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SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 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) Securities registered pursuant to Section 12(b) of the Act: Title of Each Class
Common Stock
    
    Name of Each Exchange on Which Registered
New York Stock Exchange
 Securities registered pursuant to Section 12(g) of the Act:None 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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrants knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K x Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes x
    No o The aggregate market value of the voting stock held by non-affiliates of the
registrant is approximately $462,693,264 based upon the closing market price on
March 1, 2004 of a share of common stock on the New York Stock Exchange. As of March 1, 2004, the registrant had outstanding 30,881,032 shares of its
common stock, $0.01 par value per share. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrants 2004 definitive proxy statement, to be filed with
the Commission no later than April 30, 2004, are incorporated by reference into
Item 10 (Directors and Executive Officers of the Registrant), Item 11
(Executive Compensation), Item 12 (Security Ownership of Certain Beneficial
Owners and Management), Item 13 (Certain Relationships and Related
Transactions) and Item 14 (Principal Accounting Fees and Services) of Part III
of this annual report on Form 10-K.




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PART I Item 1. Business Introduction Brookfield Homes Corporation (Brookfield Homes) is a residential homebuilder
and land developer, building homes and developing land in master-planned
communities and infill locations (unless the context requires otherwise,
references in this report to we, our, us and the Company refer to
Brookfield Homes and its subsidiaries). We design, construct and market
single-family and multi-family homes primarily to move-up and luxury
homebuyers. We also develop land for our own communities and sell lots to other
homebuilders. Our operations are currently focused primarily in five markets:
the San Francisco Bay Area; the Southland / Los Angeles Area; San Diego /
Riverside; Sacramento and Northern Virginia. We have targeted these markets
because we believe they offer strong housing demand, a constrained supply of
developable land and close proximity to areas where we expect to continue to
see strong employment growth. Our Northern Virginia operations commenced in the
mid 1980s and our California operations commenced in 1996. General Development of Our Business We were incorporated on August 28, 2002 in Delaware as a wholly-owned
subsidiary of Brookfield Properties Corporation (Brookfield Properties) in
order to acquire all of the California and Northern Virginia homebuilding and
land development operations of Brookfield Properties pursuant to a
reorganization of its residential homebuilding business (which we refer to as
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 our Company to its common shareholders. We began trading as a separate
company on the New York Stock Exchange on January 7, 2003, under the symbol
BHS. The following chart summarizes our principal operating subsidiaries in the
primary markets in which we operate and the year in which we commenced
operations: Market
    
    Year of Entry
    
    Principal SubsidiarySan Francisco Bay Area
    
    
    1996
    
    
    Brookfield Bay Area Holdings LLCSouthland / Los Angeles
    
    
    1996
    
    
    Brookfield Southland Holdings LLCSan Diego / Riverside
    
    
    1996
    
    
    Brookfield San Diego Holdings LLCSacramento
    
    
    2003
    
    
    Brookfield Sacramento LLCNorthern Virginia
    
    
    1984
    
    
    Brookfield Washington LLC
 We also formed Brookfield California Land Holdings LLC to purchase and acquire
options to purchase land in California, an operation that commenced in 1998. Overview of the Residential Homebuilding and Land Development Industry The residential homebuilding and land development industry involves converting
raw or undeveloped land into residential housing. This process begins with the
purchase of raw land and is followed by the development of the land, and the
marketing and sale of homes constructed on the land. Raw Land Raw land is unentitled property and without the regulatory approvals which
allow the construction of residential, industrial, commercial or mixed-use
buildings. Acquiring and holding raw land requires significant capital
expenditures and has associated carrying costs, including property taxes. The
selection and purchase of raw land provides the inventory required for
development purposes and is an important aspect of the real estate development
process. Land developers will, from time to time, sell raw or partially
approved land to other homebuilders and land developers as part of the normal
course of their business. Land Development Land development involves the conversion of raw land to the stage where homes
may be constructed on the land. Regulatory bodies at the municipal, regional
and state levels must approve the proposed end use of the land and many of the
details of the development process. The time required to obtain the necessary
approvals varies. In most jurisdictions, development occurs on a contiguous
basis to existing land services such as water and sanitation. 2




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To shorten the development period, many developers purchase land that has been
partially developed. This land is generally more expensive than raw land
because a portion of the costs and risk associated with the development have
been incurred. Generally, the first significant step in developing a residential community is
to complete a draft specific plan incorporating major street patterns and
designating parcels of land for various uses, such as parks, schools, rights of
way and residential and commercial uses that is consistent with the local city
or county general plan. This plan is then submitted for approval to the
governmental authority with principal jurisdiction in the area such as a city
or county. The draft specific plan is then refined with the local, state and
federal agencies designating main and side streets, lot sizes for residential
use and the sizes and locations of parcels of land to be used for schools,
parks, commercial properties and multi-family dwellings. These refinements are
usually made in consultation with local planning officials, state agencies and,
if required, federal agencies. In most cases, this process takes several years
to complete. Once the plan has been approved, the developer generally commences negotiations
with the local governmental authority on a formal development agreement, which
governs the principal aspects of the construction of the community. These
negotiations generally involve the review and approval of engineering designs
pertaining to various aspects of the development, such as the construction and
installation of sewer lines, water mains, utilities, roads and sidewalks. At
the same time, the allocation of the costs of these items between the
governmental authority and the developer, and the amount of fees which the
developer will pay in order to obtain final approval of the plan, must be
settled. Upon execution of the development agreement and grading and improvement plans,
the developer generally posts a bond with the local governmental authority to
secure the developers obligations and the plan receives final approval. The
developer is then generally required to convey to the local municipality, for
no consideration, the land upon which roads, sidewalks, rights of way and parks
are constructed. Land for schools, if any, is sold to the local school district
usually at slightly less than its market value. It is then the school
districts responsibility to construct the schools with developer fees and
local and state bonds. The developer is usually responsible for the grading of
the land and the installation of sewers, water mains, utilities, roads and
sidewalks, while the municipality is usually responsible for the construction
of recreational and community amenities such as libraries and community
centers. The municipality funds its portion of these costs through fees charged
to the developer in connection with plan approvals and through the collection
of property taxes from local residents. After a period of one to two years, following the completion by the developer
of certain obligations under the development agreement, the municipality takes
responsibility from the developer for the underground services, roads and
sidewalks, and a portion of the improvement bond posted by the developer is
released. The developer is generally required to maintain a minimum portion of
the bond with the municipality for several years after completion of the
community to ensure performance by the developer of its remaining obligations
under the development agreement. Home Construction and Marketing Residential home construction involves the actual construction of single-family
houses and multi-family buildings such as townhouses and condominiums. Each
dwelling is generally referred to as a unit. A planned community typically
includes a large number of lots on which single-family units will be situated
and a smaller number of blocks of land which have been designated for the
construction of multi-family units, schools, parks and commercial buildings.
The approved development plan specifically provides the total number of lots
and blocks in the project. The construction phase normally involves consulting,
architectural, engineering, interior design, merchandising and marketing
personnel who assist the homebuilder in planning the project. Residential home
construction is usually performed by subcontractors under the supervision of
the homebuilders construction management personnel. Marketing and sales of
residential units are conducted by marketing sales staff employed by the
homebuilder or by independent realtors. Pre-selling residential units before
the commencement of their construction is a common sales practice that usually
involves the creation of model homes or drawings of the proposed homes in a
sales location close to or within the project. Narrative Description of Our Business We design, construct and market single-family and multi-family homes primarily
to move-up and luxury homebuyers. We also develop land for our own communities
and sell lots to other homebuilders. In each of our markets, we operate through
local business units which are involved in all phases of the planning and
building of our master-planned communities and infill developments. These
phases include sourcing and evaluating land acquisitions, site planning,
obtaining government entitlements, developing the land, product design,
constructing, marketing and selling homes and 3




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homebuyer customer service. In
the five year period ended December 31, 2003, we closed a total of 7,717 homes.
A home is considered closed when title has passed to the homebuyer. We believe we have developed a reputation for innovative planning of
master-planned communities and infill developments. Master-planned communities
are new home communities that typically feature community centers, parks,
recreational areas, schools and other amenities. Within a master-planned
community there may be smaller neighborhoods offering a variety of home styles
and price levels from which homebuyers may choose. In an infill development, we
construct homes in previously urbanized areas on under-utilized land. In
connection with planning and building each of our master-planned communities
and infill developments, we consider, among other things, amenities, views,
traffic flows, open space, schools and security. In 2003, we closed a total of 1,528 homes, compared with 1,554 in 2002. The
breakdown of our home closings by market in the last three years is as follows: (Units)
    
    2003
    
    2002
    
    2001San Francisco Bay Area
    
    
    275
    
    
    
    273
    
    
    
    213Southland / Los
Angeles
    
    
    296
    
    
    
    527
    
    
    
    500San Diego / Riverside
    
    
    452
    
    
    
    293
    
    
    
    450Northern Virginia
    
    
    505
    
    
    
    461
    
    
    
    482Total
    
    
    1,528
    
    
    
    1,554
    
    
    
    1,645
 At December 31, 2003, we achieved a backlog of 37% of our planned 1,750 home
closings for 2004 delivery. Backlog represents the number of homes subject to
pending sales contracts. We also sell serviced and unserviced lots to other builders, generally on an
opportunistic basis where we can enhance our returns, reduce our risk in a
market or re-deploy our capital to an asset providing higher returns. In 2003,
we sold over 5,000 lots, the majority of which were bulk sales of raw or
undeveloped land in southern California. While we continue to own a significant
number of lots in these markets, we do not expect to sell as many lots in 2004. Our average home price in 2003 was $535,000, an increase of 6% over 2002. This
increase was due to our product mix and continued price appreciation of homes
within our projects. The breakdown of the average prices on our home closings
in the last three years is as follows: 2003
    
    2002
    
    2001Average
    
    
    
    
    
    Average
    
    
    
    
    
    AverageSales
    
    Price
    
    Sales
    
    Price
    
    Sales
    
    Price(Millions)
    
    
    
    
    
    (Millions)
    
    
    
    
    
    (Millions)San Francisco Bay Area
    
    
    $193
    
    
    
    $700,000
    
    
    
    $167
    
    
    
    $612,000
    
    
    
    $107
    
    
    
    $502,000Southland / Los
Angeles
    
    
    258
    
    
    
    872,000
    
    
    
    330
    
    
    
    626,000
    
    
    
    305
    
    
    
    610,000San Diego / Riverside
    
    
    137
    
    
    
    303,000
    
    
    
    98
    
    
    
    334,000
    
    
    
    141
    
    
    
    313,000Northern Virginia
    
    
    230
    
    
    
    456,000
    
    
    
    190
    
    
    
    412,000
    
    
    
    176
    
    
    
    365,000Total
    
    
    $818
    
    
    
    $535,000
    
    
    
    $785
    
    
    
    $505,000
    
    
    
    $729
    
    
    
    $443,000
 For more detailed financial information with respect to our revenues, earnings
and assets, please see the accompanying consolidated financial statements and
related notes included elsewhere in this report. Business Strategy Our goal is to maximize the total return on our common stockholders equity
over the long term. The key elements of our strategy to achieve this goal are
as follows: Selective Acquisition Policies We intend to continue to grow by selectively acquiring land that provides us
with attractive residential projects that are consistent with our overall
strategy and management expertise. We acquire land only if we believe that it
will provide us with a minimum return on our invested capital. In determining
the minimum return we will accept, we take into account the risk inherent in
increasing our land inventory and the specific development project. In making
additional land acquisitions in one of our current markets, we also consider
our recent financial returns achieved in that market. 4




