as incurred and included in other income (expenses), net.
Where applicable, the consideration for the acquisition includes any asset or liability resulting from a contingent
consideration arrangement, measured at its acquisition-date fair value. Subsequent changes in fair values are adjusted against the
cost of the acquisition where they qualify as measurement period adjustments. All other subsequent changes in the fair value of
contingent consideration classified as liabilities will be recognized in the consolidated statements of operating results, whereas
changes in the fair values of contingent consideration classified within equity are not subsequently re-measured.
Where a business combination is achieved in stages, the partnership’s previously held interests in the acquired entity are
remeasured to fair value at the acquisition date, that is, the date the partnership attains control and the resulting gain or loss, if any,
is recognized in the consolidated statements of operating results. Amounts arising from interests in the acquiree prior to the
acquisition date that have previously been recognized in other comprehensive income are reclassified to the consolidated statements
of operating results, where such treatment would be appropriate if that interest were disposed of.
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BROOKFIELD BUSINESS PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at December 31, 2018 and 2017 and for the years ended December 31, 2018, 2017 and 2016
If the initial accounting for a business combination is incomplete by the end of the reporting period in which the acquisition
occurs, the partnership reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts
are adjusted during the measurement period, or additional assets or liabilities are recognized, to reflect new information obtained
about facts and circumstances that existed as of the acquisition date that, if known, would have affected the amounts recognized
as of that date.
The measurement period is the period from the date of acquisition to the date the partnership obtains complete information
about facts and circumstances that existed as of the acquisition date. The measurement period is subject to a maximum of one year
subsequent to the acquisition date.
If, after reassessment, the partnership’s interest in the fair value of the acquiree’s identifiable net assets exceeds the sum
of the consideration transferred, the amount of any non-controlling interests in the acquiree and the fair value of the acquirer’s
previously held equity interest in the acquiree if any, the excess is recognized immediately in income as a bargain purchase gain.
Contingent liabilities acquired in a business combination are initially measured at fair value at the date of acquisition. At
the end of subsequent reporting periods, such contingent liabilities are measured at the higher of the amount that would be recognized
in accordance with IAS 37, Provisions, Contingent Liabilities and Contingent Assets, and the amount initially recognized less
cumulative amortization recognized in accordance with IAS 18, Revenue.
(i)
Cash and cash equivalents
Cash and cash equivalents include cash on hand, non-restricted deposits and short-term investments with original maturities
of three months or less.
(j)
Accounts and other receivable, net
Accounts and other receivable, net include trade receivables, construction retentions and other unbilled receivables, which
are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method, less any
allowance for uncollectable amounts.
Trade receivables related to the partnership’s mining operations are recognized at fair value.
(k)
Inventories
Inventories, with the exception of certain fuel inventories, are valued at the lower of cost and net realizable value. Cost
is determined using specific identification where possible and practicable or using the first-in, first-out or weighted average method.
Costs include direct and indirect expenditures incurred in bringing the inventory to its existing condition and location. Net realizable
value represents the estimated selling price in the ordinary course of business, less the estimated costs of completion and the
estimated costs necessary to make the sale.
Fuel inventories are traded in active markets and are purchased with the view to resell in the near future, generating a
profit from fluctuations in prices or margins. As a result, fuel inventories are carried at market value by reference to prices in a
quoted active market, in accordance with the commodity broker-trader exemption granted by IAS 2, Inventories. Change in fair
value less costs to sell, are recognized in the consolidated statement of operating results through direct operating costs. Fuel products
that are held for extended periods in order to benefit from future anticipated increases in fuel prices or located in territories where
no active market exists are recognized at the lower of cost and net realizable value. Products and chemicals used in the production
of biofuels are valued at the lower of cost and net realizable value.
(l)
Renewable Transport Fuel Obligation (RTFO)
Under the UK government's Renewable Transport Fuel Obligation ("RTFO") Order, which regulates biofuels used for
transport and non-road mobile machinery, our UK road fuel service operation is required to meet annual targets for the supply of
biofuels. The obligations which arise are either settled by cash or through the delivery of certificates which are generated by
blending biofuels. To the extent that the partnership generates certificates in excess of its current year obligation, these can either
be carried forward to offset up to 25% of the next year’s obligation or sold to other parties.
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Brookfield Business Partners
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BROOKFIELD BUSINESS PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at December 31, 2018 and 2017 and for the years ended December 31, 2018, 2017 and 2016
Certificates generated or purchased during the year which will be used to settle the current obligation are recognized in
inventory at the lower of cost and net realizable value. Where certificates are generated, cost is deemed to be the average cost of
blending biofuels during the year in which the certificates are generated.
Certificates held for sale to third parties are recognized in inventory at fair value. There is no externally quoted marketplace
for the valuation of RTFO certificates. In order to value these contracts, the partnership has adopted a pricing methodology
combining both observable inputs based on market data and assumptions developed internally based on observable market activity.
Changes in market prices of the certificates and the quantity of tickets considered to be realizable through external sales are
recognized immediately in the consolidated statement of operating results. Certificates for which no active market is deemed to
exist are not recognized.
The liability associated with the obligations under the RTFO Order is recognized in the year in which the obligation arises
and is valued by reference to either the cost of generating the certificates which will be surrendered to meet the obligation or the
expected future cash outflow where the obligation is settled. The liability is recorded in accounts payable and other.
(m)
Related party transactions
In the normal course of operations, the partnership 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 24.
(n)
Property, plant and equipment, or PP&E
Items of PP&E are measured at cost less accumulated depreciation and accumulated impairment losses, if any. Cost
includes expenditures that are directly attributable to the acquisition of the asset. The cost of assets includes the cost of materials
and direct labour, any other costs directly attributable to bringing the assets to a working condition for their intended use, and the
cost of dismantling and removing the items and restoring the site on which they are located.
Depreciation of an asset commences when it is available for use. PP&E are depreciated on a straight line basis over the
estimated useful lives of each component of the assets as follows:
Buildings
Leasehold improvements
Machinery and equipment
Oil and gas related equipment
Vessels
Up to 50 years
Up to 40 years but not exceeding the term of the lease
Up to 20 years
Up to 10 years
Up to 35 years
Depreciation on PP&E is calculated on a straight-line basis so as to write-off the net cost of each asset over its expected
useful life to its estimated residual value. Leasehold improvements are depreciated over the period of the lease or estimated useful
life, whichever is the shorter, using the straight-line method. The estimated useful lives, residual values and depreciation methods
are reviewed at the end of each annual reporting period, with the effect of any changes recognized on a prospective basis.
With respect to our oil and natural gas assets, pre-license costs are costs incurred before the legal rights to explore a
specific area have been obtained and are expensed in the period in which they are incurred. Once the legal right to explore has
been acquired, costs directly associated with an exploration well are initially capitalized as exploration and evaluation, or E&E,
costs. Such E&E costs may include costs of license acquisition, technical services and studies, seismic acquisition, exploration
drilling and testing. E&E costs are not depleted and are carried forward until technical feasibility and commercial viability has
been determined. All such carried costs are subject to technical, commercial and management review at each reporting period and
where indicators of impairment exist, such costs are charged to E&E expense.
F-20
Brookfield Business Partners
Table of Contents
BROOKFIELD BUSINESS PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at December 31, 2018 and 2017 and for the years ended December 31, 2018, 2017 and 2016
Upon determination that proved and/or probable reserves exist and the technology exists to extract the resource
economically, E&E assets attributable to those reserves are first tested for impairment and then reclassified to oil and gas properties
within PP&E. The net carrying value of oil and gas properties is depleted using the unit-of-production method based on estimated
proved plus probable oil and natural gas reserves. Future development costs, which are the estimated costs necessary to bring those
reserves into production, are included in the depletable base. For purposes of this calculation, oil and natural gas reserves are
converted to a common unit of measurement on the basis of their relative energy content where six thousand cubic feet of natural
gas equates to one barrel of oil.
With respect to our mining assets, exploration costs relating to properties are charged to earnings in the year in which
they are incurred. When it is determined that a mining property can be economically developed as a result of reserve potential and
subsequent exploration, expenditures are capitalized. Determination as to reserve potential is based on the results of studies, which
indicate whether production from a property is economically feasible. Upon commencement of commercial production of a
development project these costs are amortized using the unit-of-production method over the proven and probable reserves.
As part of its mining operations, the partnership incurs stripping costs both during the development phase and production
phase of its operations. Stripping costs incurred as part of development stage mining activities incurred by the partnership are
deferred and capitalized as part of mining properties. Stripping costs incurred during the production stage are incurred in order to
produce inventory or to improve access to ore which will be mined in the future. Where the costs are incurred to produce inventory,
the production stripping costs are accounted for as a cost of producing those inventories. Where the costs are incurred to improve
access to ore which will be mined in the future, the costs are deferred and capitalized as a stripping activity asset (included in
mining interest) if the following criteria are met: improved access to the ore body is probable; the component of the ore body can
be accurately identified; and the costs relating to the stripping activity associated with the component can be reliably measured.
If these criteria are not met the costs are expensed in the period in which they are incurred. The stripping activity asset is subsequently
depleted using the units-of-production depletion method over the life of the identified component of the ore body to which access
has been improved as a result of the stripping activity.
(o)
Asset impairment
At each reporting date the partnership assesses whether for assets, other than those measured at fair value with changes
in values recorded in net income, there is any indication that such assets or cash generating units are impaired. This assessment
includes a review of internal and external factors which includes, but is not limited to, changes in the technological, political,
economic or legal environment in which the entity operates in, structural changes in the industry, changes in the level of demand,
physical damage and obsolescence due to technological changes. An impairment is recognized if the recoverable amount,
determined as the higher of the estimated fair value less costs of disposal or the discounted future cash flows generated from use
and eventual disposal from an asset or cash generating unit is less than their carrying value. The projections of future cash flows
take into account the relevant operating plans and management’s best estimate of the most probable set of conditions anticipated
to prevail. Where an impairment loss subsequently reverses, the carrying amount of the asset or cash generating unit is increased
to the lesser of the revised estimate of recoverable amount and the carrying amount that would have been recorded had no impairment
loss been recognized previously.
(p)
Intangible assets
Intangible assets acquired in a business combination and recognized separately from goodwill are initially recognized at
their fair value at the acquisition date. The partnership’s intangible assets are comprised primarily of water and sewage concession
rights, computer software, trademarks, distribution networks, patents, product development, customer relationships, loyalty
program, brand and technology.
Subsequent to initial recognition, intangible assets acquired in a business combination are reported at cost less accumulated
amortization and accumulated impairment losses, on the same basis as intangible assets acquired separately. Intangible assets are
amortized on a straight line basis over the following periods:
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Brookfield Business Partners
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BROOKFIELD BUSINESS PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at December 31, 2018 and 2017 and for the years ended December 31, 2018, 2017 and 2016
Water and sewage concession agreements
Brand names
Computer software
Customer relationships
Patents and trademarks
Proprietary technology
Product development costs
Distribution networks
Loyalty program
Up to 40 years
Up to 20 years
Up to 10 years
Up to 30 years
Up to 40 years
Up to 15 years
Up to 5 years
Up to 25 years
Up to 15 years
Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal
proceeds and the carrying amount of the asset and are recognized in the statement of operating results when the asset is derecognized.
Service concession arrangements which provide the partnership the right to charge users for the services are accounted
for as an intangible asset under IFRIC 12, Service Concession Arrangements. Water and sewage concession agreements were
acquired as part of the acquisition of BRK Ambiental, the Brazilian water, wastewater and industrial water and sewerage services
company and were initially recognized at their fair values. Further information on the acquisition is available in Note 3.
Loyalty program represents the partnership's contractual right to issue loyalty points through a pre-existing loyalty
program. The loyalty program was acquired as part of the acquisition of our fuel marketing business and was initially recognized
at fair value. Further information on the acquisition is available in Note 3.
Brands represent the intrinsic value customers place on the operation's various brand names. As part of the acquisition
of Westinghouse, infrastructure services provider to the power generation industry, we acquired the reputation and positive brand
recognition that is embodied in its brand name. This intangible asset is classified to have an indefinite life and is subject to an
annual impairment assessment.
(q)
Goodwill
Goodwill represents the excess of the price paid for the acquisition of a business over the fair value of the net tangible
and intangible assets and liabilities acquired. Goodwill is allocated to the cash generating unit or units to which it relates. The
partnership 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 on an annual basis. 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 of disposal or the value in use. Impairment losses recognized in respect of a cash generating
unit are first allocated to the carrying value of goodwill and any excess is allocated to the carrying amount of assets in the cash
generating unit. Any goodwill impairment is charged to impairment expense, net on the statement of operating results in the period
in which the impairment is identified. Impairment losses on goodwill are not subsequently reversed.
On disposal of a subsidiary, the attributable amount of goodwill is included in the determination of the gain or loss on
disposal of the operation.
(r)
Revenue from contracts with customers
Business Services
Construction Services
Our construction services business provides end-to-end design and development solutions for our customers. The work
performed on these contracts creates or enhances an asset that our customer controls and accordingly we recognize revenue on
these contracts over a period of time. The partnership uses an input method, the cost-to-cost method, to measure progress towards
complete satisfaction of the performance obligations under IFRS 15.
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Brookfield Business Partners
Table of Contents
BROOKFIELD BUSINESS PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at December 31, 2018 and 2017 and for the years ended December 31, 2018, 2017 and 2016
As work is performed, a contract asset in the form of contracts-in-progress is recognized, which is reclassified to accounts
receivable when invoiced to the customer. If payment is received in advance of work being completed, a contract liability is
recognized. Refer to Note 16 for further information on contracts-in-progress balances. There is not considered to be a significant
financing component in construction contracts as the period between the recognition of revenue under the cost-to-cost method and
when payment is received is typically less than one year.
IFRS 15 requires a highly probable criterion with regards to recognizing revenue arising from variable consideration
resulting from contract modifications and claims. For variable consideration, revenue is only recognized to the extent that it is
highly probable that a significant reversal in the amount of revenue recognized will not occur when the uncertainty associated
with the variable consideration is subsequently resolved.
Fuel Distribution & Marketing
The fees and related costs for providing road fuel distribution and marketing are recognized at a point in time when the
services are provided.
Revenue from the sale of goods in our UK road fuel service operation represents net invoiced sales of fuel products and
Renewable Transport Fuel Obligation ("RTFO") certificates, excluding value added taxes but including excise duty, which has
been assessed to be a production tax and recorded as part of consideration received. Revenue is recognized at the point that title
passes to the customer.
Facilities Management
The fees and related costs for providing facilities management services are recognized over the time in which the services
are provided.
Real Estate Services
The fees and related costs for providing real estate and logistics services are recognized over the time in which the services
are provided.
Associated with the delivery of certain service contracts, our partnership also earns revenue from home sale transactions
and referral fees from suppliers utilized in servicing these contracts. These revenue transactions are recognized as follows:
• Home Sale: The partnership earns home sale revenue from two types of contracts: cost-plus home sale and fixed fee home
sale contracts. Under a cost-plus home sale contract, the partnership earns a performance fee and bears no risk of loss
with respect to costs incurred. Revenues and related costs associated with the purchase and resale of residences under
cost-plus contracts are recognized on a net basis over the period in which services are provided as the Partnership does
not have control over the home prior to transfer to the customer. Under a fixed fee home sale contract, the partnership
earns a fixed fee based upon a percentage of the acquisition cost of the residential property. This fee revenue is recognized
when title is transferred to the customer as the partnership’s performance obligation is complete at this time. The revenues
and expenses related to the home sale itself are recorded on a gross basis.
• Referral fees: The partnership earns referral fees from various suppliers who provide services to customers through our
service offerings. A significant portion of the referral fee revenue is generated from the closing of a home sale or purchase
transaction, under which the partnership earns a percentage of the commissions received by the real estate agent on the
purchase or sale of a home by the customer. Referral fees from home purchases or sales are recognized upon the closing
date of the real estate transaction. The partnership recognizes referral fees from other suppliers upon completion of the
services.
Infrastructure Services
Power Generation Service Provider
Sales of products are recognized at a point in time when the product is shipped and control passes to the customer. Revenue
from contracts to provide engineering, design or other services are recognized and reported over time based on an appropriate
measure of progress over time. The partnership uses an input method, the cost-to-cost method, to measure progress towards
complete satisfaction of the performance obligations under IFRS 15.
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BROOKFIELD BUSINESS PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at December 31, 2018 and 2017 and for the years ended December 31, 2018, 2017 and 2016
IFRS 15 requires a highly probable criterion with regards to recognizing revenue arising from variable consideration and
contract modification and claims. For variable consideration, revenue is only to be recognized to the extent that it is highly probable
that a significant reversal in the amount of revenue recognized will not occur when the uncertainty associated with the variable
consideration is subsequently resolved.
Offshore Oil Production Service Provider
The partnership primary source of revenues is chartering its vessels and offshore units to its customers. The partnership's
primary forms of contracts consists of floating production storage and offloading (or "FPSO") contracts and contracts of
affreightment (or "CoA").
•
FPSO contracts: Pursuant to an FPSO contract, the partnership charters an FPSO unit to a customer for a fixed period of
time, generally more than one year. The performance obligations within an FPSO contract, which will include the use of
the FPSO unit to the charterer as well as the operation of the FPSO unit, are satisfied as services are rendered over the
duration of such contract, as measured using the time that has elapsed from commencement of performance.
Some FPSO contacts include variable consideration components in the form of expense adjustments or reimbursements,
incentive compensation and penalties. Variable consideration under the partnership’s contracts is typically recognized as incurred
as either such revenues are allocated and accounted for under lease accounting requirements or alternatively such consideration
is allocated to the distinct period in which such variable consideration was earned.
• Contracts of Affreightment: Voyages performed pursuant to a CoA for the partnership’s shuttle tankers are priced based
on the pre-agreed terms in the CoA. The performance obligations within a voyage performed pursuant to a CoA, which
typically include the use of the vessel to the charterer as well as the operation of the vessel, are satisfied as services are
rendered over the duration of the voyage, as measured using the time that has elapsed from commencement of performance.
The duration of a single voyage will typically be less than two weeks.
Industrial Operations
Manufacturing
Sales of goods are recognized at a point in time when the product is shipped and control passes to the customer. Services
revenues are recognized over time when the services are provided over time.
Mining
Revenue from our mining business is made under provisional pricing arrangements. Revenue from the sale of palladium
and by-product metals is provisionally recognized based on quoted market prices upon the delivery of concentrate to the smelter
or designated shipping point, which is when significant rights and obligations of ownership pass and title and control is transferred.
The business’ smelter contract provides for final prices to be determined by quoted market prices in a period subsequent to the
date of concentrate delivery. The period between provisional invoicing and final pricing, or settlement period, is typically between
30 and 150 days. The fair value of the final sales price adjustment is re-estimated by reference to forward market prices at each
period end and changes in fair value are recognized as an adjustment to revenue. As a result, the accounts receivable amounts
related to this business are recorded at fair value.
Energy Commodities and Services
Revenue from the sale of oil and gas is recognized at a point in time when title and control of the product passes to an
external party, based on volumes delivered and contractual delivery points and prices. Revenue for the production in which the
partnership has an interest with other producers is recognized based on the partnership’s working interest. Revenue is measured
net of royalties to reflect the deduction for other parties’ proportionate share of the revenue. Revenue from the rendering of services
is recognized at a point in time when significant rights and obligations of ownership pass and title and control is transferred.
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BROOKFIELD BUSINESS PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at December 31, 2018 and 2017 and for the years ended December 31, 2018, 2017 and 2016
Remaining Performance Obligations
Business Services
In our construction services business, backlog is defined as revenue yet to be delivered (i.e. remaining performance
obligations) on construction projects that have been secured via an executed contract, work order, or letter of intent. The total
backlog for our construction services operations equates to approximately two years of activity.
Industrial Operations
Our Brazilian water and wastewater services is party to certain remaining performance obligations which have a duration
of more than one year. The most significant remaining performance obligations at January 1, 2018 relate to the service concession
arrangements with various municipalities which have an average term of 25 years.
(s)
Contract work in progress
The gross amount due from customers for contract work for all contracts in progress for which costs incurred plus
recognized profits (less recognized losses) exceed progress billings, is generally presented as an asset. Progress billings not yet
paid by customers and retentions are included within the trade and other receivables balance. The gross amounts due to customers
for contract work for all contracts in progress for which progress billings exceed costs incurred plus recognized profits (less
recognized losses) is generally presented as a liability.
Construction work in progress on construction contracts is stated at cost plus profit recognized to date calculated in
accordance with the percentage of completion method, including retentions payable and receivable, less a provision for foreseeable
losses and progress payments received to date.
(t)
Financial instruments and hedge accounting
Classification and measurement
The table below summarizes the partnership’s classification and measurement of financial assets and liabilities, under
IFRS 9 and IAS 39:
Financial assets
IFRS 9 Measurement
Category
IAS 39 Measurement
Category
Statement of Financial
Position Account
Cash and cash equivalents
Amortized cost
Amortized cost
Cash and cash equivalents
Accounts receivable
Amortized cost / FVTPL
Amortized cost / Fair Value
Restricted cash
Equity securities
Debt securities
Derivative assets
Other financial assets
Amortized cost
FVTPL / FVOCI
Amortized cost
Fair Value
FVTPL / FVOCI / Amortized
cost
FVTPL (1)
Amortized cost / FVTPL /
FVOCI
Amortized cost / Fair Value
Financial assets
Fair Value
Financial assets
Amortized cost / Fair Value
Financial assets
Accounts and other
receivable, net
Financial assets
Financial assets
Financial liabilities
Borrowings
Accounts payable and other
Derivative liabilities
Amortized cost
Amortized cost
FVTPL (1)
____________________________________
Amortized cost
Amortized cost
Fair value
Borrowings
Accounts payable and other
Accounts payable and other
(1)
Derivatives are classified and measured at FVTPL except those designated in hedging relationships.
