BROOKFIELD HOMES CORP - 10-Q Quarterly Report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2003
Commission File Number: 001 – 31524

BROOKFIELD HOMES CORPORATION
(Exact Name of Registrant as Specified in Its Charter)


Delaware (State or Other Jurisdiction of Incorporation or Organization)		37-1446709 (I.R.S. Employer Identification No.)

12865 Pointe Del Mar Suite 200 Del Mar, California (Address of Principal Executive Offices)		92014 (Zip Code)

(858) 481-8500
(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant (1) has filed 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 x		No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).


Yes o		No x

As of August 4, 2003, the registrant had outstanding 31,973,781 shares of its common stock, $0.01 par value per share.

INDEX

BROOKFIELD HOMES CORPORATION


		PAGE

PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Balance Sheets — June 30, 2003 and December 31, 2002		1
	Consolidated Statements of Net Income — Three Months and Six Months Ended June 30, 2003 and 2002		2
	Consolidated Statements of Stockholders’ Equity — Six Months Ended June 30, 2003 and 2002		3
	Consolidated Statements of Cash Flows — Six Months Ended June 30, 2003 and 2002		4
	Notes to Consolidated Financial Statements		5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		8
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		13
Item 4.	Controls and Procedures		13
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings		14
Item 2.	Changes in Securities and Use of Proceeds		14
Item 3.	Defaults Upon Senior Securities		14
Item 4.	Submission of Matters to a Vote of Security Holders		14
Item 5.	Other Information		15
Item 6.	Exhibits and Reports on Form 8-K		15
SIGNATURES			16
EXHIBITS

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

BROOKFIELD HOMES CORPORATION

CONSOLIDATED BALANCE SHEETS

(all dollar amounts are in thousands of U.S. dollars)


				June 30,
				2003		December 31,
		Note		(Unaudited)		2002

Assets
	Housing and land inventory		2	$	638,974	$	616,425
	Investments in housing and land joint ventures		3		84,571		80,959
	Receivables and other assets				66,349		74,534
	Cash and cash equivalents		4		36,329		35,903
	Deferred tax asset				18,423		36,115

				$	844,646	$	843,936

Liabilities and Equity
	Project specific financings			$	314,214	$	288,040
	Accounts payable and other liabilities				117,509		112,086
	Subordinated debt due to related party				40,000		98,300
	Minority interest				29,543		24,772
	Preferred stock - 10,000,000 shares authorized, no shares issued				—		—
	Common stock - 65,000,000 shares authorized, 31,982,781 (excluding 91,000 shares in treasury with a cost of $1,336) and 32,073,781 shares issued and outstanding at June 30, 2003 and December 31, 2002, respectively				319,402		320,738
	Retained earnings				23,978		—

				$	844,646	$	843,936

See accompanying notes to financial statements

BROOKFIELD HOMES CORPORATION

CONSOLIDATED STATEMENTS OF NET INCOME

(all dollar amounts are in thousands of U.S. dollars, except per share amounts)


				(Unaudited)

				Three Months Ended June 30				Six Months Ended June 30

		Note		2003		2002		2003		2002

Revenue
	Housing			$	183,343	$	198,453	$	264,786	$	355,754
	Land and other revenues				5,953		10,662		66,285		16,317
	Equity in earnings from housing and land joint ventures				10,363		—		12,576		—

					199,659		209,115		343,647		372,071
Direct Cost of Sales					152,983		167,591		256,664		294,736

					46,676		41,524		86,983		77,335
	Selling, general & administrative expense				16,819		14,076		26,554		28,980
	Interest expense		2		7,512		9,070		13,023		16,814
	Minority interest				2,400		1,760		3,174		3,047

Net Income Before Taxes					19,945		16,618		44,232		28,494
Income tax expense					7,985		6,648		17,692		11,398

Net Income				$	11,960	$	9,970	$	26,540	$	17,096

Earnings Per Share — Basic			1	$	0.37	$	0.31	$	0.83	$	0.53

Earnings Per Share — Diluted			1	$	0.37	$	0.31	$	0.82	$	0.53

See accompanying notes to financial statements

BROOKFIELD HOMES CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(all dollar amounts are in thousands of U.S. dollars)


		(Unaudited)

		Six Months Ended June 30,

		2003			2002

Common Stock
	Opening balance	$	320,738		$	1
	Repurchase of common shares		(1,336	)		—

	Ending balance		319,402			1

Combined Companies’ Capital
	Opening balance		—			286,979
	Contributions of capital		—			—
	Distributions of capital		—			—
	Net income		—			17,096

	Ending balance		—			304,075

Retained Earnings
	Opening balance		—			—
	Net income		26,540			—
	Dividends		(2,562	)		—

	Ending balance		23,978			—

Total stockholders’ equity		$	343,380		$	304,076

See accompanying notes to financial statements

BROOKFIELD HOMES CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(all dollar amounts are in thousands of U.S. dollars)


			(Unaudited)

			Six Months Ended June 30

			2003			2002

Cash Flows From Operating Activities
	Net income		$	26,540		$	17,096
	Adjustments to reconcile net income to net cash provided by/(used in) operating activities:
		Undistributed income from housing and land joint ventures		(2,807	)		—
		Minority interest		3,174			3,047
		Provision for deferred income taxes		17,692			11,398
		Stock option expense		1,258			474
	Changes in operating assets and liabilities:
		Decrease in receivables and other assets		8,185			14,884
		Increase in housing and land inventory		(22,549	)		(77,003	)
		Increase in accounts payable and other liabilities		4,165			19,575

Net cash provided by/(used in) operating activities				35,658			(10,529	)