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In order to expand our market opportunities, we also selectively pursue joint
venture projects with landowners, other homebuilders and intermediaries. We are
generally active participants in our joint ventures. In certain circumstances,
we acquire options to purchase land rather than purchasing the land outright,
in order to reduce our capital at risk in controlling land. Decentralized Operating Structure We operate our homebuilding business through local business units responsible
for projects in their geographic area. Each of our business units has
significant experience in the homebuilding industry in the market in which it
operates. We believe that in-depth knowledge of a local market enables our
business units to better meet the needs of our customers and to more
effectively address the issues that arise on each project. Our business units
are responsible for all elements of the homebuilding process, including
sourcing and evaluating land acquisitions, site planning and entitlements,
developing the land, product design, constructing, marketing and selling homes
built on the land, customer service and management reporting. Each business
unit operates as a fully integrated profit center and the senior management of
each business unit is compensated through a combination of base salary and
participation in his or her business units profits. We maintain a small corporate team that sets our strategic goals and overall
strategy. The corporate team approves all acquisitions, allocates capital to
the business units based on expected returns and levels of risk, establishes
succession plans, ensures operations maintain a consistent level of quality,
evaluates risk and holds management of the business units accountable for the
performance of their business unit. Proactive Asset Management Our business generally comprises three stages where we make strategic decisions
to deploy capital: entitling the raw land that we control; the development of
the land; and the construction of homes on the land. As our assets evolve
through these stages, we continually assess our ability to maximize returns on
our capital while at the same time minimizing our risks. The decision to
advance an asset through each stage of development is based on a number of
factors, including the amount of capital to be deployed, the level of
incremental returns at each stage and returns on other investment
opportunities. Creating Communities We seek to acquire land that allows us to create communities that include
recreational amenities such as parks, biking and walking trails, efficient
traffic flows, schools and public service facilities. We integrate land
planning and development with housing product design in order to deliver
lifestyle, comfort and value. We cooperate with local and regulatory
authorities in order to be responsive to community conditions, and we attempt
to balance our goal of maximizing the value of our land with the impact of
development on the community and the environment. We encourage our employees to
actively participate in local community activities and associations. Risk Management We focus on managing risk in each stage of the homebuilding and land
development process. In the land acquisition phase, we use options and joint
ventures to mitigate the risk that land values will decline due to poor
economic or real estate market conditions, or that we will be unable to obtain
approval for development of a proposed community. We attempt to limit
development approval risk by conducting significant due diligence before we
close land acquisitions. Furthermore, we generally participate in land
developments which we believe will allow us to sell our interest or take other
protective actions should a downturn in the real estate market occur. We sell
lots and parcels when we believe we can enhance our returns, reduce risk in a
market or redeploy capital to an asset providing higher returns. When constructing homes, we strive to satisfy our customers and limit our product liability risk by:  
    
    selecting carefully the building materials that we use;
    
    emphasizing to our employees and subcontractors that our homes are to be
built to meet a high standard of quality and workmanship;
    
    using only insured subcontractors to perform construction activities;
    
    providing on-site quality control; and
    
    providing after-sales service. Finally, we attempt to limit the risk of overbuilding by matching our
construction starts to our sales rates. We generally do not begin selling homes
until a significant portion of the homes construction costs have been
established through firm subcontractor bids. 5




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Asset Profile Our assets are focused on single-family and multi-family homebuilding in the
markets in which we operate. They consist primarily of housing and land
inventory and investments in housing and land joint ventures. Our total assets
excluding cash and cash equivalents as of December 31, 2003 were $795 million,
with $610 million of these assets located in California and $185 million in
Northern Virginia. As of December 31, 2003, we controlled 21,606 lots. Controlled lots include
those we directly own, our proportionate share of those owned by our joint
ventures and those that we have the option to purchase. Our controlled lots
provide a strong foundation for our future homebuilding business and visibility
on our future cash flow and earnings. Our lots controlled as of December 31,
2003 include 4,520 lots in Sacramento, California, a market we entered in 2003.
The majority of our lots in this new market are controlled through options and
our investment as of December 31, 2003 is nominal. However, it is our intention
to expand operations in this market within the next two to three years. The
number of residential building lots we control in each of our markets as of
December 31, 2003 follows: Owned(Lots)
    
    Directly
    
    Joint Ventures
    
    Options
    
    Total LotsSan Francisco Bay Area
    
    
    983
    
    
    
    945
    
    
    
    1,147
    
    
    
    3,075Southland / Los Angeles
    
    
    366
    
    
    
    38
    
    
    
    1,988
    
    
    
    2,392San Diego / Riverside
    
    
    3,991
    
    
    
    2,291
    
    
    
    1,145
    
    
    
    7,427Sacramento
    
    
    
    
    
    
    310
    
    
    
    4,210
    
    
    
    4,520Northern Virginia
    
    
    1,917
    
    
    
    164
    
    
    
    2,111
    
    
    
    4,192Total
    
    
    7,257
    
    
    
    3,748
    
    
    
    10,601
    
    
    
    21,606
 Our housing and land inventory includes homes completed or under construction,
developed land and raw land. The book value of our housing and land inventory
in each of our primary markets for the last two years is as follows: December
    
    December(Book Value, $ millions)
    
    31, 2003
    
    31, 2002San Francisco Bay Area
    
    $
    165
    
    
    $
    168Southland / Los Angeles
    
    
    118
    
    
    
    112San Diego / Riverside
    
    
    165
    
    
    
    199Sacramento
    
    
    4
    
    
    
    1Northern Virginia
    
    
    115
    
    
    
    136Total
    
    $
    567
    
    
    $
    616
 The book value of our investments in housing and land joint ventures as of
December 31, 2003 was $78 million. The total book value of the assets and
liabilities of these joint ventures and our share of the equity of the joint
ventures as of December 31, 2003 follows: December(Book Value, $ millions)
    
    31, 2003Assets
    
    $
    353Liabilities
    
    $
    198Brookfield Homes net investment
    
    $
    78
 Our housing markets continue to exhibit strong economic fundamentals which we
believe allows us to participate in a number of projects without undue risk.
The following describes our major projects: Windemere, San Francisco Bay Area.Windemere is a 5,200 unit master-planned
community located on one of the last premier infill tracts of residential
housing land in the East Bay area of San Francisco. Windemere was acquired
under option in 1998, final approvals were obtained in 2000 and lot sales
commenced in 2001. We hold a one-third interest in Windemere, with the other
two-thirds owned equally by Centex Corporation and Lennar Communities. We have
no affiliation with Centex Corporation or Lennar Communities. We directly own
389 units in Windemere and our share of the remaining joint venture units is
945 units. Newport Coast, Southland / Los Angeles. Newport Coast is a major ocean-oriented
master-planned community owned by the Irvine Company. We acquire lots in
Newport Coast on a rolling option basis, and believe we have developed a 6




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strong reputation for our homes among upper-end buyers in Orange County,
California. We have closed more than 400 homes since 1999, and as of December
31, 2003, we had under contract to purchase or option 325 lots in Newport
Coast. Calavera Hills, San Diego / Riverside. Calavera Hills is an 800 acre property
located in the coastal community of Carlsbad. We completed Phase I of the
project with the construction of 483 homes. Approvals for Phase II were
obtained for 642 units, grading commenced in 2002 and home closings will
commence in 2004. Phase III, planned with 400 units, is currently being
processed by the local authorities. We hold a 50% interest in Calavera Hills,
with the remaining 50% held by McMillin Companies. We have no affiliation with
McMillin Companies. Sycamore Canyon, San Diego / Riverside. Sycamore Canyon is a 2,132 acre project
located in San Diego County. The project was acquired under option in 1998, and
in 2002, final approvals were obtained and grading of the site commenced. Home
closings will commence in 2004. We hold a 50% interest in Sycamore Canyon, with
the remaining 50% held by McMillin Companies. We directly own 168 units and our
share of the remaining joint venture is 244 units. Winding Walk, San Diego / Riverside. Winding Walk (Otay Ranch Village II) in
south San Diego is a 1,200 acre project. Grading commenced in 2002 on the site,
and home closings will commence in 2004. We hold a 50% interest in this project
with the remaining 50% held by Shea Homes. We have no affiliation with Shea
Homes. We own directly 384 units and our share of the remaining joint venture
is 752 units. Braemar, Northern Virginia. Braemar is a master-planned community located in
Prince William County that began development in 1994. Since 1999, we have
closed over 1,500 homes and lots. As of December 31, 2003, we had 1,779 lots
remaining in Braemar and adjacent communities in which we hold a 100% interest. Property Acquisition and Sale Before entering into an agreement to purchase land, we complete comparative
studies and analyses that assist us in evaluating the acquisition. We manage
our risk and attempt to maximize our return on invested capital on land
acquisitions by either entering into option agreements or joint venture
arrangements, or by purchasing the land outright. We attempt to limit our
development approval risk by conducting significant due diligence before we
close land acquisitions. Furthermore, we generally seek to participate in land
developments which we believe will allow us to sell our interest or take other
protective actions should a downturn in the real estate market occur. We believe that we own an adequate supply of land in our existing markets to
maintain, on average, our operations at their current levels for at least the
next seven years. We regularly evaluate our land inventory and strategically
sell lots and parcels of land to third parties at various stages of the
development process to increase our returns from a project. Construction and Development We attempt to match our construction starts to our sales rate. We control our
construction starts by constructing and selling homes in phases. Generally, we
will not start construction of a phase of homes until sales of homes to be
built in the phase have met predetermined targets. The size of these phases
depends upon factors such as current sales and cancellation rates, the type of
buyer targeted for a particular project, the time of year and our assessment of
prevailing and anticipated economic conditions. We generally do not begin
selling homes until a significant portion of the homes construction costs are
established through firm subcontractor bids. We attempt to limit the number of unsold units under construction by limiting
the size of each construction phase and closely monitoring sales activity.
Building homes of a similar product type in phases also allows us to utilize
production techniques that reduce our construction costs. The number of our
unsold homes fluctuates depending upon the timing of completion of construction
and absorption of home phases. As of December 31, 2003, we had 30 completed and
unsold homes, excluding the 46 model homes we currently maintain. We function as a general contractor, subcontracting the construction activities
for our projects. We manage these activities with on-site supervisory employees
and informational and management control systems. We engage independent
architectural, design, engineering and other consulting firms to assist in
project planning. We do not have long-term contractual commitments with our
subcontractors, consultants or suppliers of materials, who are generally
selected on a competitive bid basis. We employ subcontractors for site
improvements and for virtually all of the work involved in the construction of
homes. In almost all instances, our subcontractors commit to complete the
specified work in accordance with written price schedules. These price
schedules normally change to meet fluctuations in labor and material costs. We
do not own heavy construction equipment and we have a relatively small labor
force used to supervise development and construction, and to perform routine
maintenance service and minor amounts of other 7