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BROOKFIELD BUSINESS PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at December 31, 2018 and 2017 and for the years ended December 31, 2018, 2017 and 2016
The classification depends on the specific business model for managing the financial instruments and the contractual cash
flow characteristics of the financial asset. The partnership maintains a portfolio of marketable securities comprised of equity and
debt securities. The marketable securities are recognized on their trade date. They are subsequently measured at fair value at each
reporting date with the change in fair value recorded in either profit or loss ("FVTPL") or other comprehensive income ("FVOCI").
For investments in debt instruments, this will depend on the business model in which the investments are held and the cash flow
characteristics of the debt instruments.
At initial recognition, the partnership measures a financial asset at its fair value plus, in the case of a financial asset not
at fair value through profit or loss, transaction costs that are directly attributable to the acquisition of the financial asset. Transaction
costs of financial assets carried at fair value through profit or loss are expensed in profit or loss.
Financial assets are classified as amortized cost based on their contractual cash flow characteristics and the business
model in which they are held. Financial assets classified as amortized cost are recorded initially at fair value, then subsequently
measured at amortized cost using the effective interest method, less any impairment.
Within the Notes to Consolidated Financial Statements, all 2017 disclosures, whether tabular or otherwise, of financial
assets and liabilities, would reflect the classification categories of IAS 39.
Impairment
The partnership recognizes a loss allowance for expected credit losses on debt investments measured subsequently at
amortized costs or at FVTOCI, trade receivables and contract assets. The partnership measures the loss allowance for a financial
instrument at an amount equal to the lifetime expected credit losses (ECL) if the credit risk on a financial instrument has increased
significantly since initial recognition. If the credit risk on a financial instrument has not increased significantly, the partnership
measures the loss allowance for that financial instrument at an amount equal to 12-months ECL. In making this assessment, the
partnership considers information that is reasonable and supportable, including historical experience and forward looking
information that is available without undue cost or effort.
The partnership utilizes a simplified approach for measuring the loss allowance at an amount equal to the lifetime ECL
for trade receivables and contract assets. The ECL on trade receivables are estimated using a provision matrix by reference to past
default experience of the debtor and an analysis of the debtor’s current financial position, adjusted for factors that are specific to
the debtors, general economic conditions of the industry in which the debtors operate and an assessment of both the current as
well as the forecast direction of conditions at the reporting date.
Derivatives and hedging activities
The partnership selectively utilizes derivative financial instruments primarily to manage financial risks, including
commodity price risk and foreign exchange risks. Derivative financial instruments are recorded at fair value. 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
highly effective as a hedge based on an expectation of offsetting cash flows or fair value. Hedge accounting is discontinued
prospectively when the derivative no longer qualifies as a hedge or the hedging relationship is terminated. Once discontinued, the
cumulative change in fair value of a derivative that was previously recorded in other comprehensive income by the application of
hedge accounting is recognized in profit or loss over the remaining term of the original hedging relationship as amounts related
to the hedged item are recognized in profit or loss. The assets or liabilities relating to unrealized mark-to-market gains and losses
on derivative financial instruments are recorded in financial assets and financial liabilities, respectively.
(i) Items classified as hedges
Realized and unrealized gains and losses on foreign exchange contracts and foreign currency debt that are designated as
hedges of currency risks relating to a net investment in a subsidiary with a functional currency other than the U.S. dollar are
included in equity and are included in net income in the period in which the subsidiary is disposed of or to the extent partially
disposed and control is not retained. Derivative financial instruments that are designated as hedges to offset corresponding changes
in the fair value of assets and liabilities and cash flows are measured at estimated fair value with changes in fair value recorded
in profit or loss or as a component of equity, as applicable.
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BROOKFIELD BUSINESS PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at December 31, 2018 and 2017 and for the years ended December 31, 2018, 2017 and 2016
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 profit or loss over the term of the corresponding interest payments
(ii) Items not classified as hedges
Derivative financial instruments that are not designated as hedges are recorded at estimated fair value, and gains and
losses arising from changes in fair value are recognized in net income in the period the changes occur. Realized and unrealized
gains on other derivatives not designated as hedges are recorded in other income (expenses), net.
Summary of impact upon adoption of IFRS 9 - Classification and measurement
The table below illustrates the classification and measurement of financial assets under IFRS 9 and IAS 39 at the date of
initial application. A similar table for financial liabilities has not been prepared because there have not been any reclassifications
and remeasurements within financial liabilities.
The following table is as at January 1, 2018:
(US$ MILLIONS)
FVTPL
FVOCI
Opening balance (IAS 39)
Reclassifications
Revised opening balance (IFRS 9)
$
$
166
211
377
$
$
Amortized Cost
5,852
$
$
—
5,852
$
$
429
(211)
218
Total
6,447
—
6,447
The following paragraphs explain how applying the new classification requirements of IFRS 9 led to changes in
classification of certain financial assets held by the partnership as shown in the table above.
Instruments reclassified from Available for Sale (IAS 39) to FVTPL (IFRS 9):
Debt Instruments previously classified as available for sale but which fail the Solely for Payment, Principal and Interest
("SPPI") test
The partnership held secured debentures and contractual rights which were reclassified from available for sale to FVTPL
for $187 million. Under IFRS 9, the debentures and contractual rights do not meet the criteria to be classified as at amortized cost
or FVOCI because their cash flows do not represent solely payments of principal and interest. Related fair value gains of $3 million
attributable to the partnership net of taxes were transferred from the available for sale reserve to retained earnings on January 1,
2018.
Equity instruments previously classified as available for sale
Under IFRS 9, equity instruments are classified and measured at FVTPL unless the partnership makes an irrevocable
day-one election to classify and measure such instruments that are not held for trading at FVTOCI.
Equities instruments previously classified as available for sale for which FVOCI election is not made
The partnership held an equity instrument which was reclassified from available for sale to FVTPL for $24 million.
Related fair value losses of $3 million attributable to the partnership net of taxes were transferred from the available for sale reserve
to retained earnings on January 1, 2018.
Equities instruments previously classified as available for sale for which FVOCI election is made
The partnership held equity instruments previously classified as available for sale for which the partnership made an
irrevocable election to classify and measure these instruments at FVTOCI upon transition to IFRS 9. Fair value gains and losses
are recorded in OCI, and are not subsequently reclassified to profit or loss, even if the partnership disposes of these instruments.
Dividends are recognized in profit or loss.
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BROOKFIELD BUSINESS PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at December 31, 2018 and 2017 and for the years ended December 31, 2018, 2017 and 2016
Summary of impact upon adoption of IFRS 9 - Impairment
The partnership's opening loss allowances in accordance with IAS 39 do not differ materially from the partnership's
opening expected credit losses ("ECL") determined in accordance with IFRS 9, as at January 1, 2018.
Summary of impact upon adoption of IFRS 9 - Derivatives and hedging activities
In accordance with IFRS 9’s transition provisions for hedge accounting, the partnership has applied the IFRS 9 hedge
accounting requirements prospectively from the date of initial application on January 1, 2018. The partnership’s qualifying hedging
relationships in place as at January 1, 2018 also qualified for hedge accounting in accordance with IFRS 9 and were therefore
regarded as continuing hedging relationships.
(u)
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 partnership 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 -
Level 3 -
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.
Inputs are unobservable and reflect management’s best estimate of what market participants would use in pricing
the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique
and the risk inherent in the inputs in determining the estimate.
Further information on fair value measurements is available in Note 4.
(v)
Income taxes
Brookfield Business Partners L.P. is a flow-through entity for tax purposes and as such is not subject to Bermudian
taxation. However, income taxes are recognized for the amount of taxes payable by the holding entities, and any direct or indirect
corporate subsidiaries of such holding entities. Income tax expense represents the sum of the tax accrued in the period and deferred
income tax.
The separate returns method was used to determine taxes for periods prior to June 20, 2016.
(i)
Current income tax
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 reporting date.
(ii)
Deferred income tax
Deferred income tax liabilities are provided for using the liability method on temporary differences between the tax bases
used in the computation of taxable income and carrying amounts of assets and liabilities in the consolidated financial statements.
Deferred income tax assets are recognized for all deductible temporary differences, carry forward of unused tax credits and unused
tax losses, to the extent that it is probable that deductions, tax credits and tax losses can be utilized. Such deferred income tax
assets and liabilities are not recognized if the temporary difference arises from goodwill or from the initial recognition of other
assets and liabilities in a transaction that affects neither the taxable income nor the accounting income, other than in a business
combination. The carrying amount of deferred income tax assets are reviewed at each reporting date and reduced to the extent it
is no longer probable that the income tax asset will be recovered.
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BROOKFIELD BUSINESS PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at December 31, 2018 and 2017 and for the years ended December 31, 2018, 2017 and 2016
Deferred income tax liabilities are recognized for taxable temporary differences associated with investments in subsidiaries
and equity accounted investments, and interests in joint ventures, except where the partnership is able to control the reversal of
the temporary difference and it is probable that the temporary differences will not reverse in the foreseeable future. Deferred
income tax assets arising from deductible temporary differences associated with such investments and interests are only recognized
to the extent that it is probable that there will be sufficient taxable income against which to utilize the benefits of the temporary
differences and they are expected to reverse in the foreseeable future.
Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which
the liability is settled or the asset realized, based on tax rates and tax laws that have been enacted or substantively enacted by the
end of the reporting period. The measurement of deferred income tax liabilities and assets reflect the tax consequences that would
follow from the manner in which the partnership expects, at the end of the reporting period, to recover or settle the carrying amount
of its assets and liabilities.
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets
against current tax liabilities and when they relate to income taxes levied by the same taxation authority within a single taxable
entity or the partnership intends to settle its current tax assets and liabilities on a net basis in the case where there exist different
taxable entities in the same taxation authority and when there is a legally enforceable right to set off current tax assets against
current tax liabilities.
(w)
Provisions
Provisions are recognized when the partnership has a present obligation either legal or constructive as a result of a past
event, it is probable that the partnership will be required to settle the obligation, and a reliable estimate can be made of the amount
of the obligation. Provisions are recorded within accounts payable and other in the consolidated statements of financial position.
The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at
the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. Where a provision is
measured using the cash flows estimated to settle the obligation, its carrying amount is the present value of those cash flows.
When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party,
the receivable is recognized as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable
can be measured reliably.
(i)
Provisions for defects
Provisions made for defects are based on a standard percentage charge of the aggregate contract value of completed
construction projects and represents a provision for potential latent defects that generally manifest over a period of time following
practical completion.
Claims against the partnership are also recorded as part of provisions for defects when it is probable that the partnership
will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.
(ii)
Decommissioning liability
Certain of the partnership’s subsidiaries are engaged in oil and gas and mining activities. For these businesses, there are
typically decommissioning liabilities related to the requirement to remediate the property where operations are conducted.
The partnership recognizes a decommissioning liability in the period in which it has a present legal or constructive liability
and a reasonable estimate of the amount can be made. Liabilities are measured based on current requirements, technology and
price levels and the present value is calculated using amounts discounted over the useful economic lives of the assets. Amounts
are discounted using a rate that reflects the risks specific to the liability. On a periodic basis, management reviews these estimates
and changes, if any, will be applied prospectively. The fair value of the estimated decommissioning liability is recorded as a long
term liability, with a corresponding increase in the carrying amount of the related asset. The capitalized amount is depleted on a
unit-of-production basis over the life of the proved plus probable reserves. The liability amount is increased in each reporting
period due to the passage of time, and the amount of accretion is charged to finance expense in the period. Periodic revisions to
the estimated timing of cash flows, to the original estimated undiscounted cost and to changes in the discount rate can also result
in an increase or decrease to the decommissioning liability. Actual costs incurred upon settlement of the obligation are recorded
against the decommissioning liability to the extent of the liability recorded.
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Table of Contents
BROOKFIELD BUSINESS PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at December 31, 2018 and 2017 and for the years ended December 31, 2018, 2017 and 2016
(x)
Pensions and other post-employment benefits
Certain of the partnership’s subsidiaries offer post-employment benefits to their employees by way of a defined contribution
plan. Payments to defined contribution pension plans are expensed as they fall due.
Certain of the partnership’s subsidiaries offer defined benefit plans. Defined benefit pension expense, which includes the
current year’s service cost, is included in direct operating costs within the consolidated statements of operating results. 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 asset or liability reported as other assets or accounts payable and other in our consolidated statements of financial
position. The partnership’s obligations under its defined benefit pension plans are determined periodically through the preparation
of actuarial valuations.
The cost of pensions and other retirement benefits earned by employees is actuarially determined using the projected unit
credit method (also known as the projected benefit method pro-rated on service) and management’s best estimate of plan investment
performance, salary escalation, retirement ages of employees and their expected future longevity.
For the purposes of calculating the expected return on plan assets, those assets are measured at fair value.
The partnership recognizes actuarial gains and losses in other comprehensive income (loss) in the period in which those
gains and losses occur.
(y)
Assets held for sale
Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered principally
through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly
probable and the non-current asset or disposal group is available for immediate sale in its present condition. Management must
be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date
of classification subject to limited exceptions.
Non-current assets and disposal groups classified as held for sale are measured at the lower of their carrying amount and
fair value less costs to sell and are classified as current. Once classified as held for sale, property, plant and equipment and intangible
assets, are not depreciated or amortized, respectively.
(z)
Critical accounting judgments and key sources of estimation uncertainty
The preparation of financial statements requires management to make critical judgments, estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses that are not readily apparent from other sources, during the reporting
period. These estimates and associated assumptions are based on historical experience and other factors that are considered to be
relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are
recognized in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and
future periods if the revision affects both current and future periods.
Critical judgments made by management and utilized in the normal course of preparing the partnership’s consolidated
financial statements are outlined below.
(i)
Business Combinations
The partnership accounts for business combinations using the acquisition method of accounting. The allocation of fair
values to assets acquired and liabilities assumed through an acquisition requires numerous estimates that affect the valuation of
certain assets and liabilities acquired including discount rates, operating costs, revenue estimates, commodity prices, future capital
costs and other factors. The determination of the fair values may remain provisional for up to 12 months from the date of acquisition
due to the time required to obtain independent valuations of individual assets and to complete assessments of provisions. When
the accounting for a business combination has not been completed as of the reporting date, this is disclosed in the financial
statements, including observations on the estimates and judgments made as of the reporting date.
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Table of Contents
BROOKFIELD BUSINESS PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at December 31, 2018 and 2017 and for the years ended December 31, 2018, 2017 and 2016
(ii)
Determination of Control
We consolidate an investee when we control the investee, with control existing if, and only if, we have power over the
investee; exposure, or rights, to variable returns from our involvement with the investee; and the ability to use our power over the
investee to affect the amount of the partnership’s returns.
In determining if we have power over an investee, we make judgments when identifying which activities of the investee
are relevant in significantly affecting returns of the investee and the extent of our existing rights that give us the current ability to
direct the relevant activities of the investee. We also make judgments as to the amount of potential voting rights which provides
us voting powers, the existence of contractual relationships that provide us voting power and the ability to appoint directors. We
enter into voting agreements to provide the partnership with the ability to contractually direct the relevant activities of the investee
(formally referred to as ‘‘power’’ within IFRS 10, Consolidated Financial Statements). In assessing if we have exposure, or rights,
to variable returns from our involvement with the investee we make judgments concerning whether returns from an investee are
variable and how variable those returns are on the basis of the substance of the arrangement, the size of those returns and the size
of those returns relative to others, particularly in circumstances where our voting interest differs from our ownership interest in
an investee. In determining if we have the ability to use our power over the investee to affect the amount of our returns we make
judgments when we are an investor as to whether we are a principal or agent and whether another entity with decision- making
rights is acting as an agent for us. If we determine that we are acting as an agent, as opposed to a principal, we do not control the
investee.
(iii)
Common Control Transactions
IFRS 3, Business Combinations (‘‘IFRS 3’’) does not include specific measurement guidance for transfers of businesses
or subsidiaries between entities under common control. Accordingly, the partnership has developed an accounting policy to account
for such transactions taking into consideration other guidance in the IFRS framework and pronouncements of other standard-
setting bodies. The partnership’s policy is to record assets and liabilities recognized as a result of transactions between entities
under common control at the carrying values in the transferor’s financial statements.
(iv)
Indicators of Impairment
Judgment is applied when determining whether indicators of impairment exist when assessing the carrying values of the
partnership’s assets, including: the determination of the partnership’s ability to hold financial assets; the estimation of a cash
generating unit’s future revenues and direct costs; and the determination of discount rates, and when an asset’s carrying value is
above the value derived using publicly traded prices which are quoted in a liquid market.
For some of our assets forecasting the recoverability and economic viability of property and equipment requires an estimate
of reserves. The process for estimating reserves is complex and requires significant interpretation and judgment. It is affected by
economic conditions, production, operating and development activities, and is performed using available geological, geophysical,
engineering and economic data.
(v)
Revenue Recognition
Certain of the partnership’s subsidiaries use the cost-to-cost method to account for their contract revenue. The stage of
completion is measured by reference to actual costs incurred to date as a percentage of estimated total costs for each contract.
Significant assumptions are required to estimate the total contract costs and the recoverable variation works that affect the stage
of completion and the contract revenue respectively. In making these estimates, management has relied on past experience or
where necessary, the work of experts.
(vi)
Financial Instruments
Judgments inherent in accounting policies relating to derivative financial instruments relate to applying the criteria to the
assessment of the effectiveness of hedging relationships. 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 partnership relative to its
counterparties; the credit risk of the partnership’s counterparties; estimated future cash flows; discount rates and volatility utilized
in option valuations.
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Brookfield Business Partners
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BROOKFIELD BUSINESS PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at December 31, 2018 and 2017 and for the years ended December 31, 2018, 2017 and 2016
(vii)
Decommissioning Liabilities
Decommissioning costs will be incurred at the end of the operating life of some of our oil and gas facilities and mining
properties. These obligations are typically many years in the future and require judgment to estimate. The estimate of
decommissioning costs can vary in response to many factors including changes in relevant legal regulatory, and environmental
requirements, the emergence of new restoration techniques or experience at other production sites. Inherent in the calculations of
these costs are assumptions and estimates including the ultimate settlement amounts, inflation factors, discount rates, and timing
of settlements.
(viii) Oil and Gas Properties
The process of estimating the partnership’s proved and probable oil and gas reserves requires significant judgment and
estimates. Factors such as the availability of geological and engineering data, reservoir performance data, acquisition and divestment
activity, drilling of new wells, development costs and commodity prices all impact the determination of the partnership’s estimates
of its oil and gas reserves. Future development costs are based on estimated proved and probable reserves and include estimates
for the cost of drilling, completing and tie in of the proved undeveloped and probable additional reserves and may vary based on
geography, geology, depth, and complexity. Any changes in these estimates are accounted for on a prospective basis. Oil and natural
gas reserves also have a direct impact on the assessment of the recoverability of asset carrying values reported in the financial
statements.
(ix)
Other
Other estimates and assumptions utilized in the preparation of the partnership’s financial statements are: the assessment
or determination of 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; and ability to utilize tax losses and other
tax measurements.
Other critical judgments include the determination of functional currency.
(aa)
Earnings (loss) per Limited Partnership Unit
The partnership calculates basic earnings (loss) per unit by dividing net income attributable to limited partners by the
weighted average number of limited partnership units outstanding during the period. For the purpose of calculating diluted earnings
(loss) per unit, the partnership adjusts net income (loss) attributable to limited partners, and the weighted average number of limited
partnership units outstanding, for the effects of all dilutive potential limited partnership units.
(ab)
Leases
Leases are classified as finance leases when the terms of the lease transfer substantially all the risks and rewards incidental
to ownership of the lease to the lessee. All other leases are classified as operating leases.
Assets held under finance leases are initially recognized at their fair value or, if lower, at amounts equal to the present
value of the minimum lease payments, each determined at the inception of the lease. The corresponding liability to the lessor is
included in the consolidated statements of financial position as a finance lease obligation within accounts payable and other.
Lease payments are apportioned between finance charges and reduction of the lease obligation so as to achieve a constant
rate of interest on the remaining balance of the liability. Finance charges are charged directly against income.
Finance lease assets are amortized on a straight line basis over the estimated useful life of the asset.
(ac)
Segments
Our operating segments are components of the business for which discrete financial information is reviewed regularly
by our Chief Operating Decision Maker (the "CODM") to assess performance and make decisions regarding resource allocation.
We have assessed our CODM to be our Chief Executive Officer and Chief Financial Officer. Our operating segments are Business
Services, Infrastructure Service, Industrial Operations and Corporate and Other.
F-32
Brookfield Business Partners
Table of Contents
BROOKFIELD BUSINESS PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at December 31, 2018 and 2017 and for the years ended December 31, 2018, 2017 and 2016
(ad)
Future Changes in Accounting Policies
(i) Leases
In January 2016, the IASB published a new standard, IFRS 16, Leases ("IFRS 16"). The new standard brings most leases
on the statement of financial position, eliminating the distinction between operating and finance leases. Lessor accounting, however,
remains largely unchanged and the distinction between operating and finance leases is retained. IFRS 16 supersedes IAS 17, Leases
and related interpretations and is effective for periods beginning on or after January 1, 2019.
The partnership will adopt IFRS 16 using the modified retrospective method whereby any transitional impact is recorded
in equity as at January 1, 2019 and comparative periods are not restated. The partnership will apply certain transition reliefs,
practical expedients and policy choice options on adoption of the new standard. Specifically, the partnership has elected to apply
practical expedients associated with short-term leases.
After leading strategic planning sessions with its subsidiaries and associates, the partnership implemented an adoption
project plan. The partnership used the population of existing contractual arrangements to complete the identification of leases that
are required to be recognized in the consolidated statement of financial position under the new standard. Additionally, the partnership
has substantially completed quantifying the present value of the identified lease contracts to determine the impact on adoption,
except for acquisitions that closed in the fourth quarter of 2018. At this time, the partnership has nearly finalized the documented
analysis and assessment of the potential impact to IT systems and internal controls and has drafted a preliminary version of the
disclosures required by the new standard.
The estimated range of the transitional impact of the new standard, excluding the impact of acquisitions closed in the last
quarter of the year, is an increase in total assets and liabilities of $880 million to $1,080 million, and no significant impact to equity.