Cash Flows From Investing Activities
	Net investments in housing and land joint ventures			(805	)		2,019

Net cash (used in)/provided by investing activities				(805	)		2,019

Cash Flows From Financing Activities
	Net borrowings (repayments) under revolving project specific financings			26,174			(10,845	)
	Net borrowings under revolving subordinated debt			—			14,335
	Repayment of subordinated debt			(58,300	)		—
	Net contributions from minority interest			1,597			8,529
	Repurchase of common shares			(1,336	)		—
	Dividends paid			(2,562	)		—

Net cash (used in)/provided by financing activities				(34,427	)		12,019

Increase in cash and cash equivalents				426			3,509
Cash and cash equivalents at beginning of period				35,903			756

Cash and cash equivalents at end of period			$	36,329		$	4,265

Supplemental Cash Flow Information
	Interest paid		$	8,854		$	13,142

See accompanying notes to financial statements

BROOKFIELD HOMES CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in $U.S. thousands except per share amounts)

Note 1. Significant Accounting Policies

(a) Basis of Presentation

Brookfield Homes Corporation (the “Company” or “Brookfield Homes”) was incorporated on August 28, 2002 as a wholly-owned subsidiary of Brookfield Properties Corporation (“Brookfield Properties”) to acquire as of October 1, 2002 all of the California and Northern Virginia homebuilding and land development operations (the “Land and Housing Operations”) of Brookfield Properties pursuant to a reorganization of its business (the “Spin-off”). On January 6, 2003, Brookfield Properties completed the Spin-off by distributing all of the issued and outstanding common stock it owned in the Company to its common stockholders. Brookfield Homes began trading as a separate company on the New York Stock Exchange on January 7, 2003.

These financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America and include the consolidated accounts of Brookfield Homes and its subsidiaries and investments in unconsolidated joint ventures. The financial statements for the comparative period are presented on a combined basis as if the Land and Housing Operations had been owned by the Company for the prior period presented.

The financial statements have been prepared by management without audit and should be read in conjunction with the December 31, 2002 audited financial statements in the Company’s Annual Report on Form 10-K for the year then ended. However, in the opinion of management, all adjustments necessary for fair presentation of the accompanying consolidated condensed financial statements have been made.

The Company historically has experienced, and expects to continue to experience, variability in quarterly results. The consolidated statements of net income for the three and six months ended June 30, 2003 are not necessarily indicative of the results to be expected for the full year.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

(b) Earnings Per Share

Earnings per share is computed in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 128. Earnings per share have been calculated on the weighted average number of common shares of Brookfield Homes for the three and six month periods ended June 30, 2003 and of Brookfield Properties for the three and six month period ended June 30, 2002 divided by a factor of five to reflect the ratio of distribution of the Company’s shares to Brookfield Properties’ stockholders. The weighted average number of common shares outstanding used in the calculation of basic earnings per share for the three months ended June 30, 2003 and 2002 were 32.0 million and 32.2 million, respectively, and for the six months ended June 30, 2003 and 2002 were 32.1 million and 32.3 million, respectively. Diluted earnings per share for the same periods were calculated on the basis that for the three months ended June 30, 2003 and 2002 there were 32.3 million and 32.2 million shares outstanding, respectively, and for the six months ended June 30, 2003 and 2002 there were 32.3 million and 32.3 million shares outstanding, respectively, reflecting the dilutive impact of options issued by the Company.

BROOKFIELD HOMES CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Tabular amounts in $U.S. thousands except per share amounts)

Note 2. Housing and Land Inventory

Housing and land inventory includes homes completed and under construction, model homes and land under and held for development which will be used in the Company’s homebuilding operations or sold as building lots to other homebuilders. The following summarizes the components of housing and land inventory:


	June 30,		December 31,
	2003		2002

Housing under construction	$	261,969	$	200,734
Model homes		27,869		29,015
Land and land under development		349,136		386,676

	$	638,974	$	616,425

The Company capitalizes interest which is expensed as housing units and building lots are sold. For the three months ended June 30, 2003 and 2002, interest incurred and capitalized by the Company was $4.2 million and $7.1 million, respectively. Capitalized interest expensed for the same periods was $7.5 million and $9.1 million, respectively. For the six months ended June 30, 2003 and 2002, interest incurred and capitalized by the Company was $8.9 million and $13.1 million, respectively. Capitalized interest expensed for the same periods was $13.0 million and $16.8 million, respectively.

Note 3. Investments in Housing and Land Joint Ventures

The Company participates in a number of joint ventures in which it has less than a controlling interest. Summarized condensed financial information on a combined 100% basis of the joint ventures is as follows:


			June 30,		December 31,
			2003		2002

Assets
	Housing and land inventory		$	338,100	$	327,588
	Other assets			38,522		39,738

			$	376,622	$	367,326

Liabilities and Equity
	Accounts payable and other liabilities		$	17,597	$	9,623
	Project specific financings			199,727		201,574
	Investment and advances
		Brookfield Homes		84,571		80,959
		Others		74,727		75,170

			$	376,622	$	367,326


		Three Months Ended June 30,				Six Months Ended June 30,

		2003		2002		2003		2002

Revenue and Expenses
	Revenue	$	67,957	$	—	$	104,551	$	—
	Expenses		45,358		—		76,414		—

	Net income	$	22,599	$	—	$	28,137	$	—

Company’s share of net income		$	10,363	$	—	$	12,576	$	—

In reporting the Company’s share of net income, all inter-company profits or losses from housing and land joint ventures are eliminated on lots purchased by the Company.

BROOKFIELD HOMES CORPORATION

NOTES TO THE CON