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work. We have generally been
able to obtain sufficient materials and subcontractors, even
during times of market shortages. We build a home in approximately five to
eight months, depending upon the availability of raw materials and supplies,
governmental approvals, local labor situation, time of year, design and other
factors. Sales and Marketing We advertise in local newspapers and magazines and on billboards to assist us
in selling our homes. We also utilize direct mailings, special promotional
events, illustrated brochures and model homes in our marketing program. The
internet has also become an important source of information for our customers.
Through the internet, potential buyers are able to search for their home, take
a virtual video tour of selected homes, obtain general information about our
projects and communicate directly with our personnel. We sell our homes through our own sales representatives and through independent
real estate brokers. Our in-house sales force typically works from sales
offices located in model homes close to or in each community. Sales
representatives assist potential buyers by providing them with basic floor
plans, price information, development and construction timetables, tours of
model homes and the selection of options. Sales personnel are licensed by the
applicable real estate bodies in their respective markets, are trained by us
and generally have had prior experience selling new homes in the local market.
Our personnel, along with subcontracted marketing and design consultants,
carefully design exteriors and interiors of each home to coincide with the
lifestyles of targeted buyers. We use various floor plan types and elevations
to provide a more varied street scene and a sense of customization for the
buyers. As of December 31, 2003, we owned 46 model homes, which are not generally
available for sale until the end of a project. Generally, two to four different
model homes are built and decorated at each project to display design features.
Model homes play a key role in helping buyers understand the efficiencies and
value provided by each floor plan type. In addition to model homes, customers
can gain an understanding of the various design features and options available
to them using our design centers. At each design center, customers can meet
with a designer and are shown the standard and upgraded selections available to
them, including professional interior design furnishings and
accessories. We typically sell homes during construction using sales contracts that include
cash deposits by the purchasers. Before entering into sales contracts, we
generally pre-qualify our customers. However, purchasers can generally cancel
sales contracts if they are unable to sell their existing homes, if they fail
to qualify for financing, or under certain other circumstances. Although
cancellations can delay the sale of our homes, they have not in the past had a
material impact on our operating results because we closely monitor the
progress of prospective buyers in obtaining financing. We also monitor and
adjust our construction start plans to attempt to match the level of demand for
our homes. Customer Service and Quality Control We pay particular attention to the product design process and carefully
consider quality and choice of materials in order to attempt to eliminate
building deficiencies. The quality and workmanship of the trade contractors we
employ is monitored and we make regular inspections to ensure our standards are
met. We staff each business unit with quality control and customer service staff
whose role is to provide a positive experience for each customer throughout the
pre-sale, sale, building, closing and post-closing periods. These employees are
also responsible for providing after-sales customer service. Our quality and
service initiatives include taking customers on a comprehensive tour of their
home prior to closing and using customer survey results to improve our
standards of quality and customer satisfaction. Mortgage Brokerage Operations We offer mortgage brokerage services exclusively to our customers in our San
Francisco Bay Area, Southland / Los Angeles and Northern Virginia markets. We
have agreements with various lenders to receive a fee on loans made by the
lenders to customers we introduce to the lenders. We do not originate, fund or
service the loans, nor do we assume any credit or interest rate risk in
connection with the loans. For the year ended December 31, 2003, less than 1%
of our revenue and less than 2% of our net income was derived from our mortgage
operations. Relationship with Affiliates We are a residential homebuilder and land developer, building homes and
developing land primarily in four markets in California and in Northern
Virginia. None of our affiliates, including Brascan and Brookfield Properties,
operate in similar businesses in our markets. Nevertheless, there are several
agreements among our affiliates to which we are a party 8




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##### 



or subject. For a
description of these agreements refer to Certain Relationships and Related
Party Transactions which
is incorporated by reference into Item 13 of this report from our definitive
2004 proxy statement, which will be filed with the Securities and Exchange
Commission not later than April 30, 2004. Several of our directors serve as executive officers and directors of our
affiliates. For a description of those relationships refer to Certain
Relationships and Related Party Transactions which is incorporated by
reference into Item 13 of this report from our definitive 2004 proxy statement
which will be filed with the Securities and Exchange Commission not later than
April 30, 2004. Competition The residential homebuilding industry is highly competitive. We compete against
numerous homebuilders and others in the real estate business in and near the
areas where our communities are located. Our principal competitors are
primarily national public company homebuilders, including Centex Corporation,
Lennar Corporation, Pulte Corporation, Standard Pacific Corp. and Toll
Brothers, Inc. We may compete for investment opportunities, financing,
available land, raw materials and skilled labor with entities that possess
greater financial, marketing and other resources than us. Competition may
increase the bargaining power of property owners seeking to sell and industry
competition may increase if there is future consolidation in the residential
homebuilding and land development industry. Material Contracts Other than contracts arising in connection with the reorganization and the
Spin-off of the residential homebuilding operations of Brookfield Properties,
we are not party or subject to any material contracts. For a description of the
material contracts arising in connection with the reorganization, refer to
Certain Relationships and Related Party Transactions which is incorporated by
reference in this report from our definitive 2004 proxy statement which will be
filed with the Securities and Exchange Commission not later than April 30,
2004. Regulation and Environment We are subject to local and state laws and regulations concerning zoning,
design, construction and similar matters, including local regulations which
impose restrictive zoning and density requirements in order to limit the number
of homes that eventually can be built within the boundaries of a particular
area. We are also subject to periodic delays in our homebuilding projects due
to building moratoria. In addition, new development projects may be subject to
various assessments for schools, parks, streets and highways and other public
improvements, the costs of which can be substantial. When made, these
assessments can have a negative impact on our sales by raising the price that
homebuyers must pay for our homes. We are also subject to local, state and federal laws and regulations concerning
the protection of the environment. The environmental laws that apply to a given
homebuilding site depend upon the sites location, its environmental conditions
and the present and former uses of the site and its adjoining properties.
Environmental laws and conditions may result in delays, or cause us to incur
substantial compliance and other costs, and can prohibit or severely restrict
homebuilding activity in environmentally sensitive regions or areas. We do not currently have any material estimated capital expenditures related to
governmental assessments or environmental compliance costs for the remainder of
fiscal 2004, fiscal 2005 or fiscal 2006. In connection with our operations, some of our employees have general
contractor and real estate sales licenses, which are subject to governmental
regulations. Our employees holding those licenses are currently in material
compliance with all applicable regulations. Seasonality We have historically experienced variability in our results of operations from
quarter to quarter due to the seasonal nature of the homebuilding business and
the timing of new community openings and the closing out of projects. We
typically experience the highest rate of orders for new homes in the first six
months of the calendar year, although the rate of orders for new homes is
highly dependent upon the number of active communities. Because new home
deliveries trail orders for new homes by several months, we typically deliver a
greater percentage of new homes in the second half of the year compared with
the first half of the year. As a result, our revenues from sales of homes are
generally higher in the second half of the year. 9




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##### 



Employees As of December 31, 2003, we had 544 employees. We consider our relations with
our employees to be good. Our construction operations are conducted primarily
through independent subcontractors, which limits the number of our employees.
None of our employees are currently represented by a union or covered by a
collective bargaining agreement. We have not recently experienced any work
stoppages. Available Information We make available free of charge on our website our annual reports on Form
10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any
amendments to these reports as soon as reasonably practicable after we file
such material with, or furnish it to, the SEC. The reports may be accessed by
visiting our website at www.brookfieldhomes.com and clicking on the Investor
Relations link. We will also provide these reports in paper format to our
stockholders free of charge upon request made to our Investor Relations
department. Information on our website is not part of this annual report on
Form 10-K. Item 2. Properties In addition to real estate held for development and sale, which we either own
or hold under an option to purchase, we lease and maintain executive offices in
Del Mar, California. Our Del Mar lease expires in 2004, but we may, at our
option, extend the lease for an additional five years. We also maintain an administrative office in Toronto, Canada. In addition, we
have other offices located in the markets in which we conduct business,
generally in our communities or in leased space. None of these other office
premises are material to our business. We believe that our office space is
suitable and adequate for our needs for the foreseeable future. Item 3. Legal Proceedings We are party to various legal actions arising in the ordinary course of our
business. We believe that none of these actions, either individually or in the
aggregate, will have a material adverse effect on our financial condition or
results of operations. Item 4. Submission of Matters to a Vote of Security Holders None. 10




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##### 



PART II Item 5. Market for Registrants Common Equity and Related Stockholder Matters Common Stock Prices
    
    CashNew York Stock Exchange
    
    Dividends2003 Fiscal Quarter
    
    High / Low Price
    
    Per ShareFirst
    
    $
    13.32
    
    
    $
    9.22
    
    
    $
    Second
    
    $
    17.81
    
    
    $
    13.10
    
    
    $
    0.08Third
    
    $
    18.75
    
    
    $
    15.26
    
    
    $
    Fourth
    
    $
    27.25
    
    
    $
    18.50
    
    
    $
    0.08
 Our common stock is listed on the New York Stock Exchange under the symbol
BHS, and began regular trading on January 7, 2003. As of March 1, 2004, there
were approximately 978 holders of record of our common stock. In addition to the dividends disclosed above paid in 2003, we paid a total cash
dividend of approximately $17 million to our stockholders of record on December
30, 2002 as part of the completion of the Spin-off. Our board of directors
periodically reviews our dividend policy. Future dividends on our common stock,
if any, will be at the discretion of our board of directors and will depend
upon, among other things, our results of operations, cash requirements and
surplus, financial condition, contractual restrictions, investment
opportunities and other factors that our board of directors considers relevant. There are no current or anticipated contractual terms in our credit or other
arrangements that restrict our ability to pay dividends, other than the
requirements imposed by our project specific financings that require we
maintain a tangible net worth of at least $250 million, and the additional
requirements of our project specific financings that we maintain a debt to
tangible net worth ratio of 1.5 to 1 and a debt to capitalization ratio of no
greater than 60%. Refer to Managements Discussion and Analysis of Financial
Condition and Results of Operations  Contractual Obligations and Other
Commitments for additional information about these and other restrictions. Securities Authorized for Issuance Under Equity Compensation Plans The following table summarizes our equity compensation plans as of December 31,
2003: (a)
    
    (b)
    
    (c)Number of
    
    
    
    
    
    Number of securitiessecurities to be
    
    
    
    
    
    remaining availableissued upon
    
    Weighted-average
    
    for future issuanceexercise of
    
    exercise price
    
    under equityoutstanding
    
    of outstanding
    
    compensation plansoptions, warrants
    
    options, warrants
    
    (excluding securitiesand rights
    
    and rights
    
    reflected in column (a))Equity compensation plans
approved by stockholders
    
    
    747,625
    
    
    $
    10.20
    
    
    
    1,252,375Equity compensation plans
not approved by stockholders
    
    
    
    
    
    
    n/a
    
    
    
    Total
    
    
    747,625
    
    
    $
    10.20
    
    
    
    1,252,375
 Item 6. Selected Financial Data The following tables include selected historical consolidated financial data
for each year in the five year period ended December 31, 2003. This selected financial data should be read along with Managements Discussion
and Analysis of Financial Condition and Results of Operations and our audited
historical consolidated financial statements and the related notes included
elsewhere in this report. The historical financial data for all periods presented prior to 2003 relates
to our business as it was operated by Brookfield Properties prior to the
Spin-off, and therefore some of our expenses are based upon allocations made by
Brookfield Properties. For example, allocations were made with respect to
personnel, space, estimates of time spent to provide services and other
appropriate costs. We believe the allocations were made on a reasonable basis
and that no material change to our costs would be expected had our business
been operated as a stand-alone entity. 11




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##### 



United States GAAP Our income statement data, balance sheet data and supplementary financial data
prepared in accordance with U.S. GAAP and our operating data are as follows: Years Ended December 31Income Statement Data($ millions, except per share amounts)
    
    2003
    
    2002
    
    2001
    
    2000
    
    1999Housing revenue
    
    $
    818
    
    
    $
    785
    
    
    $
    729
    
    
    $
    590
    
    
    $
    538Total revenue
    
    
    1,023
    
    
    
    842
    
    
    
    799
    
    
    
    670
    
    
    
    559Gross margin(1)
    
    
    266
    
    
    
    177
    
    
    
    166
    
    
    