These are preliminary estimates and subject to change as the partnership completes the adoption procedures and evaluates and
quantifies the IFRS 16 impact of the acquisitions closed in the fourth quarter of 2018.
(ii) Uncertainty over Income Tax Treatments
In June 2017, the IASB published IFRIC 23, Uncertainty over Income Tax Treatments ("IFRIC 23") effective for annual
periods beginning on or after January 1, 2019. The interpretation requires an entity to assess whether it is probable that a tax
authority will accept an uncertain tax treatment used, or proposed to be used, by an entity in its income tax filings and to exercise
judgment in determining whether each tax treatment should be considered independently or whether some tax treatments should
be considered together. The decision should be based on which approach provides better predictions of the resolution of the
uncertainty. An entity also has to consider whether it is probable that the relevant authority will accept each tax treatment, or group
of tax treatments, assuming that the taxation authority with the right to examine any amounts reported to it will examine those
amounts and will have full knowledge of all relevant information when doing so. The interpretation may be applied on either a
fully retrospective basis or a modified retrospective basis without restatement of comparative information. The partnership is
currently evaluating the impact of IFRIC 23 on its consolidated financial statements.
(iii) Business Combinations
In October 2018, the IASB issued an amendment to IFRS 3, Business Combinations (“IFRS 3”), effective for annual
periods beginning on or after January 1, 2020. The amendment clarifies the definition of a business and assists companies in
determining whether an acquisition is a business combination or an acquisition of a group of assets. The amendment emphasizes
that the output of a business is to provide goods and services to customers and also provides supplementary guidance. The company
will adopt the standard prospectively and is currently evaluating the impact on its consolidated financial statements.
(ae) New Accounting Policies Adopted
The partnership has applied new and revised standards issued by the IASB that are effective for the period beginning on
or after January 1, 2018.
F-33
Brookfield Business Partners
Table of Contents
BROOKFIELD BUSINESS PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at December 31, 2018 and 2017 and for the years ended December 31, 2018, 2017 and 2016
(i)
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 additional disclosures. IFRS 15 requires disclosure regarding the nature, amount, timing and uncertainty of
revenue and cash flows arising from customer contracts. IFRS 15 supersedes IAS 18, Revenue, IAS 11, Construction Contracts
and a number of revenue-related interpretations. IFRS 15 applies to nearly all contracts with customers: the main exceptions are
leases, financial instruments and insurance contracts.
The partnership adopted the standard using the modified retrospective approach, in which a cumulative catch-up
adjustment is recorded through opening retained earnings on January 1, 2018 as if the standard had always been in effect and
whereby comparative periods are not restated. The partnership elected to use the practical expedient for contract modifications.
On adoption, the partnership recorded a reduction in opening retained earnings of approximatively $260 million, attributable to
the partnership net of taxes, mainly from our construction services business. Under IFRS 15, revenue from the partnership’s
construction services contracts will continue to be recognized over time, however, a higher threshold of probability must be achieved
prior to recognizing revenue from variable consideration such as incentives and claims and variations resulting from contract
modifications. Under IAS 18 and IAS 11, revenue was recognized when it is probable that work performed will result in revenue
whereas under IFRS 15, revenue is recognized when it is highly probable that a significant reversal of revenue will not occur for
these modifications. Refer to Note 2(af) for impact on adoption of IFRS 15.
(ii)
Financial Instruments
In July 2014, the IASB issued the final publication of IFRS 9, Financial Instruments ("IFRS 9") superseding IAS 39,
Financial Instruments: Recognition and Measurement. 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 aligns hedge accounting more closely with an entity's risk management activities. It does not fully change the types
of hedging relationships or the requirement to measure and recognize ineffectiveness, however, it provides more hedging strategies
that are used for risk management to qualify for hedge accounting and introduces greater judgment to assess the effectiveness of
a hedging relationship. Apart from the requirements applicable to hedge accounting, which have been applied on a prospective
basis, the partnership adopted the standard using the retrospective approach without restatement, in which a cumulative catch-up
adjustment is recorded through opening retained earnings on January 1, 2018 as if the standard had always been in effect and
whereby comparative periods are not restated, comparative periods are presented under IAS 39. On adoption, the partnership
recorded an adjustment in opening retained earnings of $nil attributable to the partnership net of taxes. Refer to Note 2(t) for
impact on adoption of IFRS 9.
(iii)
Foreign Currency Transactions and Advance Consideration
In December 2016, the IASB issued IFRIC 22, Foreign Currency Transaction and Advance Consideration ("IFRIC 22"),
effective for annual periods beginning on or after January 1, 2018. The interpretation clarifies that the date of the transaction for
the purpose of determining the exchange rate to use on initial recognition of the related asset, expense or income (or part of it) is
the date on which an entity initially recognizes the non-monetary asset or non-monetary liability arising from the payment or
receipt of advance consideration. The interpretation has been applied prospectively. The adoption of IFRIC 22 did not have a
significant impact on the financial statements.
(af)
Impact on adoption of new IFRS standards
The table below summarizes the IFRS 15 impact on revenue by segment for the year ended December 31, 2018:
(US$ MILLIONS)
Transition
Revenue as if it were under former revenue
standards
IFRS 15 Impact
Total IFRS 15 Revenue
F-34
Brookfield Business Partners
Business
Services
Infrastructure
Services
Industrial
Operations
Corporate
and Other
Total
$ 30,723
91
$ 30,814
$
$
2,382
31
2,413
$
$
3,864
1
3,865
$
$
— $
—
— $
36,969
123
37,092
Table of Contents
BROOKFIELD BUSINESS PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at December 31, 2018 and 2017 and for the years ended December 31, 2018, 2017 and 2016
On adoption of IFRS 15, we recorded a total reduction in opening retained earnings of $260 million, attributable to the
partnership net of taxes, mainly associated with our construction services business. The partnership also recorded the associated
reduction of $125 million in accounts and other receivable, net, and an increase of $121 million in accounts payable and other.
(US$ MILLIONS)
Assets
Cash and cash equivalents
Financial assets
Accounts and other receivable, net
Inventory, net
Assets held for sale
Other assets
Current assets
Financial assets
Accounts and other receivable, net
Other assets
Property, plant and equipment
Deferred income tax assets
Intangible assets
Equity accounted investments
Goodwill
Total assets
Liabilities and equity
Liabilities
Accounts payable and other
Liabilities associated with assets held for sale
Borrowings
Current liabilities
Accounts payable and other
Borrowings
Deferred income tax liabilities
Total liabilities
Equity
Limited partners
Non-controlling interests attributable to:
Redemption-Exchange Units, Preferred Shares and
Special Limited Partnership Units held by Brookfield
Asset Management Inc.
Interest of others in operating subsidiaries
Total equity
Total liabilities and equity
F-35
Brookfield Business Partners
$
$
$
$
$
Opening
balance
January 1, 2018
Adoption of new
accounting
standards
Revised opening
balance
January 1, 2018
$
1,106
$
— $
1,106
361
3,356
1,072
14
370
6,279
423
881
80
2,530
216
3,094
603
1,554
15,660
4,991
—
825
5,816
768
2,440
837
9,861
361
3,454
1,068
14
430
6,433
423
908
79
2,530
174
3,094
609
1,554
15,804
$
—
(98)
4
—
(60)
(154)
—
(27)
1
—
42
—
(6)
—
(144) $
4,865
$
126
$
—
825
5,690
773
2,440
837
9,740
1,585
1,453
3,026
6,064
15,804
$
$
$
—
—
126
(5)
—
—
121
$
(132) $
1,453
(128)
(5)
(265)
(144) $
1,325
3,021
5,799
15,660
Table of Contents
BROOKFIELD BUSINESS PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at December 31, 2018 and 2017 and for the years ended December 31, 2018, 2017 and 2016
NOTE 3. ACQUISITION OF BUSINESSES
When determining the basis of accounting for the partnership’s investees, the partnership evaluates the degree of influence
that the partnership exerts directly or through an arrangement over the investees' relevant activities. Control is obtained when the
partnership has power over the acquired entities and an ability to use its power to affect the returns of these entities.
The partnership 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)
Acquisitions completed in 2018
The following summarizes the consideration transferred, assets acquired and liabilities assumed at the applicable
acquisition dates:
(US$ MILLIONS)
Cash
Non-cash consideration
Total Consideration (2)
(US$ MILLIONS)
Cash and cash equivalents
Accounts and other receivable, net
Inventory, net
Equity accounted investments
Property, plant and equipment
Intangible assets
Goodwill
Deferred income tax assets
Financial assets
Other assets
Accounts payable and other
Borrowings
Deferred income tax liabilities
Net assets acquired before non-controlling interest
Non-controlling interest (3) (4)
Net Assets Acquired
____________________________________
Business
Services
Infrastructure
Services
Industrial
Operations
$
$
$
$
25
—
25
36
11
2
—
57
28
31
—
—
—
(24)
(50)
(2)
89
(64)
25
$
$
$
$
1,686
275
1,961
592
836
626
328
4,669
2,683
760
11
317
1,026
(3,431)
(3,352)
(83)
4,982
(3,021)
1,961
$
$
$
$
45
—
45
30
75
58
1
187
231
180
27
2
—
(199)
(266)
(72)
254
(209)
45
Total (1)
1,756
$
275
$
2,031
$
$
658
922
686
329
4,913
2,942
971
38
319
1,026
(3,654)
(3,668)
(157)
5,325
(3,294)
2,031
(1)
(2)
(3)
(4)
The initial fair values of acquired assets, liabilities and goodwill for the acquisitions have been determined on a preliminary basis at the end of the
reporting period. Specifically, within our infrastructure services segment we are in on-going negotiations which could result in a change to fair value
estimates related to working capital, intangible assets, goodwill and deferred taxes.
Excludes consideration attributable to non-controlling interest, which represents the interest of others in operating subsidiaries.
Non-controlling interest recognized on business combination, were measured at fair value for Business Services and Infrastructure Services.
Non-controlling interest recognized on business combination, were measured at the proportionate share of fair value of the assets acquired and liabilities
assumed for Industrial Operations.
F-36
Brookfield Business Partners
Table of Contents
BROOKFIELD BUSINESS PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at December 31, 2018 and 2017 and for the years ended December 31, 2018, 2017 and 2016
Business Services
Facilities management business ("BGIS")
On February 1, 2018, the partnership, through BGIS, completed a tuck-in acquisition, acquiring an 85% interest in Critical
Solutions Group and Critical Power Testing and Maintenance ("CSG"), a US specialist provider of services for the data center
market, for $4 million attributable to the partnership. On acquisition, the partnership had a 22% economic interest and an 85%
voting interest in the business, which provides the partnership with control over the business. Accordingly, the partnership
consolidates the business for financial reporting purposes.
Acquisition costs of less than $1 million were expensed at the acquisition date and recorded as other expenses on the
consolidated statements of operating results. Goodwill of $8 million was acquired, which represents the expected growth and
synergies the partnership expects to receive from the integration of the operations. Goodwill recognized is deductible for income
tax purposes.
The partnership’s results from operations for the period ended December 31, 2018 includes $1 million of revenue and
less than $1 million of net loss attributable to the partnership from the acquisition. If this acquisition had been effective January
1, 2018, the partnership would have recorded revenue of $2 million for the period ended December 31, 2018 and net loss of less
than $1 million attributable to the partnership for the period ended December 31, 2018.
Imagine Communications Group Limited ("Imagine")
On October 1, 2018, the partnership, together with institutional investors, acquired a 50.1% interest in Imagine, a provider
of high speed wireless broadband in Ireland. The partnership's economic interest of 31% was acquired for consideration of $10
million. The partnership has a 55% voting interest in this business, which provides us with control. Accordingly, the partnership
consolidates this business for financial reporting purposes.
Acquisition costs of approximatively $2 million were expensed at the acquisition date and recorded as other expenses on
the consolidated statements of operating results. Goodwill of $6 million was acquired, which represents the expected growth the
partnership expects to receive from the integration of the operations. Goodwill recognized is not deductible for income tax purposes.
Intangible assets of $23 million were acquired, primarily comprised of customer relationships and a license.
The partnership’s results from operations for the period ended December 31, 2018 includes $1 million of revenue and $2
million of net loss attributable to the partnership from the acquisition. If this acquisition had been effective January 1, 2018, the
partnership would have recorded revenue of $6 million for the period ended December 31, 2018 and net loss of $5 million attributable
to the partnership for the period ended December 31, 2018.
Other
On December 1, 2018, the partnership's fuel marketing business completed a tuck-in acquisition, acquiring 22 gas stations
and associated convenience kiosks in Ontario, Canada for total consideration of $8 million attributable to the partnership. On
acquisition, the partnership had a 26% economic interest and a 100% voting interest in this business, which give us control over
the business. Accordingly, the partnership consolidates this business for financial reporting purposes.
Acquisition costs of less than $1 million were expensed at the acquisition date and recorded as other expenses on the
consolidated statement of operating results. Goodwill of $12 million was acquired, which represents the expected growth and
synergies the partnership expects to receive from the integration of the operations. Goodwill recognized is deductible for income
tax purposes.
The partnership’s results from operations for the year ended December 31, 2018 includes $2 million of revenue and less
than $1 million of net income attributable to the partnership from the acquisition. If the acquisition had been effective January 1,
2018, the partnership would have recorded revenue of approximately $21 million for the year ended December 31, 2018 and net
income of less than $1 million attributable to the partnership for the year ended December 31, 2018.
F-37
Brookfield Business Partners
Table of Contents
BROOKFIELD BUSINESS PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at December 31, 2018 and 2017 and for the years ended December 31, 2018, 2017 and 2016
Infrastructure Services
Westinghouse Electric Company (“Westinghouse”)
On August 1, 2018, the partnership, together with institutional investors, acquired a 100% interest in Westinghouse, a
leading global provider of infrastructure services to the power generation industry. The partnership's economic interest of 44%
was acquired for consideration of $1,686 million. The partnership has a 100% voting interest in this business, which provides us
with control. Accordingly, the partnership consolidates this business for financial reporting purposes.
Acquisition costs of approximatively $55 million were expensed at the acquisition date and recorded as other expenses
on the consolidated statements of operating results. Goodwill of $213 million was acquired, which represents the expected growth
the partnership expects to receive from the integration of the operations. Goodwill recognized is not deductible for income
tax purposes. Intangible assets of $2,684 million were acquired, primarily comprised of developed technology and the Westinghouse
trade name.
The partnership’s results from operations for the period ended December 31, 2018 includes $743 million of revenue and
$37 million of net loss attributable to the partnership from the acquisition. If this acquisition had been effective January 1, 2018,
the partnership would have recorded revenue of $1,715 million for the period ended December 31, 2018 and net loss of $105
million attributable to the partnership for the period ended December 31, 2018.
Teekay Offshore Partners L.P. ("Teekay Offshore")
Prior to July 3, 2018, the partnership, together with institutional investors, had a 60% economic interest in Teekay Offshore
and a 49% voting interest in Teekay Offshore's General Partner ("Teekay Offshore GP"). The 60% economic interest in Teekay
Offshore was accounted for using the equity method. On July 3, 2018, the partnership, together with institutional investors, exercised
its general partner option to acquire an additional 2% voting interest in Teekay Offshore GP, in exchange for one million of warrants
and began consolidating the business. On acquisition, the partnership, together with institutional investors, had a 60% economic
interest in Teekay Offshore and a 51% voting interest in Teekay Offshore GP, which provided the partnership with control over
the business. Accordingly, the partnership has consolidated this business for financial statement purposes. Total consideration for
the acquisition was $275 million attributable to the partnership and acquisition costs of $nil were expensed at the acquisition date
and recorded as other expenses on the consolidated statements of operating results.
Goodwill of $547 million was acquired, which represents benefits we expect to receive from the integration of the
operations. Goodwill recognized is not deductible for income tax purposes.
The partnership's results from operations for the period ended December 31, 2018 includes revenues of $181 million and
approximately $46 million of net income attributable to the partnership from the acquisition. If this acquisition had been effective
January 1, 2018, the partnership would have recorded revenue of $334 million for the period ended December 31, 2018 and net
income of $54 million attributable to the partnership for the period ended December 31, 2018.
F-38
Brookfield Business Partners
Table of Contents
BROOKFIELD BUSINESS PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at December 31, 2018 and 2017 and for the years ended December 31, 2018, 2017 and 2016
The following table provides details of the business combinations achieved in stages on a gross basis:
(US$ MILLIONS)
Fair value of investment immediately before acquiring control
Less: Carrying value of investment immediately before acquisition
Add: Amounts recognized in OCI (1)
Remeasurement gain
Gain on extinguishment (2)
Gain (loss) on acquisitions/dispositions, net
Total gain on acquisition attributable to non-controlling interest
Total gain on acquisition attributable to the partnership
____________________________________
$
$
$
$
$
651
447
2
206
44
250
135
115
(1)
(2)
Included in carrying value of the investment immediately before acquisition.
The partnership recognized a total gain on extinguishment of $44 million at the subsidiary level ($18 million on debt and $26 million on warrants).
Industrial Operations
Schoeller Allibert Group B.V. ("Schoeller Allibert")
On May 15, 2018, the partnership, together with institutional investors, acquired a 70% interest in Schoeller Allibert, one
of Europe's leading manufacturers of returnable plastic packaging systems. The partnership's economic interest of 14% was acquired
for consideration of $45 million. The partnership has a 52% voting interest in this business, which provides us with control.
Accordingly, the partnership consolidates this business for financial reporting purposes.
Acquisition costs of approximately $9 million were expensed at the acquisition date and recorded as other expenses on
the consolidated statements of operating results. Goodwill of $180 million was acquired, which represents the expected growth
the partnership expects to receive from the integration of the operations. Goodwill recognized is not deductible for income
tax purposes. Intangible assets of $231 million were acquired, primarily comprised of patented technology and customer
relationships.
The partnership’s results from operations for the period ended December 31, 2018 includes $56 million of revenue and
$3 million of net loss attributable to the partnership from the acquisition. If this acquisition had been effective January 1, 2018,
the partnership would have recorded revenue of $86 million for the period ended December 31, 2018 and net loss of $4 million
attributable to the partnership for the period ended December 31, 2018.
F-39
Brookfield Business Partners
Table of Contents
BROOKFIELD BUSINESS PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at December 31, 2018 and 2017 and for the years ended December 31, 2018, 2017 and 2016
(a)
Acquisitions completed in 2017
The following summarizes the consideration transferred, assets acquired and liabilities assumed at the applicable
acquisition dates:
(US$ MILLIONS)
Cash
Contingent consideration
Total Consideration (1)
(US$ MILLIONS)
Cash and cash equivalents
Accounts receivable and other
Inventory
Equity accounted investments
Property, plant and equipment
Intangible assets
Goodwill
Deferred income tax assets
Financial assets
Other assets
Acquisition gain
Accounts payable and other
Borrowings
Deferred income tax liabilities
Net assets acquired before non-controlling interest
Non-controlling interest (2) (3)
Net Assets Acquired
____________________________________
$
$
$
$
Business
Services
198
13
Industrial
Operations (4)
395
$
Total
593
13
606
335
2,226
700
212
503
2,839
328
59
106
65
(7)
(2,112)
(1,678)
(789)
2,787
(2,181)
606
$
$
$
$
—
395
296
978
10
90
239
2,436
3
50
—
65
(7)
(227)
(1,468)
(731)
1,734
(1,339)
395
211
$
39
$
1,248
690
122
264
403
325
9
106
—
—
(1,885)
(210)
(58)
1,053
(842)
211
$
(1)
(2)
(3)
(4)
Excludes consideration attributable to non-controlling interest, which represents the interest of others in operating subsidiaries.
Non-controlling interest recognized on business combinations, were measured at fair value for Business Services.
Non-controlling interest recognized on business combinations, were measured at the proportionate share of fair value of the assets acquired and liabilities
assumed for Industrial Operations.
The finalization of the purchase price allocation at BRK Ambiental resulted in a $14 million decrease in goodwill.
Business Services
Fuel Holdings Limited ("Greenergy")
On May 10, 2017, the partnership acquired, together with institutional investors, an 85% interest in Greenergy, a U.K.
road fuel business. The partnership's economic interest of 14% was acquired for consideration of $79 million attributable to the
partnership. The partnership has an 85% voting interest in this business, which provides us with control over the business.
Accordingly, the partnership consolidates this business for financial reporting purposes.
The contingent consideration contemplates potential earn outs based on reaching specific EBITDA targets over five years
following closing, as well as achieving certain cash distribution and investment targets. Possible undiscounted earn outs payable
ranges from $6 to $12 million. As of the acquisition date, the partnership has recorded contingent consideration of $11 million.
F-40
Brookfield Business Partners
Table of Contents
BROOKFIELD BUSINESS PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at December 31, 2018 and 2017 and for the years ended December 31, 2018, 2017 and 2016
Prior to closing the acquisition, the partnership had entered into a cash flow hedge, which generated a gain of $12 million,
on closing. The partnership had elected to recognize and accordingly, reclassify the associated gains from other comprehensive
income to include them in the initial fair value of net asset acquired.
Acquisition costs of $7 million were expensed at the acquisition date and recorded as other expenses on the consolidated
statement of operating results. Goodwill of $93 million was acquired, which represents the expected growth the partnership expects
to receive from the integration of the operations. Goodwill recognized is not deductible for income tax purposes.
The partnership’s results from operations for the year ended December 31, 2017 includes $1,917 million of revenue and
$2 million of net income attributable to the partnership from the acquisition. If the acquisition had been effective January 1, 2017,
the partnership would have recorded revenue of approximately $2,865 million and net income of approximately $4 million
attributable to the partnership for the year ended December 31, 2017.
On October 31, 2017, the partnership, through Greenergy, completed two separate tuck-in acquisitions, acquiring an 85%
interest in Inver Energy, an Irish road fuel business, and an 85% interest in Canadian Operators Petroleum, for combined
consideration of $10 million attributable to the partnership. On acquisition, the partnership, through Greenergy, had a 14% economic
interest and an 85% voting interest each of these businesses, which provides the partnership with control over the businesses.
Accordingly, the partnership, through Greenergy, consolidates these businesses for financial reporting purposes.
Acquisition costs of less than a million were expensed at the acquisition date and recorded as other expenses on the
consolidated statement of operating results. Goodwill of $9 million was acquired, which represents the expected growth and
synergies the partnership expects to receive from the integration of the operations. Goodwill recognized is not deductible for
income tax purposes.
The partnership’s results from operations for the year ended December 31, 2017 includes $17 million of revenue and less
than a million of net income attributable to the partnership from the two tuck-in acquisitions. If these acquisitions had been effective
January 1, 2017, the partnership would have recorded revenue of approximately $92 million for the year ended December 31,
2017 and net income of less than a million attributable to the partnership for the year ended December 31, 2017.
Fuel Marketing
On July 17, 2017, together with institutional partners, the partnership acquired 213 retail gas stations and associated
convenience kiosks ("fuel marketing business") across Canada for consideration of $110 million attributable to the partnership.
On acquisition, the partnership had a 26% economic interest and a 100% voting interest in this business, which gives the partnership
control over the business. Accordingly, the partnership consolidates this business for financial reporting purposes.
The gas stations will be rebranded as Mobil as part of an agreement with Imperial Oil, marking the introduction of the
Mobil fuel brand into Canada. The gas stations will continue to allow customers to collect points through an existing loyalty
program. An intangible asset was recognized on acquisition for the loyalty program.
Prior to the closing of the acquisition, the partnership had entered into a cash flow hedge, which generated a gain of $3
million on closing. The partnership elected to recognize and accordingly, reclassify the associated gains from other comprehensive
income to include them in the initial fair value of net assets acquired.
Acquisition costs of $4 million were expensed at the acquisition date and recorded as other expenses in the consolidated
statement of operating results. Goodwill of $211 million was acquired, which represents the expected growth and synergies the
partnership expects to receive from the integration of the operations. Goodwill recognized is deductible for income tax purposes.
The partnership’s results from operations for the year ended December 31, 2017 includes $161 million of revenue and
less than $2 million of net income attributable to the partnership from the acquisition. If the acquisition had been effective January 1,
2017, the partnership would have recorded revenue of approximately $353 million and net income of approximately $4 million
attributable to the partnership for the year ended December 31, 2017.
F-41
Brookfield Business Partners
Table of Contents
BROOKFIELD BUSINESS PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at December 31, 2018 and 2017 and for the years ended December 31, 2018, 2017 and 2016
Other
On June 19, 2017, one of the partnership's subsidiaries acquired a real estate brokerage operation in Quebec, Canada for
total consideration of approximately $9 million attributable to the partnership. On acquisition, the partnership had a 100% economic
interest and a 100% voting interest in this business, which gives us control over the business. Accordingly, the partnership
consolidates this business for financial reporting purposes. Acquisition costs of less than $1 million were expensed at the acquisition
date and recorded as other expenses on the consolidated statement of operating results.
Goodwill of $9 million was acquired, which represents the synergies the partnership expects to receive from the integration
of the operations. Goodwill recognized is not deductible for income tax purposes.
The partnership’s results from operations for the year ended December 31, 2017 includes $2 million of revenue and less
than $1 million of net income attributable to the partnership from the acquisition. If the acquisition had been effective January 1,
2017, the partnership would have recorded revenue of approximately $7 million and net income of approximately $1 million
attributable to the partnership for the year ended December 31, 2017.
Industrial Operations
BRK Ambiental
On April 25, 2017, the partnership acquired, together with institutional investors, a 70% interest in BRK Ambiental, a
water and wastewater services business in Brazil, which had a 12.5% voting interest in BRK Ambiental - Ativos Maduros S.A.
(“OAMA”), an industrial water treatment business. OAMA is accounted for by BRK Ambiental using the equity method.
Subsequently, on May 30, 2017, the partnership acquired, together with institutional investors, the remaining 87.5% voting interest
in OAMA and began consolidating the businesses. On acquisition of BRK Ambiental, its 12.5% voting interest in OAMA was re-
measured at fair value as part of the purchase price allocation. Given the brief duration of time between the two closing dates, no
remeasurement gain or loss was recognized.
On acquisition of the businesses, the partnership had approximately a 27% economic interest, which combined with our
voting interest, provides us with control over both BRK Ambiental and OAMA. Accordingly, the partnership consolidates the
businesses for financial statement purposes. As at December 31, 2017, the partnership holds $35 million of the consideration in
escrow, which will be released to the seller over the next five years on each anniversary date of closing. Acquisition costs of $11
million were expensed at the acquisition dates and recorded as other expenses on the consolidated statement of operating results.
Goodwill of approximately $3 million was acquired, which represents the expected growth that the partnership expects to receive
from the integration of the operations. Goodwill recognized is not deductible for income tax purposes.
The partnership’s results from the combined operations for the year ended December 31, 2017, includes $132 million of
revenue and $5 million of net income attributable to the partnership from the acquisition. If the acquisition had been effective
January 1, 2017, the partnership would have recorded revenue of approximately $199 million for the year ended December 31,
2017 and net income of approximately $17 million attributable to the partnership for the year ended December 31, 2017.
Other
On November 5, 2017, one of the partnership's subsidiaries acquired a bundle of service and swabbing rig assets in Alberta,
Canada for total consideration of approximately $12 million attributable to the partnership. On acquisition, the partnership had a
40% economic interest and a 73% voting interest in this business, which give us control over the business. Accordingly, the
partnership consolidates this business for financial reporting purposes. Acquisition costs of a million were expensed at the
acquisition date and recorded as other expenses on the consolidated statement of operating results. A bargain purchase gain of $7
million was recognized as the seller was motivated to exit the Canadian market.
The partnership’s results from operations for the year ended December 31, 2017 includes $3 million of revenue and $1
million of net income attributable to the partnership from the acquisition. If the acquisition had been effective January 1, 2017,
the partnership would have recorded revenue of approximately $13 million for the year ended December 31, 2017 and net income
of approximately $2 million attributable to the partnership for the year ended December 31, 2017.
F-42
Brookfield Business Partners
Table of Contents
BROOKFIELD BUSINESS PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at December 31, 2018 and 2017 and for the years ended December 31, 2018, 2017 and 2016
NOTE 4. FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in
an orderly transaction between market participants at the measurement date. Fair values are determined by reference to quoted bid
or ask prices, as appropriate. Where bid and ask prices are unavailable, the closing price of the most recent transaction of that
instrument is used. In the absence of an active market, fair values are determined based on prevailing market rates such as bid and
ask prices, as appropriate, for instruments with similar characteristics and risk profiles or internal or external valuation models,
such as option pricing models and discounted cash flow analysis, using observable market inputs when available.
Fair values determined using valuation models require the use of assumptions concerning the amount and timing of
estimated future cash flows and discount rates. In determining those assumptions, the partnership looks primarily to external readily
observable market inputs such as interest rate yield curves, currency rates, and price and rate volatilities as applicable. Financial
instruments classified as fair value through profit or loss are carried at fair value on the consolidated statements of financial position
and changes in fair values are recognized in profit or loss.
The following table provides the details of financial instruments and their associated financial instrument classifications
as at December 31, 2018:
(US$ MILLIONS)
MEASUREMENT BASIS
Financial assets
FVTPL
FVOCI
Amortized
Cost
Total
Cash and cash equivalents
Accounts receivable, net (current and non-current) (1)
Other assets (current and non-current) (2)
Financial assets (current and non-current) (3)
Total (4)
Financial liabilities
Accounts payable and other (5)
Borrowings (current and non-current)
Total
____________________________________
$
$
$
$
— $
— $
1,949
$
67
—
413
480
311
—
311
$
$
$
—
—
376
376
48
—
48
$
$
$
5,093
563
580
8,185
4,679
10,866
15,545
$
$
$
1,949
5,160
563
1,369
9,041
5,038
10,866
15,904
(1)
(2)
(3)
(4)
(5)
Accounts receivable recognized at fair value relates to our mining business.
Excludes prepayments and other assets of $950 million.
Refer to Hedging Activities in note 4(a) below.
Total financial assets include $3,509 million of assets pledged as collateral.
Excludes provisions, decommissioning liabilities, deferred revenue, work in progress, post-employment benefits and various tax and duties of $4,044
million.
Included in cash and cash equivalents as at December 31, 2018 is $1,597 million of cash (2017: $556 million) and $352
million of cash equivalents (2017: $550 million) which includes $244 million on deposit with Brookfield (2017: $384 million),
as described in Note 24.
Included in financial assets (current and non-current) as at December 31, 2018 is $283 million of equity instruments
designated as measured at fair value through OCI. These equity instruments were designated as measured at fair value through
OCI because these equity instruments are not held for trading.
F-43
Brookfield Business Partners
Table of Contents
BROOKFIELD BUSINESS PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at December 31, 2018 and 2017 and for the years ended December 31, 2018, 2017 and 2016
The fair value of all financial assets and liabilities as at December 31, 2018 were consistent with carrying value, with the
exception of the borrowings at Teekay Offshore, where fair value determined using Level 1 and Level 2 inputs resulted in a fair
value of $2,611 million versus a carrying value of $2,638 million. The fair value of all financial assets and liabilities as at
December 31, 2017 were consistent with carrying value, with the exception of the borrowings at one of our industrial operations,
where fair value determined using Level 1 inputs was $195 million versus a book value of $227 million. As at December 31, 2017,
the promissory note receivable from Teekay Offshore, had a fair value of $88 million compared to a book value of $70 million,
and the Teekay Offshore warrants had a fair value of $43 million compared to a book value of $32 million. As at December 31,
2018, the promissory note and warrants are eliminated on consolidation of Teekay Offshore.
The following table provides the allocation of financial instruments and their associated financial instrument classifications
as at December 31, 2017:
(US$ MILLIONS)
MEASUREMENT BASIS
Financial assets
FVTPL
(Fair Value)
Available for
sale securities
(Fair Value
through OCI)
Loans and
Receivables/
Other Liabilities
(Amortized
Cost)
Total
Cash and cash equivalents
Accounts receivable, net (current and non-current) (1)
Other assets (current and non-current) (2)
Financial assets (current and non-current) (3)
Total
Financial liabilities
Accounts payable and other (4)
Borrowings (current and non-current)
Total
____________________________________
$
$
$
$
— $
— $
1,106
$
50
—
116
166
159
—
159
$
$
$
—
—
429
429
$
— $
—
— $
4,312
195
239
5,852
3,766
3,265
7,031
$
$
$
1,106
4,362
195
784
6,447
3,925
3,265
7,190
(1)
(2)
(3)
(4)
Accounts receivable recognized at fair value relates to our mining business.
Excludes prepayments and other assets of $314 million.
Refer to Hedging Activities in note 4(a) below.
Excludes provisions, decommissioning liabilities, deferred revenue, work in progress, post-employment benefits and various tax and duties of $1,713
million.
(a)
Hedging activities
The partnership uses foreign exchange contracts and foreign currency denominated debt instruments to manage foreign
currency exposures arising from net investments in foreign operations. For the year ended December 31, 2018, pre-tax net gain
of $125 million (2017: net loss of $64 million, 2016: net gain of $9 million) were recorded in other comprehensive income for the
effective portion of hedges of net investments in foreign operations. As at December 31, 2018, there was an unrealized derivative
asset balance of $76 million (2017: $5 million) and derivative liability balance of $nil (2017: $27 million) relating to derivative
contracts designated as net investment hedges.
The partnership uses commodity swap contracts to hedge the sale price of its gas contracts as well as the purchase price
of decant oil, foreign exchange contracts and option contracts to hedge highly probable future transactions, and interest rate swaps
to hedge the cash flows on its floating rate borrowings. A number of these contracts are designated as cash flow hedges. For the
year ended December 31, 2018, pre-tax net loss of $56 million (2017: net gain of $40 million, 2016: net gain of $12 million) were
recorded in other comprehensive income for the effective portion of cash flow hedges. As at December 31, 2018, there was an
unrealized derivative asset balance of $17 million (2017: $29 million) and derivative liability balance of $48 million (2017: $nil)
relating to the derivative contracts designated as cash flow hedges.
F-44
Brookfield Business Partners
Table of Contents
BROOKFIELD BUSINESS PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at December 31, 2018 and 2017 and for the years ended December 31, 2018, 2017 and 2016
Other derivative instruments are measured at fair value, with changes in fair value recognized in the consolidated statements
of operating results.
(b)
Fair Value Hierarchical Levels — financial instruments
Level 3 assets and liabilities measured at fair value on a recurring basis include $280 million (2017: $257 million) of
financial assets and $50 million (December 31, 2017: $64 million) of financial liabilities, which are measured at fair value using
valuation inputs based on management's best estimates.
There were no transfers between levels during the year ended December 31, 2018. The following table categorizes financial
assets and liabilities, which are carried at fair value, based upon the level of input as at December 31, 2018 and 2017:
(US$ MILLIONS)
Financial assets
Common shares
Corporate bonds
Accounts receivable
Loans and notes receivable
Derivative assets
Other financial assets
Financial liabilities
Derivative liabilities
Other financial liabilities
Level 1
2018
Level 2
Level 3
Level 1
2017
Level 2
Level 3
$
$
$
$
$
266
—
— $
—
— $
—
$
207
—
— $
—
—
—
41
—
307
13
—
13
$
$
$
67
—
202
—
269
296
—
296
$
$
$
—
—
—
280
280
13
37
50
$
$
$
—
—
15
—
222
30
—
30
$
$
$
50
—
66
—
116
65
—
65
$
$
$
—
—
—
1
34
222
257
—
64
64
The following table summarizes the valuation techniques and key inputs used in the fair value measurement of Level 2
financial instruments:
(US$ MILLIONS)
Type of asset/liability
Derivative assets
Carrying value
December 31, 2018
$
Valuation technique(s) and key input(s)
202 Fair value of derivative contracts incorporates quoted market prices, or in
their absence internal valuation models corroborated with observable market
data; and for foreign exchange, interest rate, and commodity derivatives,
observable forward exchange rates, current interest rates, and commodity
prices, respectively, at the end of the reporting period.
Derivative liabilities
Accounts receivable
$
$
296 Fair value of derivative contracts incorporates quoted market prices, or in
their absence internal valuation models corroborated with observable market
data; and for foreign exchange, interest rate, and commodity derivatives,
observable forward exchange rates, current interest rates, and commodity
prices, respectively, at the end of the reporting period.
67 Accounts receivable represents amounts due from customers for sales of
metals concentrate subject to provisional pricing, which was fair valued using
forward metal prices and foreign exchange rates applicable for the month of
final settlement.
The fair value of Level 3 financial assets and liabilities is determined using valuation models which 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 partnership 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.
F-45
Brookfield Business Partners
Table of Contents
BROOKFIELD BUSINESS PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at December 31, 2018 and 2017 and for the years ended December 31, 2018, 2017 and 2016
The following table summarizes the valuation techniques and significant unobservable inputs used in the fair value
measurement Level 3 financial instruments:
(US$ MILLIONS)
Carrying
value
December 31,
2018
Type of asset/liability
Other financial assets -
secured debentures
Other financial assets -
equity instruments
designated as measured at
FVOCI
Other financial assets - debt
instruments measured at
FVTPL
Derivative liabilities
Other financial liabilities -
contingent consideration
Other financial liabilities -
management compensation
plan units
$
$
$
$
$
$
Valuation
technique(s)
238 Discounted cash
Significant
unobservable input(s)
Cash flows
flows
32 Private share trade
comparables
Private share trades
10 Discounted cash
Cash flows
flows
13 Black-Scholes
Volatility
model
Relationship of
unobservable input(s)
to fair value
Increases (decreases) in
future cash flows increase
(decrease) fair value
Increases (decreases) in
private share trade prices
increase (decrease) fair
value
Increases (decreases) in
future cash flows increase
(decrease) fair value
Increases (decreases) in
volatility increase (decrease)
fair value
31 Scenario-based
expected present
value
Forecasted EBITDA of
acquired entities
Increases (decreases) in
forecasted EBITDA increase
(decrease) fair value
6 Multiples analysis
3-year historical EBIT
of our financial advisory
services business
Increases (decreases) in
historical EBIT increase
(decrease) fair value
The following table presents the change in the balance of financial assets classified as Level 3 as at December 31, 2018
and 2017:
(US$ MILLIONS)
Balance at beginning of year
Fair value change recorded in net income
Fair value change recorded in other comprehensive income
Additions (1)
Disposals
Balance at end of period
____________________________________
2018
2017
$
$
257
$
17
(2)
49
(41)
280
$
108
(18)
11
164
(8)
257
(1)
In 2018, $49 million of the additions relate to a secured debenture investment in a homebuilding company. In 2017, $34 million of the additions relate
to IAS 39 available-for-sale equity instruments assumed on the acquisition of Greenergy, $39 million of the additions relate to warrants acquired by
the partnership as part of its investment in Teekay Offshore, and $91 million relates to a secured debenture investment in a homebuilding company.
F-46
Brookfield Business Partners
Table of Contents
BROOKFIELD BUSINESS PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at December 31, 2018 and 2017 and for the years ended December 31, 2018, 2017 and 2016
Offsetting of financial assets and liabilities
Financial assets and liabilities are offset with the net amount reported in the consolidated statements of financial position
where the partnership 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. As at December 31, 2018, $nil of financial assets (2017: $21 million) and $nil of
financial liabilities (2017: $21 million) were offset in the consolidated statements of financial position related to derivative financial
instruments.
NOTE 5. FINANCIAL ASSETS
(US$ MILLIONS)
Current
Marketable securities (1)
Restricted cash
Derivative contracts
Loans and notes receivable
Total current
Non-current
Marketable securities (1)
Restricted cash
Derivative contracts
Loans and notes receivable
Other financial assets (2)
Total non-current
2018
2017
$
$
$
$
265
376
223
22
886
1
32
20
150
280
483
$
$
$
$
207
68
75
11
361
1
11
7
150
254
423
____________________________________
(1)
(2)
During the year ended December 31, 2018 the partnership recognized $nil (2017: $49 million), of net gains on disposition of marketable securities.
Other financial assets includes secured debentures to homebuilding companies in our business services segment.
The increase in financial assets from December 31, 2017 is primarily attributable to the acquisition of Westinghouse in
our infrastructure services segment, which accounted for $349 million of the increase, combined with an increase in the fair value
of derivatives at our fuel distribution business. This was partially offset by the elimination of warrants held in Teekay Offshore,
as we began to consolidate the business in the third quarter of 2018.
NOTE 6. ACCOUNTS AND OTHER RECEIVABLE, NET
(US$ MILLIONS)
Current, net
Non-current, net
Accounts receivable
Retainer on customer contracts
Billing rights
Total Non-current, net
Total (1)
____________________________________
(1)
Refer to Note 16 for additional information.
F-47
Brookfield Business Partners
2018
2017
$
$
$
4,307
$
37
103
713
853
5,160
$
$
3,454
—
197
711
908
4,362
Table of Contents
BROOKFIELD BUSINESS PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at December 31, 2018 and 2017 and for the years ended December 31, 2018, 2017 and 2016
The increase in accounts and other receivable, net from December 31, 2017 is primarily attributable to the acquisition of
Westinghouse and consolidation of Teekay Offshore in our infrastructure services segment during the year ended December 31,
2018. This accounts for a $795 million movement in accounts receivable as at December 31, 2018 compared to December 31,
2017.
Billing rights primarily represent unbilled rights arising at BRK Ambiental from revenue earned from the construction
on public concessions contracts classified as financial assets, which are recognized when there is an unconditional right to receive
cash or other financial assets from the concession authority for the construction services.
Our construction services business has a retention balance, which is comprised of amounts that have been earned but held
back until the satisfaction of certain conditions specified in the contract are met. The retention balance included in the current
accounts receivable balance as at December 31, 2018 was $164 million (2017: $125 million), and the retention balance included
in the non-current accounts receivable balance as at December 31, 2018 was $93 million (2017: $111 million).
The amount of accounts and other receivables written down for bad debts was as follows:
(US$ MILLIONS)
Loss allowance - beginning
Add: increase in allowance
Deduct: bad debt write offs
Foreign currency translation
Loss allowance - ending
2018
2017
2016
$
$
40
22
(10)
(7)
45
$
$
7
39
(6)
—
40
$
10
1
(3)
(1)
7
The increase in loss allowance is primarily attributable to BRK Ambiental for the year ended December 31, 2018 and
for December 31, 2017.
NOTE 7. INVENTORY, NET
(US$ MILLIONS)
Current
Raw materials and consumables
Fuel products (1)
Work in progress
RTFO certificates (2)
Finished goods and other (3)
Carrying amount of inventories
____________________________________
2018
2017
$
$
$
605
490
258
95
114
1,562
$
138
612
94
193
31
1,068
(1)
Fuel products are traded in active markets and are purchased with a view to resale in the near future. As a result, stocks of fuel products are recorded
at fair value based on quoted market prices.
(2) $nil of RTFO certificates are held for trading and recorded at fair value (2017: $60 million). There is no externally quoted marketplace for the valuation
of RTFO certificates. In order to value these contracts, the partnership has adopted a pricing methodology combining both observable inputs based on
market data and assumptions developed internally based on observable market activity.
(3)
Finished goods and other inventory is mainly composed of finished goods and inventory in our infrastructure services and business services segments.
The increase in inventory from December 31, 2017 is primarily attributable to the acquisitions of Westinghouse in our
infrastructure services segment, and Schoeller Allibert in our industrial operations segment, partially offset by lower inventory at
Greenergy.
F-48
Brookfield Business Partners
Table of Contents
BROOKFIELD BUSINESS PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at December 31, 2018 and 2017 and for the years ended December 31, 2018, 2017 and 2016
The amount of inventory written down was as follows:
(US$ MILLIONS)
Inventory obsolescence provision - beginning
Add: increase in provision
Deduct: inventory obsolescence write off
Inventory obsolescence provision - ending
NOTE 8. ASSETS HELD FOR SALE
(US$ MILLIONS)
Accounts and other receivable, net
Inventory
Property, plant and equipment
Assets held for sale
Accounts payable and other
Liabilities associated with assets held for sale
Business Services - Real estate brokerage services
2018
2017
2016
$
$
4
$
22
(7)
19
$
9
1
(6)
4
$
2018
2017
28
6
29
63
9
9
$
$
$
$
$
$
14
1
(6)
9
—
—
14
14
—
—
In April 2018, Berkshire Hathaway exercised an option to acquire the partnership's 33% interest in the joint venture of
the real estate brokerage services business, resulting in a $55 million pre-tax gain recognized by the partnership during the second
quarter of 2018.