    125
    
    
    
    111Operating income(2)
    
    
    166
    
    
    
    81
    
    
    
    72
    
    
    
    52
    
    
    
    45Contribution from bulk land
sales to net income(3)
    
    
    39
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    Net income
    
    
    88
    
    
    
    43
    
    
    
    40
    
    
    
    29
    
    
    
    27Diluted earnings per share(4)
    
    
    2.75
    
    
    
    1.35
    
    
    
    1.23
    
    
    
    0.99
    
    
    
    1.01Cash dividends per share
    
    
    0.16
    
    
    
    0.52
    
    
    
    
    
    
    
    
    
    
    
    
 At December 31Balance Sheet Data($ millions)
    
    2003
    
    2002
    
    2001
    
    2000
    
    1999Housing and land inventory
    
    $
    567
    
    
    $
    616
    
    
    $
    633
    
    
    $
    547
    
    
    $
    591Cash and cash equivalents
    
    
    219
    
    
    
    36
    
    
    
    1
    
    
    
    8
    
    
    
    3Total assets
    
    
    1,013
    
    
    
    844
    
    
    
    851
    
    
    
    762
    
    
    
    755Debt
    
    
    426
    
    
    
    424
    
    
    
    499
    
    
    
    472
    
    
    
    419Total liabilities
    
    
    631
    
    
    
    523
    
    
    
    564
    
    
    
    551
    
    
    
    482Total stockholders equity
    
    
    382
    
    
    
    321
    
    
    
    287
    
    
    
    211
    
    
    
    273
 Years Ended December 31Supplemental Financial Data($ million)
    
    2003
    
    2002
    
    2001
    
    2000
    
    1999Cash provided by/(used in):Operating activities
    
    $
    209
    
    
    $
    102
    
    
    $
    (32
    )
    
    $
    99
    
    
    $
    58Investment activities
    
    
    6
    
    
    
    24
    
    
    
    
    
    
    
    (51
    )
    
    
    (18
    )Financing activities
    
    
    (32
    )
    
    
    (91
    )
    
    
    25
    
    
    
    (42
    )
    
    
    (41
    )EBIT(5)
    
    
    199
    
    
    
    116
    
    
    
    110
    
    
    
    80
    
    
    
    69Net debt to total capitalization %(6)
    
    
    32
    %
    
    
    53
    %
    
    
    62
    %
    
    
    68
    %
    
    
    61
    %
 Years Ended December 31Operating Data(Unaudited)
    
    2003
    
    2002
    
    2001
    
    2000
    
    1999Home closings (units)
    
    
    1,528
    
    
    
    1,554
    
    
    
    1,645
    
    
    
    1,467
    
    
    
    1,523Net new orders (units)(7)
    
    
    1,710
    
    
    
    1,580
    
    
    
    1,531
    
    
    
    1,581
    
    
    
    1,582Backlog (units at end of period)(8)
    
    
    649
    
    
    
    467
    
    
    
    441
    
    
    
    555
    
    
    
    441Average selling price
    
    $
    535,000
    
    
    $
    505,000
    
    
    $
    443,000
    
    
    $
    402,000
    
    
    $
    353,000Lots controlled
    
    
    21,606
    
    
    
    22,128
    
    
    
    16,947
    
    
    
    17,280
    
    
    
    14,964
   (1)
    
    Gross margin represents the contribution from our housing and land
projects, after all costs for development and construction, including
related overhead, and before all selling, general and administrative
expense, interest expense and minority interest.(2)
    
    Operating income represents net income before minority interest and
income taxes.(3)
    
    Contribution from bulk land sales to net income represents income from
sales of owned parcels of undeveloped land.(4)
    
    Earnings per share prior to September 30, 2002 has been calculated based
on the weighted average number of Brookfield Properties common shares
outstanding during each respective period, adjusted on the basis of one of
our common shares for every five common shares of Brookfield Properties.
For the periods after October 1, 2002, earnings per share has been
calculated based on the weighted average number of shares of Brookfield
Homes outstanding. 12




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##### 



(5)
    
    EBIT is defined as net income before interest expense, income taxes and
minority interest. EBIT is commonly used to analyze companies on the basis
of operating performance, leverage and liquidity. EBIT does not have any
standardized meaning prescribed by GAAP and therefore is unlikely to be
comparable with the calculation of similar measures for other companies.
EBIT is not intended to represent our cash flows for the period nor should
it be viewed as an alternative to operating profit, cash flows from
operations, net income, or other measures of financial performance
calculated in accordance with GAAP.
 
A reconciliation to net income from EBIT and operating income follows: ($ millions)
    
    2003
    
    2002
    
    2001
    
    2000
    
    1999EBIT
    
    $
    199
    
    
    $
    116
    
    
    $
    110
    
    
    $
    80
    
    
    $
    69Interest expense
    
    
    (33
    )
    
    
    (35
    )
    
    
    (38
    )
    
    
    (28
    )
    
    
    (24
    )Operating income
    
    
    166
    
    
    
    81
    
    
    
    72
    
    
    
    52
    
    
    
    45Minority interest
    
    
    (19
    )
    
    
    (9
    )
    
    
    (6
    )
    
    
    (4
    )
    
    
    Income taxes
    
    
    (59
    )
    
    
    (29
    )
    
    
    (26
    )
    
    
    (19
    )
    
    
    (18
    )Net income
    
    $
    88
    
    
    $
    43
    
    
    $
    40
    
    
    $
    29
    
    
    $
    27
  (6)
    
    Net debt to total capitalization % is defined as total project specific
financings plus subordinated debt less cash (net debt) multiplied by 100
divided by net debt plus stockholders equity plus minority interest
(total capitalization).(7)
    
    Net new orders for any period represents the aggregate of all homes
ordered by customers, net of cancellations.(8)
    
    Backlog represents the number of new homes subject to pending sales
contracts. Item 7. Managements Discussion and Analysis of Financial Condition and
Results of Operations The following discussion and analysis should be read along with Selected
Financial Data and our consolidated financial statements and the related notes
included elsewhere in this report. This discussion includes forward-looking
statements that reflect our current views with respect to future events and
financial performance and that involve risks and uncertainties. Our actual
results, performance or achievements could differ materially from those
anticipated in the forward-looking statements as a result of certain factors
including risks discussed in Managements Discussion and Analysis of Financial
Condition and Results of Operations  Forward-Looking Statements and
Managements Discussion and Analysis of Financial Condition and Results of
Operations  Risk Factors included elsewhere in this report. Overview We design, construct and market single-family and multi-family homes primarily
to move-up and luxury homebuyers and develop land for sale to other
homebuilders. Our operations are currently focused primarily in five markets:
San Francisco Bay Area; Southland / Los Angeles; San Diego / Riverside;
Sacramento; and Northern Virginia. Our goal is to maximize the total return on our common stockholders equity
over the long term. In 2003, we earned a 28% return on opening common
stockholders equity. The 21,606 lots that we control, of which we own 11,005 directly or through
joint ventures, provide a strong foundation for our future homebuilding
business and visibility on our future cash flow and earnings. The lots we
control represent in excess of a 12 year lot supply, based on 2004 planned home
closings of approximately 1,750. Our lots controlled as of December 31, 2003
include 4,520 lots located in Sacramento, California, a market we entered in
2003. The majority of our lots in this new market are under option and our
investment as of December 31, 2003 is nominal. However, it is our intention to
expand operations in this market within the next two to three years. Homebuilding is our primary source of revenue and has represented 89% of our
total revenue since 1999. Our operations are positioned to close between 1,700
and 2,000 homes per year. Operating in markets with higher price points and
catering to move-up and luxury buyers, our average sales price in 2003 of
$535,000 was well in excess of the national average sales price of
approximately $245,000. We also sell serviced and unserviced lots to other
homebuilders generally on an opportunistic basis where we can enhance our
returns, reduce risk in a market or redeploy capital to an asset providing
higher returns. In 2003, we sold over 5,000 lots, the majority of which were
bulk sales of raw or undeveloped land in southern California. The magnitude of
our lot sales in 2003 was the result of a number of factors. Firstly, we were
successful receiving final approvals on a number of parcels of land that we had
under option resulting in excess inventory in our southern California
operations, in particular the San Diego / Riverside area. Our excess inventory,
combined with strong market conditions and opportunities to acquire or option
additional lots in these same areas, enabled us to be pro-active and sell lots
realizing revenue and net income of $157 million and $39 million, respectively.
In total, these lot sales represented 44% of our net income in 2003. While we
continue to own a significant number of lots in these markets, we do not expect
to sell as many lots in 2004. 13




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##### 



In addition to our housing and land inventory and investments in housing and
land joint ventures, which together comprised 66% of our total assets as of
December 31, 2003, we had $219 million in cash and cash equivalents and $123
million in other assets at that point in time. Other assets consist of
homebuyer receivables of $31 million, deferred taxes of $43 million, and
mortgages and other receivables of $49 million. Homebuyer receivables consist
primarily of proceeds due from homebuyers on the closing of homes. Our
mortgages receivable and other receivables relate primarily to land assets we
have sold or on which we have granted options to purchase. Since 1999, our revenues and net income have grown at compounded annual growth
rates of 16% and 34%, respectively. Over the same period, we generated $435
million in operating cash flow that was used mainly to improve our net debt to
capitalization ratio from a high at the end of 2000 of 68% to 32% as of
December 31, 2003. At the same time, we believe we have positioned our business
for future growth through the selective acquisition of a significant number of
large projects and our overall level of lots controlled. Our recent growth is
primarily the result of strong economic fundamentals in the markets in which we
operate, our success in acquiring strategic parcels of land and in controlling
costs at all levels of our operation. Results of Operations Years Ended December 31Selected Financial Information ($ millions)
    
    2003
    
    2002
    
    2001Revenue:Housing
    
    $
    818
    
    
    $
    785
    
    
    $
    729Land and other revenues
    
    
    183
    
    
    
    46
    
    
    
    61Equity in earnings from housing and land joint ventures
    
    
    22
    
    
    
    11
    
    
    
    9Total revenues
    
    
    1,023
    
    
    
    842
    
    
    
    799Cost of sales
    
    
    (757
    )
    
    
    (665
    )
    
    
    (633
    )Gross margin
    
    
    266
    
    
    
    177
    
    
    
    166Selling, general and administrative expense
    
    
    (67
    )
    
    
    (61
    )
    
    
    (56
    )Interest expense
    
    
    (33
    )
    
    
    (35
    )
    
    
    (38
    )Operating income
    
    
    166
    
    
    
    81
    
    
    
    72Minority interest
    
    
    (19
    )
    
    
    (9
    )
    
    
    (6
    )Net income before taxes
    
    
    147
    
    
    
    72
    
    
    
    66Income tax expense
    
    
    (59
    )
    
    
    (29
    )
    
    
    (26
    )Net income
    
    $
    88
    
    
    $
    43
    
    
    $
    40
 Years Ended December 31Selected Operating Data
    
    2003
    
    2002
    
    2001Home closings (units):San Francisco Bay Area
    
    
    275
    
    
    
    273
    
    
    
    213Southland / Los Angeles
    
    
    296
    
    
    
    527
    
    
    
    500San Diego / Riverside
    
    
    452
    
    
    
    293
    
    
    
    450Northern Virginia
    
    
    505
    
    
    
    461
    
    
    
    482Consolidated total
    
    
    1,528
    
    
    
    1,554
    
    
    
    1,645Unconsolidated joint ventures
    
    
    155
    
    
    
    63
    
    
    
    65Total
    
    
    1,683
    
    
    
    1,617
    
    
    