Industrial Operations - Infrastructure support products manufacturing business
During the year ended December 31, 2018, our infrastructure support products manufacturing operation sold certain assets
and certain land and building for proceeds of $109 million. An associated net gain on disposition of $42 million was recorded for
the year ended December 31, 2018. At December 31, 2018, our infrastructure support products manufacturing operation has certain
asset and liabilities related to plants within the precast operations classified as held for sale.
Industrial Operations - Australian energy operations
In August 2018, an agreement was reached to sell our equity accounted Australian energy operation, which is equity
accounted, by way of a full sale of the associated entity, to an Australian energy company. On November 26, 2018, we completed
the sale, resulting in a $152 million pre-tax gain recognized by the partnership.
F-49
Brookfield Business Partners
Table of Contents
BROOKFIELD BUSINESS PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at December 31, 2018 and 2017 and for the years ended December 31, 2018, 2017 and 2016
NOTE 9. OTHER ASSETS
(US$ MILLIONS)
Current
Work in progress (1)
Prepayments and other assets
Total current
Non-current
Work in progress (1)
Prepayments and other assets
Total non-current
____________________________________
(1)
See Note 16 for additional information.
2018
2017
$
$
$
$
506
508
1,014
57
442
499
$
$
$
$
195
235
430
—
79
79
The increase in other assets from December 31, 2018 is primarily attributable to the acquisitions in our infrastructure
services and industrial operations segments, which account for $998 million of the increase compared to December 31, 2017.
NOTE 10. NON-WHOLLY OWNED SUBSIDIARIES
The following tables present the gross assets and liabilities as well as gross amounts of revenue, net income, other
comprehensive income and distributions from the partnership’s investments in material non-wholly owned subsidiaries for the
years ended December 31, 2018, 2017 and 2016:
Year Ended December 31, 2018
Total
Current
assets
Non-
current
assets
Current
liabilities
Non-
current
liabilities Revenue
Profit/
(loss)
OCI
Profit/
(loss)
allocated
to others
ownership
interest
Distributions
to others
ownership
interest
Equity to
others
ownership
interest
$ 2,413
$ 1,773
$ 3,113
$
475
$25,785
$
(20) $
4
$
(20) $
(46) $
424
2,889
8,750
2,921
6,208
2,419
282
(121)
1,991
$ 7,293
5,656
$16,179
1,040
$ 7,074
4,823
$ 11,506
3,894
$32,098
895
$ 1,157
(239)
$ (356) $
170
612
762
(16)
1,534
(1,542)
(1,604) $
1,425
3,383
$
Year Ended December 31, 2017
Total
Current
assets
Non-
current
assets
Current
liabilities
Non-
current
liabilities Revenue
Profit/
(loss)
OCI
Profit/
(loss)
allocated
to others
ownership
interest
Distributions
to others
ownership
interest
Equity to
others
ownership
interest
$ 2,606
$ 1,744
$ 2,774
$
948
$15,676
$
45
$
11
$
35
$
46
$
476
(US$
MILLIONS)
Business
services
Infrastructure
services
Industrial
operations
Total
(US$
MILLIONS)
Business
services
Industrial
operations
1,095
5,812
904
2,731
1,913
Total
$ 3,701
$ 7,556
$ 3,678
$ 3,679
$17,589
$
(4)
41
$
41
52
$
4
39
$
25
71
$
2,338
2,814
Brookfield Business Partners
F-50
Table of Contents
BROOKFIELD BUSINESS PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at December 31, 2018 and 2017 and for the years ended December 31, 2018, 2017 and 2016
(US$
MILLIONS)
Business
services
Industrial
operations
Year Ended December 31, 2016
Total
Current
assets
Non-
current
assets
Current
liabilities
Non-
current
liabilities Revenue
Profit/
(loss)
OCI
Profit/
(loss)
allocated
to others
ownership
interest
Distributions
to others
ownership
interest
Equity to
others
ownership
interest
$
437
$
494
$
402
$
253
$ 1,347
$
25
$
5
$
15
$
8
$
198
775
2,349
Total
$ 1,212
$ 2,843
$
349
751
1,022
1,491
$ 1,275
$ 2,838
(323)
$ (298) $
42
47
$
(206)
(191) $
10
18
$
1,131
1,329
The following table outlines the composition of accumulated non-controlling interest ("NCI") related to the interest of others
presented in the partnership's Consolidated Statements of Financial Position:
(US$ MILLIONS)
NCI related to material non-wholly owned subsidiaries
Business services
Infrastructure services
Industrial operations
Total NCI in material non-wholly owned subsidiaries
Total individually immaterial NCI balances
Total NCI
2018
2017
$
$
$
424
$
1,534
1,425
3,383
148
3,531
$
$
476
—
2,338
2,814
212
3,026
F-51
Brookfield Business Partners
Table of Contents
BROOKFIELD BUSINESS PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at December 31, 2018 and 2017 and for the years ended December 31, 2018, 2017 and 2016
NOTE 11. PROPERTY, PLANT AND EQUIPMENT
(US$ MILLIONS)
Gross Carrying Amount
Balance at January 1, 2017
Additions (cash and non-cash)
Disposals (cash and non-cash)
Acquisitions through business combinations (1)
Transfers and assets reclassified as held for sale (2)
Net foreign currency exchange differences
Balance at December 31, 2017
Additions (cash and non-cash)
Disposals (cash and non-cash)
Acquisitions through business combinations (1)
Transfers and assets reclassified as held for sale (2)
Net foreign currency exchange differences
Machinery
and
Equipment
Mineral
Property
Assets and
Oil and Gas
Properties
Vessels Others
Land
Building
$
89
—
—
21
(12)
5
$
163
$
24
—
211
(3)
2
917
105
(22)
245
7
58
$
1,623
$
— $
48
(251)
—
(7)
103
—
—
—
—
—
$
103
$
397
$
1,310
$
1,516
$
— $
1
(3)
44
(12)
(6)
37
(5)
262
(2)
(40)
301
(95)
801
(13)
(81)
64
(2)
—
1
(119)
86
(19)
3,738
(13)
—
57
18
(2)
26
(1)
1
99
11
(7)
68
1
(8)
Total
Assets
$ 2,849
195
(275)
503
(16)
169
$ 3,425
500
(131)
4,913
(38)
(254)
Balances at December 31, 2018
$
127
$
649
$
2,223
$
1,460
$ 3,792
$
164
$ 8,415
Accumulated Depreciation and Impairment
Balance at January 1, 2017
$ — $
(29) $
(253) $
(447) $
— $
Depreciation/depletion/impairment expense
Disposals
Transfers and assets reclassified as held for sale (2)
Net foreign currency exchange differences
Balances at December 31, 2017 (3) (4)
Depreciation/depletion/impairment expense
Disposals
Transfers and assets reclassified as held for sale (2)
Net foreign currency exchange differences
Balances at December 31, 2018 (3) (4)
Net book value
December 31, 2017
December 31, 2018
____________________________________
—
—
—
—
(15)
—
—
—
(106)
16
(4)
(17)
(17)
35
5
(26)
—
—
—
—
$ — $
(44) $
(364) $
(450) $
— $
(37) $
—
—
—
—
(28)
(192)
(306)
(182)
(12)
1
1
5
55
2
23
—
—
50
3
—
—
3
(1)
5
$ — $
(65) $
(476) $
(706) $
(179) $
(42) $ (1,468)
$
$
103
127
$
$
353
584
$
$
946
1,747
$
$
1,066
$
— $
62
$ 2,530
754
$ 3,613
$
122
$ 6,947
(24)
(13)
1
—
(1)
(753)
(151)
52
1
(44)
(895)
(720)
62
2
83
(1)
(2)
(3)
(4)
See Note 3 for additional information.
See Note 8 for additional information.
Includes accumulated impairment losses of $5 million (2017: $6 million) for machinery and equipment and $258 million (2017: $57 million) for oil and gas
properties.
As at December 31, 2018 a total of $331 million (2017: $745 million) of future development costs were included in the depletion calculation.
F-52
Brookfield Business Partners
Table of Contents
BROOKFIELD BUSINESS PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at December 31, 2018 and 2017 and for the years ended December 31, 2018, 2017 and 2016
NOTE 12. INTANGIBLE ASSETS
(US$ MILLIONS)
Gross Carrying Amount:
Balance at January 1, 2017
Water and
sewage
concession
agreements
Customer
relationships
Computer
software,
patents
trademarks
and
proprietary
technology
Loyalty
program Brand
Distribution
networks
and other
Total
assets
$
— $
406
$
120
$
— $ — $
Additions, net
Acquisitions through business combinations (1)
Disposition
Net foreign currency exchange differences
67
2,189
(3)
(100)
1
376
(59)
6
18
38
(14)
10
—
163
—
—
—
—
—
—
28
12
104
—
(2)
$
554
98
2,870
(76)
(86)
Balances at December 31, 2017
$
2,153
$
730
$
172
$
163
$ — $
142
$ 3,360
Additions, net
Acquisitions through business combinations (1)
Disposition
Net foreign currency exchange differences
Balance at December 31, 2018
Accumulated Amortization and Impairment
Balance at January 1, 2017
Amortization expense
Net foreign currency exchange differences
Disposal
Balance at December 31, 2017
Amortization expense
Net foreign currency exchange differences
Disposal
Balance at December 31, 2018
Net book value
December 31, 2017
December 31, 2018
____________________________________
(1)
See Note 3 for additional information.
$
$
$
$
$
$
104
(31)
(1)
(313)
2
489
—
(49)
19
2,025
(7)
(26)
—
—
—
(13)
—
414
—
(3)
28
14
—
(11)
153
2,911
(8)
(415)
1,912
$
1,172
$
2,183
$
150
$
411
$
173
$ 6,001
— $
(133) $
(38) $
— $ — $
(12) $
(183)
(57)
—
—
(57) $
(69)
6
1
(50)
(7)
49
(15)
(2)
9
(5)
—
—
—
—
—
(5)
—
—
(132)
(9)
58
(141) $
(46) $
(5) $ — $
(17) $
(266)
(80)
18
—
(75)
(11)
(10)
8
2
1
—
—
1
(4)
—
—
(249)
33
4
(119) $
(203) $
(111) $
(15) $
(9) $
(21) $
(478)
2,096
1,793
$
$
589
969
$
$
126
2,072
$
$
158
135
$ — $
$
402
$
125
152
$ 3,094
$ 5,523
The terms and conditions of the water and sewage concession agreements, including fees that can be charged to the users and
the duties to be performed by the operator, are regulated by various grantors, the majority of which are municipal governments across
Brazil. The concession agreements provide the operator the right to charge fees to users using the services of the operator over the term
of the concessions in exchange for water treatment services, ongoing and regular maintenance work on water distributions assets, and
improvements to the water treatment and distribution system. Fees are revised annually for inflation in Brazil. The concession
arrangements have expiration dates that range from 2037 to 2055 at which point the underlying concessions assets will be returned to
the various grantors.
The proprietary technology acquired from Westinghouse pertains to developed technology that has the potential to provide
competitive advantages and product differentiation. Westinghouse's developed technology is valued using an excess earnings method
and a relief-from-royalty method to determine the after-tax cash flows associated to the portfolio of products and processes provided
by Westinghouse. The technology includes fuel products, components and services, plant designs, as well as engineering and other
services to the owners and operators of power plants. These services consist of production and services, field services, reactor services,
pump and motor services and engineering services. The proprietary technology acquired is assessed to have a useful life of 15 years.
F-53
Brookfield Business Partners
Table of Contents
BROOKFIELD BUSINESS PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at December 31, 2018 and 2017 and for the years ended December 31, 2018, 2017 and 2016
Customer relationships acquired from Westinghouse pertain to strong and continuing relationships with many of the company's
customers within the power generation industry. Due to relatively high barriers to entry, regulatory requirements and the time required
to recreate relationship due to the bidding and proposal process within the power generation industry, existing customer relationships
Westinghouse has is expected to provide a future source of cash flows. Westinghouse's customer relationships is valued using the cost
replacement approach to estimate the cost to recreate the existing customer base. The customer relationships acquired is assessed to
have a useful life of up to 25 years.
NOTE 13. GOODWILL
(US$ MILLIONS)
Balance at beginning of year
Acquisitions through business combinations (1)
Foreign currency translation
Balance at end of year
____________________________________
(1)
See Note 3 for additional information.
2018
2017
$
$
1,554
$
957
(100)
2,411
$
Goodwill is allocated to the following segments as at December 31, 2018 and 2017:
(US$ MILLIONS)
Business services
Infrastructure services
Industrial operations
Total
2018
2017
1,306
760
345
$
2,411
$
1,152
342
60
1,554
1,368
—
186
1,554
NOTE 14. EQUITY ACCOUNTED INVESTMENTS
The following table presents the ownership interest, voting interest, and carrying values of the partnership's equity accounted
investments as at December 31, 2018 and 2017:
(US$ MILLIONS)
Economic interest
Voting interest
Business services
Infrastructure services
Industrial operations
Total
2018
13%-90%
25%-50%
24%-50%
2017
28%-90%
25%
2018
13%-90%
25%-50%
2017
28%-90% $
60%
14%-50%
24%-50%
29%-50%
Carrying value
2018
2017
$
130
338
73
213
201
195
609
$
541
$
F-54
Brookfield Business Partners
Table of Contents
BROOKFIELD BUSINESS PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at December 31, 2018 and 2017 and for the years ended December 31, 2018, 2017 and 2016
The following table represents the change in the balance of equity accounted investments:
(US$ MILLIONS)
Balance at beginning of year
Adoption of new accounting standards
Acquisitions through business combinations (1)
Additions (2)
Dispositions (3)
Share of net income
Share of other comprehensive income
Distributions received
Foreign currency translation
Balance at end of period
____________________________________
2018
2017
$
$
609
(7)
310
267
(599)
10
(1)
(29)
(19)
541
$
$
166
—
231
208
—
69
(5)
(59)
(1)
609
(1)
(2)
(3)
See Note 3 for additional information.
Includes non-cash additions related to the consolidation of our equity accounted investment in Teekay Offshore
Dispositions of equity accounted investments in 2018 relates to the consolidation of Teekay Offshore, the sale of our Western Australia energy operations and
the sale of our real estate brokerage business.
On January 23, 2018, together with institutional partners, we closed in partnership with our operating partner, our transaction
to operate and manage three entertainment facilities in the Greater Toronto Area for a minimum period of 22 years.
Prior to July 3, 2018, the partnership, together with institutional investors, had a 60% economic interest in Teekay Offshore
Partners LP and a 49% voting interest in Teekay Offshore's General Partner. The 60% economic interest in Teekay Offshore was accounted
for using the equity method. On July 3, 2018, the partnership, together with institutional investors, exercised its general partner option
to acquire an additional 2% voting interest in Teekay Offshore GP, in exchange of one million of warrants and began consolidating the
business. As a result, the partnership recorded a disposition of the equity accounted investment of Teekay Offshore and began consolidating
the equity accounted investments held by Teekay Offshore.
For the year ended December 31, 2018, the partnership received total distributions from equity accounted investments of $29
million, including a distribution of $15 million from our Western Australian energy operation within our industrial operations segment.
The following tables present the gross assets and liabilities of the partnership's equity accounted investments:
Year Ended December 31, 2018
Total
Attributable to
(US$ MILLIONS)
Business services
Infrastructure
services
Industrial operations
Total
Current
assets
Non-
current
assets
Total
assets
Current
liabilities
Non-
current
liabilities
Total
liabilities
Total net
assets
Other
ownership
interests
Partnership's
share (1)
$
575
$
478
$ 1,053
$
451
$
229
$
680
$
373
$
219
$
205
38
818
$
1,359
1,564
277
$ 2,114
315
$ 2,932
$
179
26
656
$
747
136
1,112
$
926
162
1,768
638
153
$ 1,164
$
319
78
616
$
154
319
75
548
F-55
Brookfield Business Partners
Table of Contents
BROOKFIELD BUSINESS PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at December 31, 2018 and 2017 and for the years ended December 31, 2018, 2017 and 2016
Year Ended December 31, 2017
Total
Attributable to
(US$ MILLIONS)
Current
assets
Non-
current
assets
Total
assets
Current
liabilities
Non-
current
liabilities
Total
liabilities
Total net
assets
Other
ownership
interests
Partnership's
share (1)
Business services
$
359
$
499
$
858
$
354
$
262
$
616
$
242
$
94
$
Infrastructure
services
Industrial operations
488
355
4,523
4,260
5,011
4,615
978
415
3,197
3,393
4,175
3,808
836
807
626
649
Total
$ 1,202
$ 9,282
$ 10,484
$
1,747
$
6,852
$
8,599
$ 1,885
$
1,369
$
148
210
158
516
____________________________________
(1)
Attributable to limited partner and redemption-exchange unitholders.
Certain of the partnership's equity accounted investments are subject to restrictions over the extent to which they can remit funds
to the partnership in the form of cash dividends, or repayments of loans and advances as a result of borrowing arrangements, regulatory
restrictions and other contractual requirements.
The following tables present the gross amounts of revenue, net income, other comprehensive income and distributions from the
partnership's equity accounted investments for the year ended December 31, 2018, 2017 and 2016:
(US$ MILLIONS)
Revenue
Total
Net
income
Year Ended December 31, 2018
Attributable to other
ownership interests
Attributable
to partnership
OCI
Total
Comprehensive
income
Distributions
Comprehensive
income
Distributions
Business services
$
605
$
102
$
(15) $
87
$
85
$
Infrastructure
services
Industrial operations
Total
828
445
$ 1,878
$
(31)
62
133
$
2
(18)
(31) $
(29)
44
102
$
(25)
34
94
$
7
9
86
102
$
$
2
$
(4)
10
8
$
10
4
15
29
(US$ MILLIONS)
Revenue
Total
Net
income
Year Ended December 31, 2017
Attributable to other
ownership interests
Attributable
to partnership
OCI
Total
Comprehensive
income
Distributions
Comprehensive
income
Distributions
Business services
$
397
$
81
$
— $
81
$
54
$
45
$
Infrastructure
services
Industrial operations
301
811
Total
$ 1,509
$
(25)
327
383
2
(40)
(23)
287
(17)
244
$
(38) $
345
$
281
$
3
169
217
$
27
$
(6)
43
64
$
22
1
36
59
F-56
Brookfield Business Partners
Table of Contents
BROOKFIELD BUSINESS PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at December 31, 2018 and 2017 and for the years ended December 31, 2018, 2017 and 2016
(US$ MILLIONS)
Revenue
Business services
$
Industrial operations
403
941
Total
$ 1,344
Year Ended December 31, 2016
Attributable to other
ownership interests
Attributable to partnership
OCI
Total
Comprehensive
income
Distributions
Comprehensive
income
Distributions
Total
Net
income
$
$
49
99
148
$
$
— $
(138)
(138) $
49
(39)
10
$
$
$
32
(35)
(3) $
38
17
55
$
$
17
(4)
13
$
$
20
5
25
One of the partnership's equity accounted investments is a publicly listed entity with active pricing in a liquid market. The fair
value based on the publicly listed price in comparison to the partnership's carrying value is as follows:
(US$ MILLIONS)
Business services
Infrastructure services
Total
NOTE 15. ACCOUNTS PAYABLE AND OTHER
(US$ MILLIONS)
Current:
Accounts payable
Accrued and other liabilities (1) (2)
Work in progress (3)
Provisions and decommissioning liabilities
Total current
Non-current:
Accounts payable
Accrued and other liabilities (2)
Work in progress (3)
Provisions and decommissioning liabilities (4)
Total non-current
____________________________________
December 31, 2018
December 31, 2017
Public price
Carrying
value
Public price
Carrying
value
$
$
36
—
36
$
$
— $
—
— $
44
242
286
$
$
—
201
201
2018
2017
$
$
$
$
1,819
$
3,498
1,637
234
7,188
97
1,206
71
520
$
$
1,894
$
1,451
2,992
341
81
4,865
113
435
86
139
773
(1)
(2)
(3)
(4)
Includes bank overdrafts of $581 million as at December 31, 2018 (2017: $581 million).
Includes defined benefit pension obligation of $500 million ($12 million current and $488 million non-current) and post-retirement benefits obligation
of $67 million ($5 million current and $62 million non-current) as at December 31, 2018.
See Note 16 for additional information.
Decommissioning liability results primarily from the partnership's ownership interest in oil and natural gas wells and facilities, mining facilities, retail
gas stations, a services provider to the offshore oil production industry and power generation services. The liability represents the estimated cost to
reclaim and abandon the asset and takes into account the estimated timing of the cost to be incurred in future periods. The liability was determined
using a risk rate between 1.9% and 8.5% (2017: 1.7% and 8.5%) and an inflation rate between 1.9% and 3% (2017: 1.4% and 2%), determined as
appropriate for the underlying subsidiaries.
The increase in accounts payable and other from December 31, 2017 is primarily attributable to the acquisitions of
Westinghouse and Schoeller Allibert, as well as the consolidation of Teekay Offshore combined with an increase at Graftech and
partially offset by lower trade payables at Greenergy.
The partnership's exposure to currency and liquidity risk related to accounts payables is disclosed in Note 26.
F-57
Brookfield Business Partners
Table of Contents
BROOKFIELD BUSINESS PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at December 31, 2018 and 2017 and for the years ended December 31, 2018, 2017 and 2016
The following table presents the change in the provision balances for the partnership:
(US$ MILLIONS)
Balance at January 1, 2017
Additional provisions recognized
Reduction arising from payments/derecognition
Accretion expenses
Change in discount rate
Change in other estimates
Net foreign currency exchange differences
Balance at December 31, 2017
Additions through business combinations (1)
Additional provisions recognized
Reduction arising from payments/derecognition
Accretion expenses
Change in discount rate
Change in other estimates
Net foreign currency exchange differences
Balance at December 31, 2018
____________________________________
Decommissioning
liability
Provisions
for defects
Other
Total
provisions
$
$
$
134
$
8
(2)
7
(51)
(14)
11
93
193
—
(5)
8
(1)
31
(8)
311
$
$
$
47
12
$
22
77
(17)
—
—
—
3
45
—
11
(10)
—
—
2
(3)
45
$
$
(15)
—
—
(3)
1
82
388
62
(137)
1
—
10
(8)
398
$
$
203
97
(34)
7
(51)
(17)
15
220
581
73
(152)
9
(1)
43
(19)
754
(1)
Includes provisions for site restoration, legal fees, and reserves for contract loss attributable to the acquisition of Westinghouse and consolidation of
Teekay Offshore in our Infrastructure Services business.
NOTE 16. CONTRACTS IN PROGRESS
A summary of the partnership's contracts in progress are below:
(US$ MILLIONS)
Contract costs incurred to date
Profit recognized to date (less recognized losses)
Less: progress billings
Contract work in progress (liability)
Comprising:
Amounts due from customers — work in progress (1)
Amounts due to customers — creditors (2)
Net work in progress
____________________________________
$
$
$
$
2018
2017
2016
$
12,129
$
20,455
1,946
22,401
(23,546)
(1,145) $
$
563
(1,708)
(1,145) $
558
12,687
(12,919)
(232) $
$
195
(427)
(232) $
9,761
498
10,259
(10,189)
70
309
(239)
70
(1)
(2)
The change in the balance from December 31, 2017 was due to billed amounts of $1,446 million, additions to work in progress of $1,340 million,
acquisitions through business combinations of $490 million, and the remainder due to foreign exchange changes.
The change in the balance from December 31, 2017 was due to recognized revenue of $1,828 million, additions to work in progress of $1,974 million,
acquisitions through business combinations of $1,168 million, and the remainder due to foreign exchange changes.
F-58
Brookfield Business Partners
Table of Contents
BROOKFIELD BUSINESS PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at December 31, 2018 and 2017 and for the years ended December 31, 2018, 2017 and 2016
NOTE 17. BORROWINGS.
(US$ MILLIONS)
2019
2020
2021
2022
2023
Thereafter
Total - December 31, 2018
Total - December 31, 2017
(a)
Corporate borrowings
Business
Services
Infrastructure
Services
Industrial
Operations
Total
Borrowings
$
797
$
22
27
177
72
133
1,228
1,190
$
$
$
$
$
713
359
313
602
507
3,254
5,748
$
— $
309
622
452
207
227
2,073
3,890
2,075
$
$
$
1,819
1,003
792
986
806
5,460
10,866
3,265
As at December 31, 2018, corporate borrowings included the credit agreement with Brookfield ("Brookfield Credit
Agreements"), as described in Note 1(b)(iii) which comprises of one revolving credit facility that permits borrowings of up to
$500 million for purposes of funding acquisitions and investments. As at December 31, 2018, the credit facility under the Brookfield
Credit Agreements remain undrawn.
The partnership has a credit facility with a group of Canadian and American banks for an aggregate facility of $825
million, with a maturity date to August 2021. The credit facility is available in Euros, Sterling, Australian or U.S. or Canadian
dollars, and advances bear interest at the specified LIBOR, EURIBOR, CDOR, BBSY or bankers' acceptance rate plus 2.50%, or
the specified base rate or prime rate plus 1.50%. As at December 31, 2018, the facility remains undrawn and the partnership was
in compliance with all covenants.
(b)
Non-recourse subsidiary borrowings
Total current and non-current borrowings as at December 31, 2018 were $10,866 million (December 31, 2017: $3,265
million). The increase of $7,601 million compared to December 31, 2017 is primarily attributable to the acquisitions of businesses
within our infrastructure services segment as well as the senior secured term loan put in place at GrafTech.
Some of the partnership's businesses have credit facilities in which they borrow and repay on a monthly basis. This
movement has been shown on a net basis in the partnership's consolidated statements of cash flow.
The partnership has credit facilities within its operating businesses with major financial institutions. The credit facilities
are primarily composed of revolving term credit facilities and revolving operating facilities with variable interest rates. In certain
cases, the facilities may have financial covenants which are generally in the form of interest coverage ratios and leverage ratios.
One of the partnership's real estate services businesses within our business services segment has a securitization program under
which it transfers an undivided co-ownership interest in eligible receivables on a fully serviced basis, for cash proceeds, at their
fair value under the terms of the agreement. While the sale of the co-ownership interest is considered a legal sale, the partnership
has determined that the asset derecognition criteria has not been met as substantially all risk and rewards of ownership are not
transferred.
Our operations are currently in compliance with or have obtained waivers related to all material covenant requirements
of their term loans and credit facilities.
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BROOKFIELD BUSINESS PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at December 31, 2018 and 2017 and for the years ended December 31, 2018, 2017 and 2016
The weighted average interests rates of borrowings are as follows:
(US$ MILLIONS)
Weighted Average Rate
Weighted Average Term
Consolidated
Business Services
Infrastructure Services
Industrial Operations
Corporate and Others
Total
2018
2017
2018
2017
2018
2017
5.11%
6.16%
7.31%
—%
6.45%
4.06% 2.47
2.97% 6.14
9.22% 6.66
—% 0
7.33% 5.93
3.07
1.55
7.05
0
5.60
$
1,228
5,748
3,890
—
$
10,866
$
$
$
1,190
—
2,075
—
3,265
Borrowings by currency are as follows:
(US$ MILLIONS, except as noted)
December 31,
2018
Local
Currency
December 31,
2017
Local
Currency
Australian dollars
British pounds
U.S. dollars
Canadian dollars
Euro
Brazilian reais
Other
Total
NOTE 18. INCOME TAXES
$
$
5
33
8,605
786
264
1,135
38
10,866
$
7
26
8,605
1,073
231
4,399
175
$
—
46
974
936
17
1,292
—
3,265
—
36
974
1,090
14
4,271
2
Income taxes are recognized for the amount of taxes payable by the partnership's corporate subsidiaries and for the impact
of deferred income tax assets and liabilities related to such subsidiaries.
The major components of income tax expense include the following for the years ended December 31:
(US$ MILLIONS)
Current income tax expense/(recovery)
Deferred income tax expense/(recovery):
Origination and reversal of temporary differences
Recovery arising from previously unrecognized tax assets
Change of tax rates and imposition of new legislations
Total deferred income taxes
Income taxes
$
$
2018
2017
2016
186
$
30
$
(61)
(27)
—
(88)
98
$
(14)
(10)
2
(22)
8
$
25
(32)
(8)
(1)
(41)
(16)
The below reconciliation has been prepared using a composite statutory-rate for jurisdictions where our partnership's
subsidiaries operate.
Brookfield Business Partners
F-60
Table of Contents
BROOKFIELD BUSINESS PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at December 31, 2018 and 2017 and for the years ended December 31, 2018, 2017 and 2016
The partnership's effective tax rate is different from our partnership's composite income tax rate due to the following
differences set out below:
Composite 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 attributable to non-controlling interest
Recognition of deferred tax assets
Non-recognition of the benefit of current year's tax losses
Other
Effective income tax rate
2018
2017
2016
27%
27%
(1)
(16)
(3)
(2)
1
2
8%
(6)
5
(18)
(5)
(1)
1
3%
27%
(1)
3
6
2
(29)
(1)
7%
Deferred income tax assets and liabilities as at December 31, 2018 and 2017 relate to the following:
(US$ MILLIONS)
Non-capital losses (Canada)
Capital losses (Canada)
Losses (U.S.)
Losses (International)
Difference in basis
Total net deferred tax (liability)/asset
Reflected in the statement of financial position as follows:
Deferred income tax assets
Deferred income tax liabilities
Total net deferred tax (liability)/asset
The deferred income tax movements are as follows:
(US$ MILLIONS)
Opening net deferred tax (liability)/asset
Recognized in income
Recognized in other comprehensive income
Recognized in other (1)
Net deferred tax (liability)/asset
____________________________________
December 31, 2018
December 31, 2017
$
$
$
$
28
—
72
78
(765)
(587) $
280
(867)
(587) $
83
—
7
122
(875)
(663)
174
(837)
(663)
December 31, 2018
December 31, 2017
$
$
(663) $
88
(2)
(10)
(587) $
30
22
—
(715)
(663)
(1)
The Other category primarily relates to adjustments made to our partnership's equity related to acquisitions and dispositions and the foreign exchange
impact of the deferred tax asset calculated in the functional currency of the operating entities.
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Brookfield Business Partners
Table of Contents
BROOKFIELD BUSINESS PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at December 31, 2018 and 2017 and for the years ended December 31, 2018, 2017 and 2016
The following table details the expiry date, if applicable, of the unrecognized deferred tax assets:
(US$ MILLIONS)
2019
2020
2021
2022 and after
Do not expire
Total
December 31, 2018
December 31, 2017
$
$
10
—
1
322
587
920
$
$
—
1
272
—
47
320
The components of the income taxes in other comprehensive income for the years ended December 31, 2018, 2017, and
2016 are set out below:
(US$ MILLIONS)
Fair value through OCI
Net investment hedges
Cash flow hedges
Equity accounted investments
Pension plan actuarial changes
$
Total deferred tax expense (recovery) in other comprehensive income
$
2018
2017
2016
(3) $
13
(6)
—
(2)
2
$
(1) $
(8)
10
(1)
—
— $
1
3
(3)
(7)
—
(6)
For the year ended December 31, 2018, total current tax expense of $49 million (2017: $nil) attributed to the current
tax on disposition of subsidiaries for which control has been retained has been recorded to equity.
NOTE 19. EQUITY
As at December 31, 2018, Brookfield Business Partners L.P.'s capital structure was comprised of two classes of partnership
units; limited partnership units and general partnership units. Limited partnership units entitle the holder to their proportionate
share of distributions. General partnership units entitle the holder the right to govern the financial and operating policies of
Brookfield Business Partners L.P. The general partnership units are not quantitatively material to the financial statements and
therefore have not been separately presented on the consolidated statements of financial position.
Holding LP's capital structure is comprised of three classes of partnership units: managing general partner units held by
Brookfield Business Partners L.P., special limited partner units held by Brookfield and redemption-exchange units held by
Brookfield.
In its capacity as the holder of the special limited partner units of the Holding LP, the special limited partner is entitled
to incentive distribution rights which are based on a 20% increase in the unit price of the partnership over an initial threshold based
on the volume-weighted average price of the units, subject to a high water mark. Distributions of $278 million were declared
during the year ended December 31, 2018 (December 31, 2017: $142 million). This related to an aggregate increase of $10.77/
unit during the year ended December 31, 2018 from $31.19/unit to $41.96/unit. The threshold was reset to $41.96/unit.
Holding LP has issued 63 million redemption-exchange units to Brookfield. Both the L.P. and G.P. units issued by
Brookfield Business Partners L.P. and the redemption-exchange units issued by the Holding LP have the same economic attributes
in all respects, except for the redemption right described in Note 1(b)(i).
As part of the spin-off, Brookfield subscribed for $15 million of preferred shares and $250 million of limited partnership
units. The rights of the preferred shareholders are described in Note 1(b)(ii).
Brookfield Business Partners
F-62
Table of Contents
BROOKFIELD BUSINESS PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at December 31, 2018 and 2017 and for the years ended December 31, 2018, 2017 and 2016
For the year ended December 31, 2018, the partnership distributed dividends to limited partner, general partner and
redemption-exchange unitholders of $32 million, or approximately $0.25 per partnership unit (2017: $31 million). For the year
ended December 31, 2018, the partnership distributed to others who have interests in the operating subsidiaries $2,370 million,
primarily resulting from the dividends received from our graphite electrode manufacturing business (2017: $388 million).
Equity offering
On September 26, 2017, the partnership issued 13,340,000 limited partnership units at $30 per unit, for gross proceeds
of approximately $400 million before $8 million in equity issuance costs. Concurrently, Holding LP issued approximately 6,945,000
redemption-exchange units to Brookfield for proceeds of approximately $200 million. The equity offering resulted in a decrease
in Brookfield’s ownership in the partnership from 75% to 69%, before giving effect to the over-allotment option.
On October 26, 2017, the underwriters for the public offering of the limited partnership units that closed on September
26, 2017 purchased an additional 1,000,500 limited partnership units at a price of $30 per unit, pursuant to the exercise of the
underwriter's over-allotment option. The partnership received additional gross proceeds of approximately $30 million from the
over-allotment option before approximately $1 million in equity issuance costs. This resulted in a decrease in Brookfield's ownership
of the partnership to 68%.
(a)
General and Limited Partnership Units
General and limited partnership units outstanding are as follows:
UNITS
Authorized and issued
Opening balance
Issued for cash
On issue at December 31
General Partner Units
Limited Partnership Units
Total
2018
2017
2018
2017
2018
2017
66,185,798
66,185,802
4
—
4
4
—
4
51,845,298
— 14,340,500
66,185,798
66,185,798
66,185,802
51,845,302
— 14,340,500
66,185,802
The weighted average number of general partner units outstanding for the year ended December 31, 2018 was 4 (2017:
4). The weighted average number of limited partnership units outstanding for the year ended December 31, 2018 was 66 million
(2017: 55.5 million).
(b)
Redemption-Exchange Units held by Brookfield
UNITS
Authorized and issued
Opening balance
Issued for cash
On issue at December 31
Redemption-Exchange Units
held by Brookfield
2017
2018
63,095,497
56,150,497
—
6,945,000
63,095,497
63,095,497
The weighted average number of redemption-exchange units outstanding for the year ended December 31, 2018 was 63
million (2017: 58 million).
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Brookfield Business Partners
Table of Contents
BROOKFIELD BUSINESS PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at December 31, 2018 and 2017 and for the years ended December 31, 2018, 2017 and 2016
(c)
Special Limited Partner Units held by Brookfield
UNITS
Authorized and issued
Opening balance
On issue at December 31
Special Limited Partner Units
held by Brookfield
2017
2018
4
4
4
4
The weighted average number of special limited partner units outstanding for the year ended December 31, 2018 was 4
(2017: 4).
(d)
Preferred Shares held by Brookfield
UNITS
Authorized and issued
Opening balance
On issue at December 31
Earnings per limited partner unit
Preferred Shares held by
Brookfield
2018
2017
200,002
200,002
200,002
200,002
Net income attributable to limited partnership unitholders was $74 million for the year ended December 31, 2018 (2017:
net loss $58 million).
NOTE 20. ACCUMULATED OTHER COMPREHENSIVE INCOME
(a)
Attributable to Limited Partners
(US$ MILLIONS)
Balance as at January 1, 2018
Other comprehensive income (loss)
Ownership changes
Balance as at December 31, 2018
____________________________________
Foreign currency
translation
Fair value
through OCI
$
$
(111) $
(71)
—
(182) $
6
3
—
9
(1)
Represents net investment hedges, cash flow hedges and other reserves.
(US$ MILLIONS)
Balance as at January 1, 2017
Other comprehensive income (loss)
Balance as at December 31, 2017
____________________________________
Foreign currency
translation
Available for
sale
$
$
(148) $
37
(111) $
4
2
6
(1)
Represents net investment hedges, cash flow hedges and other reserves.
F-64
Brookfield Business Partners
Other (1)
$
(7) $
(5)
(1)
(13) $
$
Other (1)
3
$
(10)
(7) $
$
$
Accumulated other
comprehensive
income (loss)
Accumulated other
comprehensive
income (loss)
(112)
(73)
(1)
(186)
(141)
29
(112)
Table of Contents
BROOKFIELD BUSINESS PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at December 31, 2018 and 2017 and for the years ended December 31, 2018, 2017 and 2016
(US$ MILLIONS)
Balance as at January 1, 2016
Other comprehensive income (loss)
Ownership changes
Unit issuance / reorganization
Balance as at December 31, 2016
____________________________________
Foreign currency
translation
Available for
sale
Other (1)
Accumulated other
comprehensive
income (loss)
$
$
— $
(21)
—
(127)
(148) $
— $
— $
13
—
(9)
4
—
(2)
5
$
3
$
—
(8)
(2)
(131)
(141)
(1)
Represents net investment hedges, cash flow hedges and other reserves.
(b)
Attributable to General Partner and Special Limited Partners
Accumulated other comprehensive income attributable to general partner and special limited partners has not
been disclosed as collectively these partners hold 8 units, thus the figures are immaterial.
(c)
Inc.
Attributable to Non-controlling interest — Redemption-Exchange Units held by Brookfield Asset Management
(US$ MILLIONS)
Balance as at January 1, 2018
Other comprehensive income (loss)
Ownership changes
Balance as at December 31, 2018
____________________________________
Foreign currency
translation
Fair value
through OCI
$
$
(165) $
(67)
—
(232) $
4
3
—
7
(1)
Represents net investment hedges, cash flow hedges and other reserves.
(US$ MILLIONS)
Balance as at January 1, 2017
Other comprehensive income (loss)
Balance as at December 31, 2017
____________________________________
Foreign currency
translation
Available for
sale
$
$
(205) $
40
(165) $
2
2
4
(1)
Represents net investment hedges, cash flow hedges and other reserves.
Other (1)
$
(4) $
(5)
(1)
(10) $
$
Other (1)
6
$
(10)
(4) $
$
$
Accumulated other
comprehensive
income (loss)
Accumulated other
comprehensive
income (loss)
(165)
(69)
(1)
(235)
(197)
32
(165)
(US$ MILLIONS)
Balance as at January 1, 2016
Other comprehensive income (loss)
Ownership changes
Unit issuance / reorganization
Balance as at December 31, 2016
____________________________________
Foreign currency
translation
Available for
sale
Other (1)
Accumulated other
comprehensive
income (loss)
$
$
— $
(24)
—
(181)
(205) $
— $
— $
15
—
(13)
2
1
(2)
7
$
6
$
—
(8)
(2)
(187)
(197)
(1)
Represents net investment hedges, cash flow hedges and other reserves.
F-65
Brookfield Business Partners
Table of Contents
BROOKFIELD BUSINESS PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at December 31, 2018 and 2017 and for the years ended December 31, 2018, 2017 and 2016
(d)
Attributable to Brookfield Asset Management Inc.
Foreign currency
translation
Available for
sale
Accumulated other
comprehensive
income (loss)
(US$ MILLIONS)
Balance as at January 1, 2016
Other comprehensive income (loss)
Net increase/decrease in parent company
investment
Balance as at Unit issuance/reorganization
Balance as at December 31, 2016
____________________________________
$
$
(358) $
53
(3)
308
— $
Other (1)
33
(16)
(35) $
13
$
—
22
— $
(5)
(12)
— $
(360)
50
(8)
318
—
(1)
Represents net investment hedges, cash flow hedges and other reserves.
NOTE 21. DIRECT OPERATING COSTS
The partnership has no key employees or directors and does not remunerate key management personnel. Details of the
allocations of costs incurred by Brookfield on behalf of our partnership are disclosed in Note 24. Key decision makers of the
partnership are all employees of the ultimate parent company or its subsidiaries, which provides management services under the
master services agreement with Brookfield.
Direct operating costs include all attributable expenses except interest, depreciation and amortization, impairment expense,
other expenses, and taxes and primarily relate to cost of sales and compensation. The following table lists direct operating costs
for the year ended 2018, 2017, and 2016 by nature:
(US$ MILLIONS)
Cost of sales
Compensation
Property taxes, sales taxes and other
Total
2018
2017
2016
$
$
31,539
$
20,276
$
2,530
65
1,568
32
34,134
$
21,876
$
6,021
1,346
19
7,386
Inventories recognized as cost of sales for the year ended December 31, 2018 amounted to $21,421 million (2017: $12,701
million, 2016: $1,017 million).
NOTE 22. GUARANTEES AND CONTINGENCIES
In the normal course of operations, the partnership's operating subsidiaries have bank guarantees, insurance bonds and
letters of credit outstanding to third parties. As at December 31, 2018 the total outstanding amount was $1,744 million (2017:
$1,614 million). The partnership does not conduct its operations, other than those of equity accounted investments, through entities
that are not consolidated in these financial statements, and has not guaranteed or otherwise contractually committed to support
any material financial obligations not reflected in these financial statements.
The partnership and its subsidiaries are contingently liable with respect to litigation and claims that arise in the normal
course of operations. It is not expected that any of the ongoing litigation and claims as at December 31, 2018 could result in a
material settlement liability to our partnership.
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Brookfield Business Partners
Table of Contents
BROOKFIELD BUSINESS PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at December 31, 2018 and 2017 and for the years ended December 31, 2018, 2017 and 2016
Escrow and Trust Deposits
As a service to its customers, two of the partnership's operating subsidiaries administer escrow and trust deposits which
represent undisbursed amounts received for the settlement of certain transactions. These escrow and trust deposits as at
December 31, 2018 totaled $86 million (2017: $96 million). These escrow and trust deposits are not assets of the partnership and,
therefore, are excluded from the accompanying consolidated statements of financial position. However, the partnership remains
contingently liable for the disposition of these deposits.
NOTE 23. CONTRACTUAL COMMITMENTS
(a)
Commitments
In the normal course of business, the partnership will enter into contractual obligations which relate to the gathering,
processing and transportation delivery agreements for oil and gas products. Also, in the normal course of business, the partnership
will enter into supply agreements for raw materials and capital items. As at December 31, 2018 our partnership had $282 million
(2017: $201 million) of such commitments outstanding in our industrial operations. Within our infrastructure services business
the partnership had $768 million in contractual commitments in the form of shipbuilding contracts attributable to the acquisition
of Teekay Offshore. Finally, in the normal course of business, the partnership will enter into contractual obligations which relate
primarily to expenditures on property, plant and equipment, and intangible assets. As at December 31, 2018, the partnership had
$nil (2017: $17 million) of such commitments attributable to our road fuel distribution business.