    1,710Average selling price:San Francisco Bay Area
    
    $
    700,000
    
    
    $
    612,000
    
    
    $
    502,000Southland / Los Angeles
    
    
    872,000
    
    
    
    626,000
    
    
    
    610,000San Diego / Riverside
    
    
    303,000
    
    
    
    334,000
    
    
    
    313,000Northern Virginia
    
    
    456,000
    
    
    
    412,000
    
    
    
    365,000Average
    
    $
    535,000
    
    
    $
    505,000
    
    
    $
    443,000Net new orders (units):(1)San Francisco Bay Area
    
    
    342
    
    
    
    284
    
    
    
    177Southland / Los Angeles
    
    
    358
    
    
    
    440
    
    
    
    592San Diego / Riverside
    
    
    447
    
    
    
    329
    
    
    
    345Northern Virginia
    
    
    563
    
    
    
    527
    
    
    
    417Total
    
    
    1,710
    
    
    
    1,580
    
    
    
    1,531
 14




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##### 



Years Ended December 31Selected Operating Data (continued)
    
    2003
    
    2002
    
    2001Backlog (units at end of year):(2)San Francisco Bay Area
    
    
    113
    
    
    
    46
    
    
    
    35Southland / Los Angeles
    
    
    185
    
    
    
    123
    
    
    
    210San Diego / Riverside
    
    
    114
    
    
    
    119
    
    
    
    83Northern Virginia
    
    
    237
    
    
    
    179
    
    
    
    113Total
    
    
    649
    
    
    
    467
    
    
    
    441Lots controlled:(3)San Francisco
    
    
    3,075
    
    
    
    3,456
    
    
    
    3,119Southland / Los Angeles
    
    
    2,392
    
    
    
    994
    
    
    
    1,102San Diego / Riverside
    
    
    7,427
    
    
    
    11,109
    
    
    
    7,622Sacramento
    
    
    4,520
    
    
    
    1,800
    
    
    
    1,800Northern Virginia
    
    
    4,192
    
    
    
    4,769
    
    
    
    3,304Total
    
    
    21,606
    
    
    
    22,128
    
    
    
    16,947
   (1)
    
    Net new orders for any period represent the aggregate of all homes
ordered by customers, net of cancellations for consolidated projects.(2)
    
    Backlog represents the number of new homes subject to pending sales
contracts for consolidated projects.(3)
    
    Lots controlled represents the total of residential lots owned and lots
controlled under option. Year Ended December 31, 2003 Compared with Year Ended December 31, 2002 Net Income Net income for the year ended December 31, 2003 was $88 million, an increase of
$45 million over the year ended December 31, 2002. Our increase in earnings in
2003 was primarily a result of the bulk sale of 4,700 lots in southern
California which contributed net income of $39 million compared to nil in 2002.
Excluding the bulk sale of lots, our earnings from core operations increased to
$49 million from $43 million, an increase of 14%. The increase was primarily a
result of continued strong market conditions in all our markets. Revenues Housing revenues were $818 million in 2003, an increase of $33 million or 4%
compared with 2002. The increase was principally a result of a 6% increase in
the average selling price from home closings, offset by 26 fewer home closings
than 2002. The higher average selling price from home closings in 2003 was a
result of product mix and price appreciation in the markets in which we
operate. The decrease in home closings was largely the result of fewer active
projects in our Southland / Los Angeles operation. Land and other revenues were $183 million in 2003 compared with $46 million in
2002. The increase was primarily a result of the bulk sale of lots in southern
California generating revenue of $150 million. Our land revenues may vary
significantly from period to period as the timing and nature of land sales
generally occur on an opportunistic basis. Equity in Earnings from Housing and Land Joint Ventures Equity in earnings from housing and land joint ventures increased to $22
million in 2003, an increase of $11 million over 2002. The increase was
primarily a result of a bulk land sale of 99 lots in southern California, which
contributed earnings of $7 million. Gross Margin Gross margin was $266 million in 2003 compared to $177 million in 2002, an
increase of $89 million. The gross margin percentage on housing revenue was
20.8% in 2003 compared to 20.0% in 2002. The gross margin percentage in 2003 on
land and other revenues was 40.4% compared to 19.7% in 2002. The increase was a
result of strong market conditions in southern California, the area where the
majority of this revenue was generated. The components of gross margin are as
follows: 15




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##### 



Year Ended December 312003
    
    2002Housing
    
    $
    170
    
    
    $
    157Land and other revenues
    
    
    74
    
    
    
    9Equity in earnings from housing and land joint
ventures
    
    
    22
    
    
    
    11$
    266
    
    
    $
    177
 We believe our housing gross margin percentage will grow in the short term as
we commence the closing of homes in a number of projects which recently
received final development approvals. Other Expenses Selling, general and administrative expense was $67 million in 2003, an
increase of $6 million or 10% over 2002. This increase was primarily a result
of additional active projects and an increase in stock option expense of $4
million over 2002. Selling, general and administrative expense as a percentage
of housing revenue was 8.1% in 2003 compared to 7.7% in 2002. Interest expense as a percentage of revenue was 3.3% in 2003 compared to 4.2%
in 2002. The lower percentage in 2003 was primarily a result of our decrease in
leverage. Given that we capitalize interest costs to projects, the level of
interest expense may vary from period to period as a result of the mix of
projects with home closings. Sales Activity Net new orders were 1,710 units in 2003, an increase of 130 units compared with
2002. The increase was primarily a result of additional active projects and
continued strong market conditions in all our markets. Year Ended December 31, 2002 Compared with Year Ended December 31, 2001 Net Income Net income was $43 million for the year ended December 31, 2002, an increase of
$3 million over 2001. Our growth in earnings was primarily the result of strong
market conditions in all of our markets, including the San Francisco Bay Area,
which rebounded from the soft market conditions of 2001. Revenues Housing revenue for the year ended December 31, 2002 increased 8% over 2001,
principally a result of a 14% increase in the average selling price from homes
closed, offset by 91 fewer home closings than in 2001. The increase in the
average selling price was principally a result of product mix, continued price
appreciation in our markets and a higher level of closings in 2002 from our San
Francisco Bay Area and Southland / Los Angeles operations, where our average
selling price is the highest. Our San Diego / Riverside operation accounted for
the primary decline in home closings with three active projects in 2002
compared with six active projects in 2001. Land and other revenues totaled $46 million, a decrease of $15 million from
2001. The decrease resulted from the sale of fewer lots in 2002. The amount of
land revenues may vary significantly from period to period as the timing and
the nature of land sales generally occur on an opportunistic basis. Equity in Earnings from Housing and Land Joint Ventures Equity in earnings from housing and land joint ventures for the years ended
December 31, 2002 was $11 million compared with $9 million in 2001. The
increase was primarily a result of the commencement of home closings in our
Fullerton joint venture in the Southland / Los Angeles area. Gross Margin Gross margin for the year ended December 31, 2002 increased to $177 million, an
increase of $11 million or 7% over 2001. Our gross margin percentage was 21.0%
in 2002, consistent with 20.7% in 2001. Our average gross margin since 2000 is
20.2%. We believe our future average gross margin percentages will be higher
than our historical average as we close homes or sell lots in a number of
projects which recently received final development approvals. 16




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##### 



Other Expenses Selling, general and administrative expenses as a percentage of housing revenue
were 7.7% in 2002 consistent with 2001, and consistent with target levels of
7.5%. Interest expense as a percentage of total revenue was 4.2% compared with 4.7%
in 2001. Given that we capitalize interest costs to our projects, the level of
interest expense may vary from period to period as a result of the mix of
projects with home closings. Interest expense as a percentage of revenue is
targeted between 4% and 5%. This is higher than many of our competitors which
reflects our greater leverage in recent years. Our interest costs in 2002 were
$26 million compared with $34 million in 2001. Sales Activity Net new orders reached 1,580 units in 2002, an increase of 3% compared with
1,531 units in 2001. Sales were strong in all of our markets in 2002, most
notably in the San Francisco Bay Area where the Companys sales increased by
61% over last year. Sales in the Southland / Los Angeles market were lower,
primarily a result of a decrease in the active selling communities from 16 in
2001 to 11 in 2002. Our backlog of unit sales as of December 31, 2002 was 467
units, which is comparable with 2001. Liquidity and Capital Resources Financial Position Our total assets as of December 31, 2003 were $1,013 million, compared to $844
million as of December 31, 2002, an increase of $169 million. The increase in
2003 was primarily a result of an increase in cash and cash equivalents of $183
million offset by lower levels of housing and land inventory. Total assets as
of December 31, 2002 were comparable with December 31, 2001. Our total debt as of December 31, 2003 was $426 million, comparable with
December 31, 2002. Total debt as of December 31, 2003 consisted mainly of
project specific financings which represent construction and development loans
that are repaid from home and lot sales proceeds. As new homes are constructed,
further loan facilities are arranged on a rolling basis. Our major project
specific lenders are Bank of America, Housing Capital Corporation and Wells
Fargo. Other debt comprises deferred compensation on which interest is paid at
prime. As of December 31, 2003, the average interest rate on our debt was 4.4%
with maturities as follows: Maturities($ millions)
    
    2004
    
    2005
    
    2006
    
    Post 2006
    
    TotalSan Francisco Bay Area
    
    $
    85
    
    
    $
    9
    
    
    $
    
    
    
    $
    
    
    
    $
    94Southland / Los
Angeles
    
    
    76
    
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    79San Diego / Riverside
    
    
    97
    
    
    
    27
    
    
    
    
    
    
    
    
    
    
    
    124Northern Virginia
    
    
    3
    
    
    
    29
    
    
    
    32
    
    
    
    
    
    
    
    64Other
    
    
    
    
    
    
    19
    
    
    
    28
    
    
    
    18
    
    
    
    65Total
    
    $
    261
    
    
    $
    87
    
    
    $
    60
    
    
    $
    18
    
    
    $
    426
 Cash Flow Our principal uses of working capital include purchases of land, land
development and home construction. Cash flows for each of our communities
depend upon the applicable stage of the development cycle and can differ
substantially from reported earnings. Early stages of development require
significant cash outlays for land acquisitions, site approvals and
entitlements, construction of model homes, roads, certain utilities and other
amenities and general landscaping. Because these costs are capitalized, income
reported for financial statement purposes during such early stages may
significantly exceed cash flow. Later, cash flow can significantly exceed
earnings reported for financial statement purposes, as cost of sales includes
charges for substantial amounts of previously expended costs. Cash provided by our operating activities totaled $209 million in 2003 compared
with cash provided of $102 million in 2002. The increase in cash generated was
primarily the result of the bulk sale of lots in southern California which
generated cash proceeds of $157 million. 17