(b)
Obligations under finance leases
As at December 31, 2018 the minimum lease payments for the partnership's assets under finance lease are as follows:
(US$ MILLIONS)
Minimum lease payments
Total finance lease obligations
1 Year
2-5 Years
5+ Years
Total
$
$
12
12
$
$
32
32
$
$
16
16
$
$
60
60
(c)
Obligations under operating leases
As at December 31, 2018 the minimum lease payments for the partnership's assets under operating lease are as
follows:
(US$ MILLIONS)
Minimum lease payments
Total operating lease obligations
1 Year
2-5 Years
5+ Years
Total
$
$
225
225
$
$
484
484
$
$
536
536
$
$
1,245
1,245
Lease expenses recognized during the year ended December 31, 2018 totaled $594 million (2017: $125 million, 2016:
$48 million).
NOTE 24. RELATED PARTY TRANSACTIONS
In the normal course of operations, the partnership entered into the transactions below with related parties on exchange
value. These transactions have been measured at fair value and are recognized in the financial statements.
(a)
Corporate allocations and parent company’s investment
As discussed in Note 2(a), prior to the spin-off, general corporate expenses of Brookfield were allocated to our partnership.
General corporate expenses allocated to our partnership for the year ended December 31, 2018 were $nil (2017: $nil, 2016: $6
million).
F-67
Brookfield Business Partners
Table of Contents
BROOKFIELD BUSINESS PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at December 31, 2018 and 2017 and for the years ended December 31, 2018, 2017 and 2016
(b)
Transactions with the parent company
As at December 31, 2018, $nil (2017: $nil) was drawn on the credit facilities under the Brookfield Credit Agreements.
As described in Note 1(b)(iv), at the time of the spin-off, the partnership entered into a Deposit Agreement with Brookfield.
From time to time, the partnership may place funds on deposit with Brookfield. The deposit balance is due on demand and earns
a market rate interest. As at December 31, 2018, $244 million (2017: $384 million) was on deposit in relation to this agreement
and was included in cash and cash equivalents. For the year ended December 31, 2018, the partnership earned interest income of
$12 million (2017: $6 million, 2016: $1 million) on these deposits.
As described in Note 1(b)(iv), at the time of the spin-off, the partnership entered into a Master Services Agreement with
its Service Providers, which are wholly-owned subsidiaries of Brookfield. For purposes of calculating the base management fee,
the total capitalization of Brookfield Business Partners L.P. is equal to the quarterly volume-weighted average trading price of a
unit on the principal stock exchange for the partnership units (based on trading volumes) multiplied by the number of units
outstanding at the end of the quarter (assuming full conversion of the redemption-exchange units into units of Brookfield Business
Partners L.P.), plus the value of securities of the other Service Recipients that are not held by the partnership, plus all outstanding
third party debt with recourse to a Service Recipient, less all cash held by such entities. The base management fee for the year
ended December 31, 2018 was $56 million (2017: $33 million, 2016: $12 million).
In its capacity as the holder of the special limited partner (“Special LP”) units of Holding LP, Brookfield is entitled to
incentive distribution rights. The total incentive distribution for the year ended December 31, 2018 was $278 million (2017: $142
million, 2016: $nil).
The partnership previously entered into a number of hedges of net investments in foreign operations with Brookfield, all
of which were settled as as December 31, 2017. For the year ended December 31, 2018, unrealized gains were $nil (2017: $nil;
2016: $9 million).
In addition, at the time of spin-off, the partnership entered into indemnity agreements with Brookfield that relate to certain
projects in certain regions that were in place prior to the spin-off. Under these indemnity agreements, Brookfield has agreed to
indemnify us for the receipt of payments relating to such projects.
(c)
Other
The following table summarizes other transactions the partnership has entered into with related parties:
(US$ MILLIONS)
Transactions during the period (1)
Business services revenues
____________________________________
Year Ended December 31,
2018
2017
2016
$
435
$
358
$
367
(1)
Within our business services segment, the partnership provides construction services and real estate financial advisory services to affiliates of Brookfield.
(US$ MILLIONS)
Balances at end of period:
Accounts receivable
Accounts payable and other
December 31, 2018
December 31, 2017
$
$
63
63
$
$
64
106
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Brookfield Business Partners
Table of Contents
BROOKFIELD BUSINESS PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at December 31, 2018 and 2017 and for the years ended December 31, 2018, 2017 and 2016
Equity in net assets attributable to parent company
"Net increase (decrease) in Brookfield Asset Management Inc. investment" as shown in the consolidated statements of
changes in equity represent the parent company's historical investment in our partnership, accumulated net income and the net
effect of the transactions and allocations from the parent company. The total net effect of transactions with the parent company is
reflected in the consolidated statements of cash flow as a financing activity and in the consolidated statements of financial position
as "Equity in net assets attributable to parent company". All significant intercompany transactions between the partnership and
the parent company have been considered to be forgiven at the time the transaction is recorded and reflected as "net increase
(decrease) in Brookfield Asset Management Inc. investment".
NOTE 25. DERIVATIVE FINANCIAL INSTRUMENTS
The partnership's activities expose it to a variety of financial risks, including market risk (currency risk, interest rate risk,
commodity risk and other price risks), credit risk and liquidity risk. The partnership and its subsidiaries selectively use derivative
financial instruments principally to manage these risks.
The aggregate notional amounts of the partnership's derivative positions as at December 31, 2018 and 2017 were as
follows:
(US$ MILLIONS)
Foreign exchange contracts
Interest rate swaps and cross currency swaps
Warrants
Option contracts
Commodity instruments
Oil Based Fuel (Cbm - millions)
Natural Gas (Mcf - millions)
Palladium (Ounces)
(a)
Foreign exchange contracts
2018
2017
$
$
1,652
$
2,982
31
5,250
9,915
$
2018
2017
6.17
8.22
—
1,243
—
—
—
1,243
3.82
36.81
67,850
The following table presents the notional amounts and average exchange rates for foreign exchange contracts held by
the partnership as at December 31, 2018 and 2017. The notional amounts as at December 31, 2018 and comparative year 2017
include both buy and sell contracts.
F-69
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Table of Contents
BROOKFIELD BUSINESS PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at December 31, 2018 and 2017 and for the years ended December 31, 2018, 2017 and 2016
Foreign exchange contracts
Australian dollars
Brazilian Real
British Pounds
Canadian dollars
Chinese Yuan
Euros
Indian Rupees
Japanese Yen
Mexican Pesos
Norwegian Krone
South Africa Rand
Swedish Krona
Swiss Franc
Notional amount
(U.S. Dollars)
Average exchange
rate
2018
2017
2018
2017
$
184
$
191
35
131
940
(15)
44
188
4
(5)
53
3
94
(4)
1,652
$
—
90
785
(11)
35
154
3
(5)
—
1
—
—
$
1,243
0.75
0.25
1.29
0.76
0.14
1.18
0.01
0.01
0.05
0.13
0.07
0.13
1.00
0.76
—
1.33
0.78
0.15
1.18
0.01
0.01
0.05
—
0.08
—
—
(b)
Interest Rate and Cross Currency Swap Contracts
The partnership held $2,982 million in interest rate and cross currency swaps as at December 31, 2018 (2017: $nil). The
increase from 2017 is primarily attributed to the acquisition of Westinghouse and consolidation of Teekay Offshore for the purpose
of hedging foreign exchange and interest rate risk.
(c)
Warrants
As at December 31, 2018, the partnership held warrants with a notional value of $31 million (2017: $nil) as a result of
the consolidation of Teekay Offshore. As at December 31, 2018, these warrants have a negative fair value of $13 million.
(d)
Commodity Contracts
The partnership has entered into commodity contracts for the purpose of hedging resources such as oil based fuel, natural
gas and palladium. All commodity derivatives contracts are recorded at fair value and are reflected in the partnership's consolidated
statements of financial position. As at December 31, 2018 the partnership held contracts for 6.17 million cbm (2017: 3.82 million
cbm) of fuel including diesel, gasoline, ethanol for our fuel distribution and our graphite electrode manufacturing business. The
partnership also held contracts for natural gas in 2018 for 8.22 million Mcf (2017: 36.81 million Mcf) for our Canadian natural
gas operations. Finally, the partnership held contracts for palladium in 2018 for nil ounces (2017: 67,850 ounces) for palladium
mining operations.
(e)
Option contracts
As at December 31, 2018, the partnership held interest rate swaptions with a notional value of $5,250 million and a fair
value of $9 million. In addition to the interest rate swaptions the partnership held call options with a fair value of $nil (2017: $12
million) and offsetting put options with a fair value of $nil (2017: $10 million) related to one of our equity accounted investments.
Other Information Regarding Derivative Financial Instruments
The following table presents the notional amounts underlying the partnership's derivative instruments by term to maturity
as at December 31, 2018 and the comparative notional amounts as at December 31, 2017, for both derivatives that are classified
as fair value through profit of loss and derivatives that qualify for hedge accounting:
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Brookfield Business Partners
Table of Contents
BROOKFIELD BUSINESS PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at December 31, 2018 and 2017 and for the years ended December 31, 2018, 2017 and 2016
(US$ MILLIONS)
Fair value through profit or loss
Foreign exchange contracts
Interest rate and cross currency swaps
Warrants
Elected for hedge accounting
Foreign exchange contracts
Interest rate and cross currency swaps
Option contracts
2018
Note
< 1 year
1 to 5
years
>5 years
Total
notional
amount
2017
Total
notional
amount
$
399
$
— $
315
$
(a)
(b)
(c)
(a)
(b)
(e)
15
—
1,152
1,500
5,250
8,316
$
(84) $
942
31
185
—
—
$ 1,074
$
525
—
—
—
—
525
$
1,482
31
1,337
1,500
5,250
9,915
286
—
—
957
—
—
$
1,243
NOTE 26. FINANCIAL RISK MANAGEMENT
The partnership recognizes that risk management is an integral part of good management practice.
As a result of holding financial instruments, the partnership is exposed to the following risks: capital risk, commodity
price risk, liquidity risk, market risk (i.e. interest rate risk and foreign currency risk), and credit risk. The following is a description
of these risks and how they are managed:
(a)
Capital Risk Management
The capital structure of our partnership consists of debt, offset by cash and equity.
(US$ MILLIONS)
Corporate borrowings
Non-recourse subsidiary borrowings
Cash
Net debt
Total equity
Total capital and net debt
Net debt to capitalization ratio
2018
2017
$
— $
10,866
(1,949)
8,917
6,494
$
15,411
$
—
3,265
(1,106)
2,159
6,064
8,223
58%
26%
The partnership manages its debt exposure by financing its operations with non-recourse subsidiary borrowings, ensuring
a diversity of funding sources as well as managing its maturity profile. The partnership also borrows in the currencies where its
subsidiaries operate, where possible, in order to mitigate its currency risk.
The partnership’s financing plan is to fund its recurring growth capital expenditures with cash flow generated by its
operations after maintenance capital expenditure, as well as debt financing that is sized to maintain its credit profile. To fund large
scale development projects and acquisitions, the partnership will evaluate a variety of capital sources including proceeds from
selling non-core and mature assets, equity and debt financing. The partnership will seek to raise additional equity if the partnership
believes it can earn returns on these investments in excess of the cost of the incremental partnership capital.
As disclosed within Note 17, the partnership has various credit facilities in place. In certain cases, the facilities have
financial covenants which are generally in the form of interest coverage ratios, leverage ratios and minimum equity or liquidity
requirements. The partnership does not have any market capitalization covenants attached to any of its borrowings, nor does it
have any other externally imposed capital requirements.
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Table of Contents
BROOKFIELD BUSINESS PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at December 31, 2018 and 2017 and for the years ended December 31, 2018, 2017 and 2016
(b)
Commodity Price Risk Management
Commodity price risk is the risk that the fair value of financial instruments will fluctuate as a result of changes in commodity
prices. Certain of the partnership’s operating subsidiaries are exposed to commodity price risk. A 10 basis point increase or decrease
in commodity prices, as it relates to financial instruments, is not expected to have a material impact on the partnership’s net income.
(c)
Liquidity Risk Management
The partnership maintains sufficient financial liquidity to be able to meet ongoing operating requirements and to be able
to participate in acquisitions. Principal liquidity needs for the next year include funding recurring expenses, meeting debt service
payments, funding required capital expenditures and funding acquisition opportunities as they arise. The operating subsidiaries of
the partnership also generate liquidity by accessing capital markets on an opportunistic basis.
The following tables detail the contractual maturities for the partnership’s financial liabilities. The tables reflect the
undiscounted cash flows of financial liabilities based on the earliest date on which our partnership can be required to pay. The
tables include both interest and principal cash flows:
(US$ MILLIONS)
Non-derivative financial liabilities
Accounts payable and other liabilities (1)
Interest-bearing liabilities
Finance lease liabilities
____________________________________
December 31, 2018
Less than
1 year
1-2 years
2-5 years
5+ years
Total
contractual
cash flows
$
6,863
$
364
$
219
$
192
$
2,370
12
1,517
7
3,829
25
5,906
16
7,638
13,622
60
(1)
Excludes $1,321 million of decommissioning liabilities, other provisions, and post-employment benefits, $61 million of capital leases, and $62 million
of loans and notes payable.
(US$ MILLIONS)
Non-derivative financial liabilities
Accounts payable and other liabilities (1)
Interest-bearing liabilities
Finance lease liabilities
___________________________________
December 31, 2017
Less than
1 year
1-2 years
2-5 years
5+ years
Total
contractual
cash flows
$
4,677
$
825
11
280
801
4
$
155
$
1,075
2
$
118
584
—
5,230
3,285
17
(1) Excludes $285 million of decommissioning liabilities, other provisions, and post-employment benefits, $17 million of capital leases, and $106 million
of loans and notes payable.
(d)
Market Risk Management
Market risk is defined for these purposes as the risk that the fair value or future cash flows of a financial instrument held
by our partnership 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.
Financial instruments held by our partnership that are subject to market risk include other financial assets, borrowings,
derivative instruments, such as interest rate and foreign currency contracts, and marketable securities.
F-72
Brookfield Business Partners
Table of Contents
BROOKFIELD BUSINESS PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at December 31, 2018 and 2017 and for the years ended December 31, 2018, 2017 and 2016
The partnership is exposed to price risks arising from marketable securities and other financial assets. As at December 31,
2018 the balance of the portfolio was $546 million (2017: $461 million). A 10% change in the value of the portfolio would impact
our equity by $55 million (2017: $46 million) and result in an impact on the consolidated statements of comprehensive income of
$55 million (2017: $46 million).
Interest Rate Risk Management
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 net income from financial instruments whose cash flows are determined with reference to
floating interest rates and changes in the fair values of financial instruments whose cash flows are fixed in nature. A 10 basis point
increase or decrease in the interest rates does not have a material impact on the partnership’s net income.
Foreign Currency Risk Management
Changes in currency rates will impact the carrying value of financial instruments and our partnership’s net investment
and cash flows denominated in currencies other than the U.S. dollar. The tables below set out our partnership’s currency exposure
as at December 31, 2018 and 2017:
Assets
Current assets
Non-current assets
Liabilities
Current liabilities
Non-current liabilities
USD
AUD
GBP
CAD
EUR
BRL
Other
Total
December 31, 2018
$
3,636
9,414
$ 13,050
$
2,886
8,571
$ 11,457
$
$
$
$
402
733
1,135
551
123
674
$
$
$
$
2,197
819
3,016
2,514
189
2,703
$
$
$
$
1,186
1,997
3,183
1,232
516
1,748
$
$
$
$
658
$
480
993
1,651
3,065
3,545
592
505
1,097
$
$
314
1,824
2,138
$
$
$
$
1,222
$
9,781
516
1,738
17,537
$ 27,318
927
$
9,016
80
1,007
11,808
$ 20,824
Non-controlling interest
1,060
52
171
750
383
1,052
63
3,531
Net investment to the
partnership
$
533
$
409
$
142
$
685
$
171
$
355
$
668
$
2,963
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Brookfield Business Partners
Table of Contents
BROOKFIELD BUSINESS PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at December 31, 2018 and 2017 and for the years ended December 31, 2018, 2017 and 2016
USD
AUD
GBP
CAD
EUR
BRL
Other
Total
December 31, 2017
Assets
Current assets
Non-current assets
Liabilities
Current liabilities
Non-current liabilities
$
$
$
$
1,482
1,655
3,137
817
816
1,633
$
$
$
$
Non-controlling interest
430
497
817
1,314
594
78
672
101
$
$
$
$
1,871
512
2,383
2,108
143
2,251
$
$
$
$
1,232
2,329
3,561
1,294
743
2,037
$
$
$
$
142
204
346
$
487
3,535
4,022
81
28
$
306
2,096
109
$ 2,402
$
$
$
$
722
319
$
6,433
9,371
1,041
$ 15,804
490
146
636
$
$
5,690
4,050
9,740
4
897
134
1,250
210
3,026
Net investment to the
partnership
$
1,074
$
541
$
128
$
627
$
103
$
370
$
195
$
3,038
The net income impact to the partnership of currency risk associated with financial instruments is limited as its financial
assets and liabilities are generally denominated in the functional currency of the subsidiary that holds the financial instrument.
However, the partnership is exposed to foreign currency risk on the net assets of its foreign currency denominated operations. The
partnership’s exposures to foreign currencies and the sensitivity of net income and other comprehensive income, on a pre-tax basis,
to a 10% change in the exchange rates relative to the United States dollar is summarized below:
December 31, 2018
OCI attributable to
unitholders
Net income
attributable to
unitholders
(36) $
(12)
(35)
(19)
December 31, 2017
OCI attributable to
unitholders
Net income
attributable to
unitholders
(88) $
(37)
(33)
(9)
$
$
—
3
4
5
—
—
—
(20)
(US$ MILLIONS)
Australian dollar
Canadian dollar
Brazilian real
Other
(US$ MILLIONS)
Australian dollar
Canadian dollar
Brazilian real
Other
F-74
Brookfield Business Partners
Table of Contents
BROOKFIELD BUSINESS PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at December 31, 2018 and 2017 and for the years ended December 31, 2018, 2017 and 2016
(US$ MILLIONS)
Australian dollar
Canadian dollar
Other
(e)
Credit Risk Management
December 31, 2016
OCI attributable to
unitholders
Net income
attributable to
unitholders
$
(55) $
(50)
(3)
—
—
1
Credit risk is the risk of loss due to the failure of a borrower or counterparty to fulfill its contractual obligations.
The partnership assesses the credit worthiness of each counterparty before entering into contracts and ensures that
counterparties meet minimum credit quality requirements. The partnership also 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. All of the partnership’s derivative financial instruments involve either
counterparties that are banks or other financial institutions. The partnership does not have any significant credit risk exposure to
any single counterparty.
NOTE 27. SEGMENT INFORMATION
Our operations are organized into four operating segments which are regularly reviewed by our Chief Operating Decision
Maker (the "CODM") for the purpose of allocating resources to the segment and to assess its performance. The key measures used by
the CODM in assessing performance and in making resource allocation decisions are company funds from operations, or Company
FFO, and Company EBITDA.
Periodically we review the organizational and governance structure of our businesses. In connection with the acquisition of
Westinghouse and the disposition of our Australian energy operation, we have realigned the organizational and governance structure
of our businesses and have changed how the partnership evaluates financial information for management decision making which has
resulted in a change in our operating segments.
Specifically, our construction services segment and business services segment are presented as a single operating segment
called business services. Infrastructure services is a new operating segment, which includes our investment in Westinghouse and Teekay
Offshore. The energy segment has been eliminated and the remainder of our energy businesses are evaluated with and presented within
our industrial operations segment.
The partnership has retrospectively applied these segment changes for all periods presented.
Company FFO is calculated as net income excluding the impact of depreciation and amortization, deferred income taxes,
breakage and transaction costs, non-cash valuation gains or losses and other items. When determining Company FFO, we include our
proportionate share of Company FFO of equity accounted investments.
Company FFO is further adjusted as Company EBITDA to exclude the impact of realized disposition gains (losses), interest
expenses, current income taxes, and realized disposition gains, current income taxes and interest expenses related to equity accounted
investments.
F-75
Brookfield Business Partners
Table of Contents
BROOKFIELD BUSINESS PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at December 31, 2018 and 2017 and for the years ended December 31, 2018, 2017 and 2016
(US$ MILLIONS)
Revenues (1)
Direct operating costs
General and administrative expenses
Equity accounted Company EBITDA (2)
Company EBITDA attributable to others (3)
Company EBITDA (4)
Realized disposition gain (loss), net (5)
Other income (expense), net (6)
Interest income (expense), net
Realized disposition gain, current income taxes and
interest expenses related to equity accounted
investments (2)
Current income taxes
Company FFO attributable to others (net of
Company EBITDA attributable to others) (3)
Company FFO (4)
Depreciation and amortization expense (7)
Gain on acquisition/disposition (5)
Impairment expense, net
Other income (expense), net (6)
Deferred income taxes
Non-cash items attributable to equity accounted
investments (2)
Non-cash items attributable to others (3)
Net income (loss) attributable to unitholders (4)
____________________________________
Year Ended December 31, 2018
Total attributable to the partnership
Business
Services
Infrastructure
Services
Industrial
Operations
Corporate
and Other
$
$
30,847
(30,351)
(278)
34
(124)
128
55
—
(66)
(3)
(44)
61
131
$
2,418
(1,715)
(65)
120
(463)
295
—
(15)
(176)
(41)
(10)
142
195
$
3,896
(2,060)
(231)
42
(1,157)
490
195
(3)
(263)
(10)
(132)
193
470
7
(8)
(69)
—
—
(70)
—
—
7
—
—
—
(63)
Total
$
37,168
(34,134)
(643)
196
(1,744)
843
250
(18)
(498)
(54)
(186)
396
733
(748)
250
(218)
(118)
88
(132)
567
422
$
(1)
(2)
(3)
(4)
(5)
(6)
(7)
For the year ended December 31, 2018, revenues by business unit in our Business Services segment are as follows: Road Fuel Distribution & Marketing
$23,794 million, Construction Services $4,545 million Facilities Management $1,925 million, Logistics $425 million, Residential Real Estate Services $105
million, Financial Advisory $32 million and Other $21 million.