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##### 



Cash provided by our investing activities in joint ventures for the year ended
December 31, 2003 was $6 million compared with cash provided of $24 million in
2002. The decrease in cash flow from joint ventures is due to an investment of
$20 million in a joint venture in Riverside, California representing 1,100
lots. Cash used in our financing activities for the year ended December 31, 2003 was
$32 million compared with cash used of $91 million in 2002. Our use of cash in
2003 related primarily to the repurchase of 1,192,749 common shares for $22
million, common share dividends of $5 million and minority interest
distributions of $8 million. We also fully repaid $98 million of 10%
subordinated debt and increased our project specific and other financing by
$101 million which currently has an average interest rate of 4.4%. Deferred Tax Our company was formed in the course of a reorganization in 2002 by Brookfield
Properties of its United States homebuilding operations and was withdrawn from
the Brookfield Properties consolidated group. The tax provisions that apply in
connection with the reorganization, including the departure of a member from a
consolidated group, are detailed and complex and are therefore subject to
uncertainty. Our tax attributes are based upon estimates which will not
ultimately be determined until after December 31, 2003, as well as tax
attributes of certain members of the existing consolidated group that have not
been reviewed by tax authorities. We believe we have been prudent and
reasonable to provide for any reduction in our net operating losses or loss of
tax basis in properties. Contractual Obligations and Other Commitments We generally fund the development of our communities through the use of project
specific financings. As of December 31, 2003, we had available project specific
debt lines of $327 million that were available to complete land development and
construction activities. As of December 31, 2003, we also had available cash
and cash equivalents of $219 million. A total of $262 million of our project specific and other financings mature
prior to the end of 2004. Our high level of maturities in 2004 and 2005 is due
to our expected project completions over this period. Although the level of our
maturing debt is high, we expect to generate cash flow from our assets in 2004
and 2005 to repay these obligations. Our net debt to total capitalization ratio
as of December 31, 2003, which is defined as total interest-bearing debt less
cash divided by total interest-bearing debt less cash plus stockholders equity
and minority interest, was 32%, a significant decrease from 53% as of December
31, 2002. For a description of the specific risks facing us if, for any reason,
we are unable to meet these obligations, refer to the section of this Form 10-K
entitled Managements Discussion and Analysis of Financial Condition and
Results of Operations  Risk Factors  Our Debt and Leverage Could Adversely
Affect Our Financial Condition. In connection with our project specific financings, we are required to maintain
a tangible net worth of at least $250 million. Tangible net worth is defined as
the sum of stockholders equity and minority interest. In addition, our project
specific financings require us to maintain a debt to capitalization ratio of no
greater than 65%. This ratio is defined as total liabilities excluding
subordinated debt, divided by total assets. Our project specific financings
also require us to maintain a debt to tangible net worth ratio of 1.5 to 1.
This ratio is defined as total debt excluding subordinated debt, divided by
stockholders equity plus subordinated debt and minority interest. A summary of our contractual obligations as of December 31, 2003 follows: Payment Due by PeriodLess than
    
    1-3
    
    3-5
    
    More thanTotal
    
    1 Year
    
    Years
    
    Years
    
    5 YearsProject specific and other
financings
    
    
    426
    
    
    
    262
    
    
    
    164
    
    
    
    
    
    
    
    Operating lease obligations
    
    
    10
    
    
    
    3
    
    
    
    5
    
    
    
    2
    
    
    
    Total
    
    
    436
    
    
    
    265
    
    
    
    169
    
    
    
    2
    
    
    
    
 18




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##### 



Off-Balance Sheet Arrangements In the ordinary course of business, we use lot option contracts and joint
ventures to acquire control of land to mitigate the risk of declining land
values. Option contracts for the purchase of land permit us to control lots for
an extended period of time, until options expire and/or we are ready to
construct homes or sell the land. This reduces our financial risk associated
with land holdings. As of December 31, 2003, we had $18 million of primarily
non-refundable option deposits and advanced costs. The total exercise price of
these options is $388 million. Pursuant to FIN 46R, as defined elsewhere in
this Form 10-K, we have consolidated $26 million of these option contracts.
Please see Note 2 to our consolidated financial statements included elsewhere
in this Form 10-K for additional information on our lot options. We also control 3,748 lots through joint ventures. As of December 31, 2003, our
investment in housing and land joint ventures was $78 million. We have provided
varying levels of guarantees of debt in our joint ventures. As of December 31,
2003, we had recourse guarantees of $66 million and limited maintenance
guarantees of $24 million with respect to debt in our joint ventures. We obtain letters of credit, performance bonds and other bonds to support our
obligations with respect to the development of our projects. The amount of
these obligations outstanding at any time varies in accordance with our
development activities. 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. As
of December 31, 2003, we had $16 million in letters of credit outstanding and
$272 million in performance bonds for these purposes. We do not believe that
any of these letters of credit or bonds are likely to be drawn upon. Stock Repurchase Program In February 2003, our board of directors approved a share repurchase program
which allows us to repurchase up to $40 million of Brookfield Homes
outstanding common shares. During the year ended December 31, 2003, we had
repurchased 1,192,749 of our shares at an average cost of $18.19 per share. Critical Accounting Policies and Estimates The discussion and analysis of our financial condition and results of
operations is based upon the consolidated financial statements of our Company,
which have been prepared in accordance with accounting principles generally
accepted in the United States. The preparation of these financial statements
requires us to make assumptions, estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses, and the related
disclosure of contingent assets and liabilities. We evaluate our estimates on
an on-going basis. We base our estimates on historical experience and on
various other assumptions that we believe are reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities and the reported amount of
revenues and expenses that are not readily apparent from other sources. Our
actual results may differ from these estimates under different assumptions or
conditions. Our most critical accounting policies are those that we believe are the most
important in portraying our financial condition and results of operations, and
require the most subjectivity and estimates by our management. A summary of our
significant accounting policies, including the critical accounting policies
discussed below, is provided in the notes to the consolidated financial
statements of our Company included elsewhere in this Form 10-K. Capitalized Costs Our housing and land inventory on our consolidated balance sheet includes the
costs of acquiring land, development costs, interest, property taxes and
overhead directly related to the development of the land and housing. These
costs are allocated to each lot in proportion to our anticipated revenue.
Estimates of costs to complete homes and prepare lots for sale are recorded at
the time of closing homes. If our estimates of costs are significantly
different from our actual results, our housing and land inventory may be over-
or under-stated on our balance sheet, and accordingly gross margins in a
particular period may be over- or under-stated. Carrying Values Housing and land assets are reviewed for recoverability whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability is measured by comparing the carrying amount of
an asset to future undiscounted cash flows expected to be generated by the
asset. To arrive at this amount, we estimate the cash flow for the life of each
project. These projections take into account the specific business plans for
each project, and our estimate of the most probable set of economic conditions
anticipated to prevail in the market area. If these assets 19




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##### 



are considered to be
impaired, they are then written down to the fair value less estimated selling
costs. The ultimate fair
values for our housing and land inventory are dependent upon future market and
economic conditions. If our estimate of the future cash flows is significantly
different from our actual cash flows, we may prematurely impair the value of
the asset, we may underestimate the value of the calculated impairment or we
may fail to record an impairment. In these cases, our housing and land
inventory would be represented on our balance sheet at other than its cost or
fair value, which could have an effect on our gross margin in future periods as
we develop and sell the assets. Recent Accounting Pronouncements In June 2002, the FASB issued SFAS 146, Accounting for Exit or Disposal
Activities. This statement addresses the recognition, measurement and
reporting of costs that are associated with exit and disposal activities. This
statement includes the restructuring activities that are currently accounted
for pursuant to the guidance set forth in EITF 94-3, Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring), and costs related to
terminating a contract that is not a capital lease and one-time benefit
arrangements received by employees who are involuntarily terminated 
nullifying the guidance under EITF 94-3. Under SFAS 146, the cost associated
with an exit or disposal activity is recognized in the periods in which it is
incurred rather than at the date we committed to the exit plan. This statement
is effective for exit or disposal activities initiated after December 31, 2002,
with earlier application encouraged. The provisions of EITF 94-3 shall continue
to apply for exit plans initiated prior to the adoption of SFAS 146. The
adoption of SFAS 146 did not have a material impact on our results of
operations, financial position or cash flows. In November 2002, the FASB issued Interpretation 45, Guarantors Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others, which elaborates on the disclosures to be made by a
guarantor about its obligations under certain guarantees issued. It also
clarifies that a guarantor is required to recognize, at the inception of a
guarantee, a liability for the fair value of the obligation undertaken in
issuing the guarantee. Interpretation 45 expands on the accounting guidance of
SFAS 5, Accounting for Contingencies, SFAS 57, Related Party Disclosures,
and SFAS 107, Disclosure About Fair Value of Financial Instruments.
Interpretation 45 also incorporates, without change, the provisions of FASB
Interpretation 34, Disclosure of Indirect Guarantees of Indebtedness of
Others, which it supersedes. Interpretation 45 does identify several
situations where the recognition of a liability at inception for a guarantors
obligation is not required. The initial recognition and measurement provisions
of Interpretation 45 apply on a prospective basis to guarantees issued or
modified after December 31, 2002, regardless of the guarantors fiscal
year-end. The disclosures are effective for financial statements of interim or
annual periods ending after December 15, 2002. We have provided the required
disclosures in our consolidated financial statements included elsewhere in this
Form 10-K. In April 2003, the FASB issued SFAS 149, Amendment of SFAS 133 on Derivative
Instruments and Hedging Activities. SFAS 149 amends and clarifies accounting
for derivative instruments, including certain derivative instruments embedded
in other contracts, and for hedging activities under SFAS No. 133, Accounting
for Derivative Instruments and Hedging Activities. In particular, it:
clarifies under what circumstances a contract with an initial net investment
meets the characteristic of a derivative; clarifies when a derivative contains
a financing component; amends the definition of an underlying derivative; and
amends certain other existing pronouncements. SFAS 149 is generally effective
for contracts entered into or modified after June 30, 2003 and for hedging
relationships designated after June 30, 2003. The adoption of SFAS 149 by our
Company has not had a material impact on our results of operations or financial
condition. In May 2003, the FASB issued SFAS 150, Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity. SFAS 150
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its
scope as a liability (or an asset in some circumstances). Many of those
instruments were previously classified as equity. Some of the provisions of
this Statement are consistent with the current definition of liabilities in
FASB Concepts Statement No. 6, Elements of Financial Statements. The
remaining provisions of this Statement are consistent with the proposal to
revise that definition to encompass certain obligations that a reporting entity
can or must settle by issuing its own equity shares, depending on the nature of
the relationship established between the holder and the issuer. SFAS 150 is
effective for financial instruments entered into or modified after May 31,
2003, and otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003. The adoption of SFAS 150 by our Company has not
had a material impact on the results of operations or financial condition. In December 2003, the FASB issued revised Interpretation 46 (FIN 46R),
Consolidation of Variable Interest Entities (VIEs), an Interpretation of
Accounting Research Bulletin 51, Consolidated Financial Statements, and
replaces 20




---



##### 



the previous version of FASB Interpretation 46 issued in January, 2003
(FIN 46). This interpretation applied immediately to variable interest
entities created after January 31, 2003. A company that holds a variable
interest in a VIE
it acquired before February 1, 2003 shall apply the provision of this
interpretation no later than the first fiscal year or interim period beginning
after March 15, 2004 unless those entities are considered to be special purpose
entities in which the application is to be no later than the end of the first
reporting period that ends after December 15, 2003. This interpretation may be
applied prospectively with a cumulative-effect adjustment as of the date on
which it is first applied or by restating previously issued financial
statements for one or more years with a cumulative-effect adjustment as of the
beginning of the first year restated. We applied the provision of this new
pronouncement effective January 1, 2003 but did not restate any previously
issued financial statements. The decision whether to consolidate a VIE begins with establishing that a VIE
exists. A VIE exists when either the total equity investment at risk is not
sufficient to permit the entity to finance its activities by itself, or the
equity investor lacks one of three characteristics associated with owning a
controlling financial interest. Those characteristics are the direct or
indirect ability to make decisions about the entitys activities through voting
rights or similar rights, the obligation to absorb the expected losses of an
entity, and the right to receive the expected residual returns. The entity with
the majority of the expected losses or expected residual return is considered
to be the primary beneficiary of the entity and is required to consolidate such
entity. We have determined that we are the primary beneficiary of certain VIEs which
are presented in our consolidated financial statements under the item
Consolidated land inventory not owned, with the interest of others included
in Minority interest. See Notes 2 and 3 of our consolidated financial
statements included elsewhere in this Form 10-K for further discussion on the
consolidation of land options contracts and joint ventures. Seasonality and Quarterly Information We have historically experienced variability in results of operations from
quarter to quarter due to the seasonal nature of the homebuilding business and
the timing of new community openings and the closing out of projects. We
typically experience the highest rate of orders for new homes in the first six
months of the calendar year. New home deliveries trail new home orders by
several months, therefore we normally have a greater percentage of new home
deliveries in the second half of our fiscal year. As a result, our revenues
from deliveries of homes are generally higher in the second half of the year. The following table presents a summary of our operating results for each of the
last eight quarters: December 31
    
    September 30
    
    June 30
    
    March 31($ millions, except home closingsand per share amounts)
    
    2003
    
    2002
    
    2003
    
    2002
    
    2003
    
    2002
    
    2003
    
    2002Total revenue
    
    $
    391
    
    
    $
    321
    
    
    $
    288
    
    
    $
    149
    
    
    $
    200
    
    
    $
    209
    
    
    $
    144
    
    
    $
    163Gross margin
    
    
    99
    
    
    
    65
    
    
    
    80
    
    
    
    35
    
    
    
    47
    
    
    
    41
    
    
    
    40
    
    
    
    36Contribution from bulk land
sales to net income
    
    
    14
    
    
    
    
    
    
    
    11
    
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    10
    
    
    
    Net income
    
    
    33
    
    
    
    16
    
    
    
    28
    
    
    
    10
    
    
    
    12
    
    
    
    10
    
    
    
    15
    
    
    
    7Diluted earnings per share(1)
    
    
    1.06
    
    
    
    0.52
    
    
    
    0.87
    
    
    
    0.30
    
    
    
    0.37
    
    
    
    0.31
    
    
    
    0.45
    
    
    
    0.22Home closings (units)
    
    
    585
    
    
    
    560
    
    
    
    460
    
    
    
    274
    
    
    
    324
    
    
    
    412
    
    
    
    159
    
    
    
    308Total assets
    
    
    1,013
    
    
    
    844
    
    
    
    877
    
    
    
    879
    
    
    
    845
    
    
    
    903
    
    
    
    855
    
    
    
    869Total debt
    
    
    426
    
    
    
    424
    
    
    
    387
    
    
    
    463
    
    
    
    354
    
    
    
    503
    
    
    
    387
    
    
    
    487
   (1)
    
    Earnings per share was calculated based on the weighted average number of
Brookfield Properties common shares outstanding during each respective
period up to September 30, 2002, adjusted on the basis of one of our
common shares for every five common shares of Brookfield Properties. For
the periods October 1, 2002 to December 31, 2003, earnings per share was
calculated based on the weighted average number of shares of Brookfield
Homes outstanding during this period. Non-Arms Length Transactions We have entered into a license agreement with Brookfield Properties (US) Inc.,
an indirect wholly-owned subsidiary of Brookfield Properties, for the right to
use the names Brookfield and Brookfield Homes. Brookfield Homes Holdings
Inc., our wholly-owned subsidiary, has entered into an agreement with
Brookfield Properties (US) Inc. with respect to shared services. In addition,
we have entered into an agreement with a subsidiary of Brascan, our largest
stockholder under which we can deposit cash on a demand basis to earn LIBOR
plus 50 basis points. At December 31, 2003, the amount on deposit was $205
million. For details of these arrangements and other non-arms length
transactions refer to 21




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##### 



Certain Relationships and Related Party Transactions,
which is incorporated by reference into Item 13 of this report from our
definitive 2004 proxy statement, which will be filed with the Securities and
Exchange Commission not later than April 30, 2004. Forward-Looking Statements This annual report on Form 10-K contains forward-looking statements within
the meaning of the United States federal securities laws. The words may,
believe, will, anticipate, expect, estimate, project, future, and
other expressions which are predictions of or indicate future events and trends
and which do not relate to historical matters identify forward-looking
statements. The forward-looking statements in this annual report on Form 10-K
include, among others, statements with respect to:  
    
    expected home closings, deliveries and lot sales (and the timing thereof);
    
    sources of and strategies for future growth;
    
    housing gross margin percentages;
    
    visibility of cash flow and earnings;
    
    financing sources;
    
    estimates of cash flow, debt to capitalization ratio and valuation allowance;
    
    the effect of interest rate changes;
    
    strategic goals;
    
    the effect on our business of existing lawsuits;
    
    the adequacy of our land supply;
    
    whether or not our letters of credit or performance bonds will be drawn upon;
    
    acquisition strategies;
    
    expansion plans;
    
    capital expenditures; and
    
    the time of which construction and sales begin on a project. Reliance should not be placed on forward-looking statements because they
involve known and unknown risks, uncertainties and other factors, which may
cause the actual results to differ materially from the anticipated future
results expressed or implied by such forward-looking statements. Factors that
could cause actual results to differ materially from those set forward in the
forward-looking statements include, but are not limited to:  
    
    changes in general economic, real estate and other conditions;
    
    mortgage rate changes;
    
    availability of suitable undeveloped land at acceptable prices;
    
    adverse legislation or regulation;
    
    ability to obtain necessary permits and approvals for the development of our land;
    
    availability of labor or materials or increases in their costs;
    
    ability to develop and market our master-planned communities successfully;
    
    confidence levels of consumers;
    
    ability to raise capital on favorable terms;
    
    adverse weather conditions and natural disasters;
    
    relations with the residents of our communities;
    
    risks associated with increased insurance costs or unavailability of adequate coverage;
    
    ability to obtain surety bonds;
    
    competitive conditions in the homebuilding industry, including product and pricing pressures; and
    
    additional risks and uncertainties, many of which are beyond our control, referred to in this Form 10-K and our other SEC
filings. Except as required by law, we undertake no obligation to publicly update any
forward-looking statements, whether as a result of new information, future
events or otherwise. However, any further disclosures made on related subjects
in subsequent reports on Forms 10-K, 10-Q and 8-K should be consulted. Risk Factors This section describes the material risks associated with an investment in our
common stock. Stockholders should carefully consider each of the risks
described below and all of the other information in this Form 10-K. If any of
the following risks occurs, our business, prospects, financial condition,
results of operations or cash flow could be materially and adversely affected.
In such an event, the trading price of shares of our common stock could decline
substantially, and stockholders may lose all or part of the value of their
shares of our common stock. 22




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##### 



Our business and results of operations will be materially and adversely
affected by weakness in general economic, real estate and other conditions. The residential homebuilding and land development industry is cyclical and is
significantly affected by changes in general and local economic conditions,
such as employment levels, availability of financing for homebuyers, interest
rates, consumer confidence and housing demand. In addition, significant supply
of alternatives to new homes, such as rental properties and used homes, may
depress prices and reduce margins for the sale of new homes. Homebuilders are
also subject to risks related to the availability and cost of materials and
labor, and adverse weather conditions that can cause delays in construction
schedules and cost overruns. Furthermore, the market value of undeveloped land,
buildable lots and housing inventories held by us can fluctuate significantly
as a result of changing economic and real estate market conditions. If there
are significant adverse changes in economic or real estate market conditions,
we will have to sell homes at a loss or hold land in inventory longer than
planned. Inventory carrying costs can be significant and can result in losses
in a poorly performing project or market. We may be particularly affected by
changes in local market conditions in California, where we derive a large
proportion of our revenue. Rising mortgage rates will discourage people from buying new homes. Virtually all of our customers finance their home acquisitions through lenders
providing mortgage financing. Mortgage rates are currently at or near their
lowest levels in many years. Increases in mortgage rates or decreases in the
availability of mortgage financing could depress the market for new homes
because of the increased monthly mortgage costs to potential homebuyers. Even
if potential customers do not need financing, changes in interest rates and
mortgage availability could make it harder for them to sell their homes to
potential buyers who need financing, which would result
in reduced demand for new homes. As a result, rising mortgage rates could
adversely affect our ability to sell new homes and the price at which we can
sell them. Laws and regulations related to property development and related to the
environment subject us to additional costs and delays which adversely affect
our business and results of operations. We must comply with extensive and complex regulations affecting the
homebuilding and land development process. These regulations impose on us
additional costs and delays, which adversely affect our business and results of
operations. In particular, we are required to obtain the approval of numerous
governmental authorities regulating matters such as permitted land uses, levels
of density, the installation of utility services, zoning and building
standards. We must also comply with a variety of local, state and federal laws
and regulations concerning the protection of health and the environment,
including with respect to hazardous or toxic substances. These environmental
laws sometimes result in delays, cause us to incur additional costs, or
severely restrict land development and homebuilding activity in environmentally
sensitive regions or areas. If we are not able to develop and market our master-planned communities
successfully, our business and results of operations will be adversely
affected. Before a master-planned community generates any revenues, material expenditures
are incurred to acquire land, obtain development approvals and construct
significant portions of project infrastructure, amenities, model homes and
sales facilities. It generally takes several years for a master-planned
community development to achieve cumulative positive cash flow. If we are
unable to develop and market our master-planned communities successfully and to
generate positive cash flows from these operations in a timely manner, it will
have a material adverse effect on our business and results of operations. Difficulty in retaining qualified trades workers, or obtaining required
materials and supplies, will adversely affect our business and results of
operations. The homebuilding industry has from time to time experienced significant
difficulties in the supply of materials and services, including with respect
to: shortages of qualified trades people; labor disputes; shortages of building
materials; unforeseen environmental and engineering problems; and increases in
the cost of certain materials (particularly increases in the price of lumber,
wall board and cement, which are significant components of home construction
costs). When any of these difficulties occur, it causes delays and increases
the cost of constructing our homes. 23