The sum of these amounts equates to equity accounted income of $10 million as per the consolidated statements of operating results.
The sum of these amounts equates to net income attributable to others of $781 million as per the consolidated statements of operating results.
Company EBITDA, company FFO and net income attributable to unitholders include company EBITDA, company FFO and net income attributable to
limited partnership unitholders, general partnership unitholders, redemption-exchange unitholders, and special limited partnership unitholders.
The sum of these amounts equates to the gain on acquisitions / dispositions, net of $500 million as per the consolidated statements of operating results.
The sum of these amounts equates to the other expense, net of $136 million as per the consolidated statements of operating results.
For the year ended December 31, 2018, depreciation and amortization by segment is as follows: Infrastructure Services $309 million, Business Services
$135 million, Industrial Operations $304 million, and Corporate and Other $nil.
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Table of Contents
BROOKFIELD BUSINESS PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at December 31, 2018 and 2017 and for the years ended December 31, 2018, 2017 and 2016
(US$ MILLIONS)
Revenues (1)
Direct operating costs
General and administrative expenses
Equity accounted Company EBITDA (2)
Company EBITDA attributable to others (3)
Company EBITDA (4)
Realized disposition gain (loss), net
Interest income (expense), net
Realized disposition gain, current income taxes and
interest expenses related to equity accounted
investments (2)
Current income taxes
Company FFO attributable to others (net of
Company EBITDA attributable to others) (3)
Company FFO (4)
Depreciation and amortization expense (5)
Realized disposition gains recorded in prior periods
Impairment expense, net
Other income (expense), net
Deferred income taxes
Non-cash items attributable to equity accounted
investments (2)
Non-cash items attributable to others (3)
Net income (loss) attributable to unitholders (4)
____________________________________
Year Ended December 31, 2017
Total attributable to the partnership
Business
Services
Infrastructure
Services
Industrial
Operations
Corporate
and Other
$
$
20,874
(20,448)
(182)
28
(169)
103
19
(47)
—
(16)
33
92
$
3
—
—
31
—
34
—
—
(13)
—
—
21
$
1,939
(1,425)
(113)
49
(306)
144
225
(154)
(4)
(32)
(16)
163
7
(3)
(45)
—
—
(41)
—
(1)
—
18
—
(24)
Total
$
22,823
(21,876)
(340)
108
(475)
240
244
(202)
(17)
(30)
17
252
(371)
23
(39)
(108)
22
(22)
267
24
$
(1)
(2)
(3)
For the year ended December 31, 2017, revenues by business unit in our Business Services segment are as follows: Construction Services $4,650 million,
Facilities Management $1,775 million, Road Fuel Distribution and Marketing $13,842 million, Residential Real Estate Services $108 million, Logistics $447
million, Financial Advisory $32 million, and Other $20 million.
The sum of these amounts equates to equity accounted income of $69 million as per the consolidated statements of operating results.
The sum of these amounts equates to net income attributable to others of $191 million as per the consolidated statements of operating results.
(4) Company EBITDA, company FFO and net income attributable to unitholders include company EBITDA, company FFO and net income attributable to
limited partnership unitholders, general partnership unitholders, redemption-exchange unitholders, and special limited partnership unitholders.
(5)
For the year ended December 31, 2017, depreciation and amortization by segment is as follows; Infrastructure Services $nil, Business Services $99 million,
Industrial Operations $272 million, Corporate and Other $nil.
F-77
Brookfield Business Partners
Table of Contents
BROOKFIELD BUSINESS PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at December 31, 2018 and 2017 and for the years ended December 31, 2018, 2017 and 2016
(US$ MILLIONS)
Revenues (1)
Direct operating costs
General and administrative expenses
Equity accounted Company EBITDA (2)
Company EBITDA attributable to others (3)
Company EBITDA (4)
Realized disposition gain/(loss), net
Interest income (expense), net
Realized disposition gain, current income taxes and
interest expenses related to equity accounted
investments (2)
Current income taxes
Company FFO attributable to others (net of
Company EBITDA attributable to others) (3)
Company FFO (4)
Depreciation and amortization expense (5)
Impairment expense, net
Other income (expense), net
Deferred income taxes
Non-cash items attributable to equity accounted
investments (2)
Non-cash items attributable to others (3)
Net income (loss) attributable to parent (4)
____________________________________
Year Ended December 31, 2016
Total attributable to the partnership
Business
Services
Infrastructure
Services
Industrial
Operations
Corporate
and Other
Total
$
6,393
(6,053)
(146)
23
(44)
173
—
(15)
—
(20)
10
148
$
— $
—
—
—
—
—
—
—
—
—
—
—
1,566
(1,333)
(106)
144
(188)
83
57
(74)
(9)
(5)
17
69
$
1
$
7,960
—
(17)
—
—
(16)
—
(1)
—
—
—
(17)
$
(7,386)
(269)
167
(232)
240
57
(90)
(9)
(25)
27
200
(286)
(261)
(11)
41
(90)
378
(29)
(1)
(2)
(3)
(4)
(5)
For the year ended December 31, 2016, revenues by business unit in our Business Services segment are as follows: Construction Services $4,387 million,
Facilities Management $1,294 million, Residential Real Estate Services $619 million, Financial Advisory $64 million, and Other $29 million.
The sum of these amounts equates to equity accounted income of $68 million as per the consolidated statements of operating results.
The sum of these amounts equates to net loss attributable to others of $173 million as per the consolidated statements of operating results.
Company EBITDA, company FFO and net income attributable to unitholders include Company EBITDA, company FFO and net income attributable to
limited partnership unitholders, general partnership unitholders, redemption-exchange unitholders, and special limited partnership unitholders and company
EBITDA, company FFO and net income attributable to the parent company prior to the spin-off on June 20, 2016.
For the year ended December 31, 2016, depreciation and amortization by segment is as follows: Business Services $52 million, Industrial Operations $234
million, and Corporate and Other $nil.
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Brookfield Business Partners
Table of Contents
BROOKFIELD BUSINESS PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at December 31, 2018 and 2017 and for the years ended December 31, 2018, 2017 and 2016
Segment Assets
For the purpose of monitoring segment performance and allocating resources between segments, the CODM monitors the
assets, including investments accounted for using the equity method, attributable to each segment.
The following is an analysis of the partnership's assets by reportable operating segment as at December 31, 2018 and 2017:
(US$ MILLIONS)
Total assets
Business
Services
Infrastructure
Services
Industrial
Operations
Corporate
and Other
Total
$
7,613
$
11,640
$
7,650
$
415
$
27,318
As at December 31, 2018
Total attributable to the partnership
(US$ MILLIONS)
Total assets
Geographic Information
Revenues from external customers
(US$ MILLIONS)
United Kingdom
Canada
Australia
Brazil
United States of America
Middle East
Europe
Other
Total revenues
As at December 31, 2017
Total attributable to the partnership
Business
Services
Infrastructure
Services
Industrial
Operations
Corporate
and Other
Total
$
7,899
$
306
$
7,204
$
395
$
15,804
2018
2017
2016
$
21,983
$
13,637
$
4,691
2,961
1,736
1,772
443
2,909
673
3,273
2,884
1,252
655
593
411
118
1,451
1,954
2,502
52
927
732
251
91
$
37,168
$
22,823
$
7,960
During the year ended December 31, 2018, Greenergy generated revenues of $5,316 million (2017: $3,052 million) and $3,818
million (2017: $2,712 million) from two external customers, respectively, for the sale and delivery of fuel, which are both higher than
10% of our partnership's total revenues. Other than the two customers mentioned, the partnership has no revenues from any one major
customer which are higher than 10% of our partnership's total revenues.
F-79
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Table of Contents
BROOKFIELD BUSINESS PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at December 31, 2018 and 2017 and for the years ended December 31, 2018, 2017 and 2016
The tables below summarize our segment revenue by geography, and timing of revenue recognition for IFRS 15 revenue
for the year-ended December 31, 2018:
(US$ MILLIONS)
Timing of Revenue Recognition
Goods/services provided at a point in time
Services transferred over a period of time
Total IFRS 15 revenue
Other non IFRS 15 revenue
Total revenue
(US$ MILLIONS)
Geography
United Kingdom
Canada
Australia
Brazil
United States of America
Middle East (2)
Europe
Other
Total IFRS 15 revenue
____________________________________
Business
Services
Infrastructure
Services
Industrial
Operations
Corporate
and Other
Total
$
$
$
24,296
6,518
30,814
33
30,847
$
$
$
944
1,469
2,413
5
2,418
$
$
$
3,587
278
3,865
31
3,896
$
$
$
— $
28,827
—
— $
7
7
$
8,265
37,092
76
37,168
Business
Services
Infrastructure
Services
Industrial
Operations
Corporate
and Other
Total (1)
$
21,757
$
119
$
99
$
— $
21,974
3,786
2,936
679
478
435
704
57
9
142
802
3
901
39
30,814
$
$
380
2,413
$
830
—
901
487
7
1,300
241
3,865
$
—
—
—
—
—
—
—
— $
4,673
2,945
1,722
1,767
445
2,905
660
37,092
(1)
(2)
Geography of the other non IFRS 15 revenue is as follows: United Kingdom $9 million, Canada $18 million, Australia $16 million, Brazil $14 million,
United States $5 million, Middle East $(2) million, Europe $4 million and Other $13 million.
Middle East primarily consists of United Arab Emirates.
Non-current Assets (1)
(US$ MILLIONS)
United Kingdom
Canada
Australia
Brazil
United States of America
Middle East
Europe
Other
Total non-current assets
____________________________________
2018
2017
$
2,032
$
2,403
746
4,205
3,823
108
3,765
455
918
2,355
909
3,545
471
138
401
634
$
17,537
$
9,371
(1)
Non-current assets are comprised of property, plant and equipment, intangible assets, equity accounted investments, goodwill and other non-current assets.
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Brookfield Business Partners
Table of Contents
BROOKFIELD BUSINESS PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at December 31, 2018 and 2017 and for the years ended December 31, 2018, 2017 and 2016
NOTE 28. SUPPLEMENTAL CASH FLOW INFORMATION
(US$ MILLIONS)
Interest paid
Income taxes paid
Year Ended December 31
2018
2017
2016
$
$
456
112
$
$
103
41
$
$
74
9
Amounts paid and received for interest were reflected as operating cash flows in the consolidated statements of cash flow.
Details of "Changes in non-cash working capital, net" on the consolidated statements of cash flow are as follows:
(US$ MILLIONS)
Accounts receivable
Inventory
Prepayments and other
Accounts payable and other
Changes in non-cash working capital, net
Year Ended December 31
2018
2017
2016
$
$
(11) $
153
(89)
(322)
(269) $
(520) $
(259)
185
143
(451) $
(55)
60
(123)
127
9
The following table presents the change in the balance of liabilities arising from financing activities as at
December 31, 2018:
(US$ MILLIONS)
Balance at January 1,
Cash flows
Non-cash changes:
Acquisitions / (Disposition) of subsidiaries
Foreign currency translation
Fair value
Other changes
Balance at December 31,
NOTE 29. POST-EMPLOYMENT BENEFITS
2018
2017
$
3,265
$
4,568
3,258
(299)
43
31
$
10,866
$
1,551
349
1,386
(7)
—
(14)
3,265
The partnership maintains several defined benefit pension plans within our industrial operations and infrastructure services
segments during the year. These plans are administered in various countries, the most significant of which is in the U.S. These
benefits are provided through various insurance companies and the estimated net post-retirement benefit costs are accrued during
the employees’ credited service periods. The increase in net liability as at December 31, 2018 from 2017 is primarily attributable
to the acquisition of Westinghouse and Schoeller Allibert as well as the consolidation of Teekay Offshore.
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Brookfield Business Partners
Table of Contents
BROOKFIELD BUSINESS PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at December 31, 2018 and 2017 and for the years ended December 31, 2018, 2017 and 2016
The following table shows the changes in the present value of the defined benefit obligation and the fair value of plan
assets as at December 31, 2018:
(US$ MILLIONS)
Changes in defined benefit obligation
Defined benefit pension
plan
Post-retirement
plan
2018
2017
2018
2017
Defined benefit obligation at beginning of year
$
164
$
162
$
Defined benefit obligation at acquisition
Service cost
Interest cost
Participant contributions
Insurance premiums for risk benefits
Foreign currency exchange changes
Actuarial gain due to financial assumption changes
Actuarial gain due to demographic assumption changes
Actuarial experience adjustments
Benefits paid from plan assets
Benefits paid from employer
Defined benefit obligation at end of year
Changes in fair value of plan assets
Fair value of plan assets at beginning of year
Fair value of plan assets at acquisition
Interest income
Return on plan assets (excluding interest income)
Foreign currency exchange rate changes
Employer contributions
Participant contributions
Employer direct settlements
Benefits paid from plan assets
Benefits paid from employer
Administrative expenses paid from plan assets
Insurance premiums for risk benefits
Fair value of plan assets at year end
Net liability at end of year
$
$
$
$
1,923
10
35
1
(2)
(12)
(39)
(3)
2
(36)
(6)
2,037
$
(126) $
(1,438)
(29)
112
10
(118)
(2)
(1)
41
1
7
—
1
6
—
—
—
6
(1)
(1)
—
(9)
164
$
(116) $
—
(4)
(9)
—
(7)
—
—
8
1
1
1
(1,542) $
495
$
—
(126) $
$
38
—
— $
68
$
28
45
1
2
1
—
(2)
(2)
—
—
(1)
(4)
68
$
$
— $
—
—
—
—
(1)
(1)
1
2
(1)
—
29
—
—
1
—
—
(1)
—
—
(2)
—
1
28
—
—
—
—
—
—
—
(2)
—
2
—
—
—
28
The net liabilities for the defined benefit and post-retirement plans are recorded within accounts payable and other
in the consolidated statements of financial position.
F-82
Brookfield Business Partners
Table of Contents
BROOKFIELD BUSINESS PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at December 31, 2018 and 2017 and for the years ended December 31, 2018, 2017 and 2016
The following table summarizes the defined benefit obligation and the fair value of plan assets by geography as at
December 31, 2018:
(US$ MILLIONS)
Defined benefit pension plan
Defined benefit obligation
Fair value of plan assets
Net liability
Post-retirement plan
Defined benefit obligation at end of year
Net liability
United
States
Canada
Other
Total
$
$
$
$
1,573
(1,211)
362
49
49
$
$
$
$
4
(3)
1
12
12
$
$
$
$
460
(328)
132
7
7
$
$
$
$
2,037
(1,542)
495
68
68
The following table summarizes the defined benefit obligation and the fair value of plan assets by geography as at
December 31, 2017:
(US$ MILLIONS)
Defined benefit pension plan
Defined benefit obligation
Fair value of plan assets
Net liability
Post-retirement plan
Defined benefit obligation at end of year
Net liability
United
States
Canada
Other
Total
$
$
$
$
140
(110)
30
9
9
$
$
$
$
4
(3)
1
13
13
$
$
$
$
20
(13)
7
6
6
$
$
$
$
164
(126)
38
28
28
F-83
Brookfield Business Partners
Table of Contents
BROOKFIELD BUSINESS PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at December 31, 2018 and 2017 and for the years ended December 31, 2018, 2017 and 2016
Amounts recognized in respect of these defined benefit and post-retirement plans during the year are as follows:
(US$ MILLIONS)
Amounts recognized in profit and loss
Current service cost
Net interest expense
Administrative expense
Total expense recognized in profit and loss
Amounts recognized in other comprehensive income
Return on plan assets (excluding amounts included in net
interest expense)
Actuarial gains and losses arising from changes in
demographic assumptions
Actuarial gains and losses arising from changes in financial
assumptions
Actuarial gains and losses arising from experience
adjustments
Total expense (gain) recognized in other comprehensive
income
Total expense (gain) recognized in comprehensive
income
Defined benefit pension
plan
Post-retirement
plan
2018
2017
2018
2017
$
$
$
$
$
11
$
6
7
24
$
1
2
1
4
$
$
— $
2
—
2
$
113
$
(7) $
— $
(4)
(39)
2
72
96
$
$
(1)
6
(1)
(3) $
1
$
—
(2)
—
(2) $
— $
—
1
—
1
—
—
—
(2)
(2)
(1)
The expense recorded in profit and loss is recognized within general and administrative expenses in the consolidated
statements of operating results.
The defined benefit pension plans expose our partnership to certain actuarial risks such as investment risk, interest rate
risk, and compensation risk. The present value of the defined benefit obligation is calculated using a discount rate. If the return
on plan assets is below this rate, a plan deficit occurs. We mitigate this investment risk by establishing a sound investment policy
to be followed by the investment manager. Our investment policy requires plan assets to be invested in a diversified portfolio
and is set based on both asset return and local statutory requirements. A change in interest and compensation rates will also
affect the defined benefit obligation. A sensitivity analysis of the discount rate and compensation rate is provided below.
The following table summarizes the fair value of plan assets by category as at December 31, 2018:
(US$ MILLIONS)
Cash and cash equivalents
Equity instruments
Debt instruments
Real Estate
Fixed insurance contracts
Total plan assets
____________________________________
Level 1
Level 2 (1)
Level 3 (2)
Total
$
$
13
$
567
440
—
—
1,020
$
1
98
264
8
10
381
$
$
— $
—
127
—
14
141
$
14
665
831
8
24
1,542
(1)
(2)
Level 2 assets represent the net asset value of the underlying assets held by the investment fund. The assets are valued by the fund administrator.
Level 3 assets consist of insurance rights and equity and debt instruments pooled in an actively invested collective profit sharing arrangement with
other third-party employers. The assets are valued using non-observable inputs by the plan administrator.
F-84
Brookfield Business Partners
Table of Contents
BROOKFIELD BUSINESS PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at December 31, 2018 and 2017 and for the years ended December 31, 2018, 2017 and 2016
Significant Assumptions
The partnership annually re-evaluates assumptions and estimates used in projecting the defined benefit and post-
retirement liabilities. These assumptions and estimates may affect the carrying value of the defined benefit and post-retirement
plan liabilities in our consolidated statements of financial position. The significant actuarial assumptions adopted are as follows:
Defined benefit plan
Discount rate
Rate of compensation increase
Post-retirement plan
Discount rate
Health care cost trend on covered charges:
Immediate trend rate
Ultimate trend rate
1.7% to 3.9%
1.7% to 2.6%
3.9% to 5.6%
4.0% to 8.0%
4.0% to 6.1%
These assumptions have a significant impact on the defined benefit and post-retirement liabilities reported in the
consolidated statement of financial position. The following table presents a sensitivity analysis of each assumption with the
related impact on these liabilities as at December 31, 2018:
(US$ MILLIONS)
Defined benefit pension plan
Discount rate
Rate of compensation increase
Post-retirement plan
Discount rate
Health care cost trend rates
Percentage
increase
Impact on
liability
Percentage
decrease
Impact on
liability
0.25% to 1% $
0.25% to 0.66%
(138)
14
0.25% to 1% $
0.25% to 0.66%
0.25% to 1% $
0.5% to 1%
(3)
1
0.25% to 1% $
0.5% to 1%
151
(15)
3
(1)
The sensitivity analysis above has been determined based on reasonably possible changes of the respective assumptions
occurring as at December 31, 2018, while holding all other assumptions constant. These analyses may not be representative of
the actual change in the defined benefit and post-retirement obligations as it is unlikely that the change in assumptions would
occur in isolation of one another.
The following table summarizes future planned benefit payments under our defined benefit and post-retirement plans
as at December 31, 2018:
(US$ MILLIONS)
2019
2020
2021
2022
2023
Thereafter
Total
F-85
Brookfield Business Partners
Defined benefit
pension plan
Post-retirement
plan
$
$
$
79
83
90
92
95
520
959
$
5
5
5
5
5
22
47
Table of Contents
BROOKFIELD BUSINESS PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at December 31, 2018 and 2017 and for the years ended December 31, 2018, 2017 and 2016
NOTE 30. SUBSEQUENT EVENTS
(a)
Normal Course Issuer Bid
On January 3, 2019, we announced that, in connection with our normal course issuer bid ("NCIB") which commenced
on August 15, 2018, we entered into an automatic purchase plan. The maximum amount of Units which may be repurchased under
the NCIB was amended from 3,371,900 Units, being 10% of the public float, to 3,309,289 Units, which equals 5% of the total
issued and outstanding Units. As of March 15, 2019, we repurchased 89,027 units.
(b)
Distribution
On February 7, 2019, the Board of Directors declared a quarterly distribution in the amount of $0.0625 per unit, payable
on March 29, 2019 to unitholders of record as at the close of business on February 28, 2019.
(c)
Agreement to acquire Healthscope
On January 31, 2019, together with institutional partners, we reached an agreement to acquire up to 100% of Healthscope
Limited ("Healthscope") for approximately $4.1 billion. The transaction will be funded with up to $1.0 billion of equity, $1.4
billion of long-term financing and $1.7 billion from the sale and long-term leaseback of 22 wholly-owned freehold hospital
properties. The partnership expects to fund approximately $250 million of the equity, with the balance being funded by institutional
partners. The transaction is expected to occur in the second quarter of 2019.
(d)
Agreement to acquire Johnson Controls' Power Solutions
On November 13, 2018, together with institutional partners (collectively, “Brookfield”) and Caisse de dépôt et placement
du Québec (“CDPQ”), we reached an agreement whereby Brookfield and CDPQ will acquire 100% of Johnson Controls’ Power
Solutions business for approximately $13.2 billion. The partnership expects to fund approximately $750 million of the equity, with
the balance being funded by institutional partners. The transaction is expected to occur in the second quarter of 2019.
(e)
Agreement to sell BGIS
On March 11, 2019, together with institutional partners, we announced an agreement to sell BGIS, a leading global
provider of facilities management services to CCMP Capital Advisors, LP for approximately $1 billion. The partnership's share
of the proceeds from the sale are approximately $180 million, after taxes. Closing of the transaction remains subject to customary
closing conditions and is expected to close in the second quarter of 2019.
F-86
Brookfield Business Partners
BROOKFIELD BUSINESS PARTNERS L.P.
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