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##### 



We sometimes face liabilities when we act as a general contractor, and we are
sometimes responsible for losses when we hire general contractors. Where we act as the general contractor, we are responsible for the performance
of the entire contract, including work assigned to subcontractors. Claims may
be asserted against us for construction defects, personal injury or property
damage caused by the subcontractors, and if successful these claims give rise
to liability. Where we hire general contractors, if there are unforeseen events
like the bankruptcy of, or an uninsured or under-insured loss claimed against
our general contractors, we sometimes become responsible for the losses or
other obligations of the general contractors. If we are not able to raise capital on favorable terms, our business and
results of operations will be adversely affected. We operate in a capital intensive industry and require significant capital
expenditures to maintain our competitive position. The failure to secure
additional debt or equity financing or the failure to do so on favorable terms
will limit our ability to grow our business, which in turn will adversely
affect our business and results of operations. We expect to make significant
capital expenditures in the future to enhance and maintain the operations of
our properties and to expand and develop our real estate inventory. If our
plans or assumptions change or prove to be inaccurate, or if our cash flow from
operations proves to be insufficient due to unanticipated expenses or
otherwise, we will likely seek to minimize cash expenditures and/or obtain
additional financing in order to support our plan of operations. If sufficient
funding, whether obtained through public or private debt, equity financing or
from strategic alliances is not available when needed or is not available on
acceptable terms, our business and results of operations will be adversely
affected. Our debt and leverage could adversely affect our financial condition. We are leveraged, and also guarantee shortfalls under some of our bond debt
service agreements, when the revenues, fees and assessments which are designed
to cover principal and interest and other operating costs of the bonds are not
paid. Our leverage could have important consequences, including the following:
our ability to obtain additional financing for working capital, capital
expenditures or acquisitions may be impaired in the future; a substantial
portion of our cash flow from operations must be dedicated to the payment of
principal and interest on our debt, thereby reducing the funds available to us
for other purposes; some of our borrowings are and will continue to be at
variable rates of interest, which will expose us to the risk of increased
interest rates; and our substantial leverage may limit our flexibility to
adjust to changing economic or market conditions, reduce our ability to
withstand competitive pressures and make us more vulnerable to a general
economic downturn. We finance each of our projects individually. As a result, to the extent we
increase the number of our projects and our related investment, our total debt
obligations may increase. We repay the principal of our debt from the proceeds of home closings, and as a
result our annual debt service is equal to the interest that accrues on our
debt. Based on our debt levels as of December 31, 2003, a 1% change up or down
in interest rates could have either a positive or negative effect of
approximately $4 million on our cash flows. Refer also to the section of this
Form 10-K entitled Managements Discussion and Analysis of Financial Condition
and Results of Operations  Quantitative and Qualitative Disclosures About
Market Risks  Interest Rates. If any of these conditions occur, our financial condition will be adversely
affected. In addition, our various debt instruments contain financial and other
restrictive covenants that limit our ability to, among other things, borrow
additional funds that we might need in the future. Our business and results of operations will be adversely affected if poor
relations with the residents of our communities negatively impact our sales. As a master-planned community developer, we are sometimes expected by community
residents to resolve any issues or disputes that arise in connection with the
development of our communities. Our sales will likely be negatively affected if
any efforts made by us to resolve these issues or disputes are unsatisfactory
to the affected residents, which in turn would adversely affect our results of
operations. In addition, our business and results of operations would be
adversely affected if we are required to make material expenditures related to
the settlement of these issues or disputes, or to modify our community
development plans. Our business is susceptible to adverse weather conditions and natural
disasters. The homebuilding industries in California and Northern Virginia are susceptible
to, and are significantly affected by, adverse weather conditions and natural
disasters such as hurricanes, tornadoes, earthquakes, floods and fires. These 24




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##### 



adverse weather conditions and natural disasters can cause delays and increased
costs in the construction of new homes
and the development of new communities. If insurance is unavailable to us or is
unavailable on acceptable terms, or if our insurance is not adequate to cover
business interruption or losses resulting from adverse weather or natural
disasters, our business and results of operations will be adversely affected.
In addition, damage to new homes caused by adverse weather or a natural
disaster can cause our insurance costs to increase. Increased insurance risk adversely affects our business. Due in part to the terrorist activities of September 11, 2001 and other recent
events, we are confronting reduced availability of, and generally lower limits
for, insurance against some of the risks associated with our business. Some of
the other actions that have been or could be taken by insurance companies
include: increasing insurance premiums; requiring higher self-insured retention
and deductibles; requiring additional collateral on surety bonds; imposing
additional exclusions, such as with respect to sabotage and terrorism; and
refusing to underwrite certain risks and classes of business. The imposition of
any of the preceding actions have and will continue to adversely affect our
ability to obtain appropriate insurance coverages at reasonable costs. Residential homebuilding is a competitive industry, and competitive conditions
adversely affect our results of operations. The residential homebuilding industry is highly competitive. Residential
homebuilders compete not only for homebuyers, but also for desirable
properties, financing, building materials and labor. We compete with other
local, regional and national homebuilders, often within larger communities
designed, planned and developed by such homebuilders. Any improvement in the
cost structure or service of our competitors will increase the competition we
face. Competitive conditions in the homebuilding industry could result in:
difficulty in acquiring suitable land at acceptable prices; increased selling
incentives; lower sales volumes and prices; increased construction costs; and
delays in construction. Provisions in our charter documents and Delaware law may make it difficult for
a third party to acquire us, which could depress the price of our common stock. Provisions in our certificate of incorporation, our by-laws and Delaware law
could delay, defer or prevent a change of control of our company or our
management. These provisions, which include authorizing the board of directors
to issue preferred stock and limiting the persons who may call special meetings
of stockholders, could also discourage proxy contests and make it more
difficult for stockholders to elect directors and take other corporate actions. We are also subject to provisions of Delaware law which could delay, deter or
prevent us from entering into an acquisition, including Section 203 of the
Delaware General Corporation Law, which prohibits a Delaware corporation from
engaging in a business combination with an interested stockholder unless
specific conditions are met. The existence of any of the above factors could
adversely affect the market price of our common stock. The trading price of shares of our common stock could be adversely affected
because Brascan Corporation owns approximately 50% of our common stock. Brascan Corporation owns approximately 50% of the outstanding shares of our
common stock. If Brascan should decide in the future to sell any of our shares
owned by it, the sale (or the perception of the market that a sale may occur)
could adversely affect the trading price of our common stock. The trading price of shares of our common stock could fluctuate significantly. The trading price of shares of our common stock in the open market cannot be
predicted. The trading price could fluctuate significantly in response to
factors such as: variations in our quarterly or annual operating results and
financial condition; changes in government regulations affecting our business;
the announcement of significant events by us or our competitors; market
conditions specific to the homebuilding industry; changes in general economic
conditions; differences between our actual financial and operating results and
those expected by investors and analysts; changes in analysts recommendations
or projections; the depth and liquidity of the market for shares of our common
stock; investor perception of the homebuilding industry; events in the
homebuilding industry; investment restrictions; and our dividend policy. In
addition, securities markets have experienced significant price and volume
fluctuations in recent years that have often been unrelated or disproportionate
to the operating performance of particular companies. These broad fluctuations
may adversely affect the trading price of our common stock. 25




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##### 



Item 7A. Quantitative and Qualitative Disclosures About Market Risk Exchange Rates We conduct business in U.S. dollars only, so we are not exposed to currency
risks. Interest Rates We are exposed to financial risks that arise from the fluctuations in interest
rates. Our interest bearing assets and liabilities are mainly at floating
rates, so we would be negatively affected, on balance, if interest rates
increase. Based on our debt levels as of December 31, 2003, a 1% change up or
down in interest rates would have either a positive or negative effect of
approximately $4 million on our cash flows. Item 8. Financial Statements and Supplementary Data INDEX TO FINANCIAL STATEMENTS PageBrookfield Homes CorporationIndependent Auditors Report
    
    
    27Consolidated Balance Sheets as at December 31, 2003 and 2002
    
    
    28Consolidated Statements of Income
for each of the Three Years Ended December 31, 2003, 2002 and 2001
    
    
    29Consolidated Statements of Stockholders Equity
for each of the Three Years Ended December 31, 2003, 2002 and 2001
    
    
    30Consolidated Statements of Cash Flows
for each of the Three Years Ended December 31, 2003, 2002 and 2001
    
    
    31Notes to Consolidated Financial Statements
    
    
    32
 26




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##### 



INDEPENDENT AUDITORS REPORT To the Stockholders of Brookfield Homes Corporation: We have audited the accompanying consolidated balance sheets of Brookfield
Homes Corporation and subsidiaries (the Company) as of December 31, 2003 and
2002, and the related consolidated statements of income, stockholders equity
and of cash flows for each of the three years in the period ended December 31,
2003. These financial statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of the
Company as of December 31, 2003 and 2002, and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
2003, in conformity with accounting principles generally accepted in the United
States of America. As discussed in Notes 1(k) and 2 to the financial statements, the Company
changed its method of accounting for option contracts in 2003 to conform to
Financial Accounting Standards Board Interpretation No. 46R, Consolidation of
Variable Interest Entities. (DELOITTE AND TOUCHE LLP LOGO) Chartered Accountants
Toronto, Ontario, Canada
February 18, 2004 27




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##### 



BROOKFIELD HOMES CORPORATION CONSOLIDATED BALANCE SHEETS(all dollar amounts are in thousands of U.S. dollars) As at December 31Note
    
    2003
    
    2002AssetsHousing and land inventory
    
    
    2
    
    
    $
    567,302
    
    
    $
    616,425Investments in housing and land joint ventures
    
    
    3
    
    
    
    78,198
    
    
    
    80,959Consolidated land inventory not owned
    
    
    2
    
    
    
    25,542
    
    
    
    Receivables and other assets
    
    
    
    
    
    
    80,346
    
    
    
    74,534Cash and cash equivalents
    
    
    9
    
    
    
    218,606
    
    
    
    35,903Deferred tax asset
    
    
    6
    
    
    
    43,446
    
    
    
    36,115$
    1,013,440
    
    
    $
    843,936Liabilities and EquityProject specific and other financings
    
    
    4
    
    
    $
    426,311
    
    
    $
    325,492Accounts payable and other liabilities
    
    
    
    
    
    
    145,090
    
    
    
    74,634Subordinated debt due to related party
    
    
    5
    
    
    
    
    
    
    
    98,300Minority interest
    
    
    2
    
    
    
    59,781
    
    
    
    24,772Preferred stock  10,000,000 shares authorized, no shares issued
    
    
    8
    
    
    
    
    
    
    
    Common stock  65,000,000 shares authorized, 30,881,032 (excluding
1,192,749 shares in treasury shares with a cost of $21,695) issued
and outstanding at December 31, 2003; 32,073,781 issued and
outstanding at December 31, 2002
    
    
    8
    
    
    
    299,043
    
    
    
    320,738Retained earnings
    
    
    
    
    
    
    83,215
    
    
    
    $
    1,013,440
    
    
    $
    843,936
 See accompanying notes to financial statements 28




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##### 



BROOKFIELD HOMES CORPORATION CONSOLIDATED STATEMENTS OF INCOME(all dollar amounts are in thousands of U.S. dollars, except per share amounts) Years Ended December 31Note
    
    2003
    
    2002
    
    2001RevenueHousing
    
    
    
    
    
    $
    817,774
    
    
    $
    784,807
    
    
    $
    728,848Land and other revenues
    
    
    
    
    
    
    183,421
    
    
    
    46,431
    
    
    
    61,604Equity in earnings from housing and land
joint ventures
    
    
    
    
    
    
    22,055
    
    
    
    10,429
    
    
    
    8,7531,023,250
    
    
    
    841,667
    
    
    
    799,205Direct Cost of Sales
    
    
    
    
    
    
    757,480
    
    
    
    664,816
    
    
    
    633,507265,770
    
    
    
    176,851
    
    
    
    165,698Selling, general and administrative expense
    
    
    
    
    
    
    66,612
    
    
    
    60,822
    
    
    
    55,771Interest expense
    
    
    2
    
    
    
    33,397
    
    
    
    35,316
    
    
    
    37,694Minority interest
    
    
    
    
    
    
    18,684
    
    
    
    8,566
    
    
    
    6,259Net Income Before Taxes
    
    
    
    
    
    
    147,077
    
    
    
    72,147
    
    
    
    65,974Income tax expense
    
    
    6
    
    
    
    58,830
    
    
    
    28,858
    
    
    
    26,388Net Income
    
    
    
    
    
    $
    88,247
    
    
    $
    43,289
    
    
    $
    39,586Earnings Per Share  Basic
    
    
    1
    
    
    $
    2.78
    
    
    $
    1.35
    
    
    $
    1.23Earnings Per Share  Diluted
    
    
    1
    
    
    $
    2.75
    
    
    $
    1.35
    
    
    $
    1.23
 See accompanying notes to financial statements 29




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##### 



BROOKFIELD HOMES CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY(all dollar amounts are in thousands of U.S. dollars) Years Ended December 31Note
    
    2003
    
    2002
    
    2001Common StockOpening balance
    
    
    
    
    
    $
    320,738
    
    
    $
    1
    
    
    $
    1Recapitalization upon reorganization
    
    
    
    
    
    
    
    
    
    
    320,737
    
    
    
    Repurchase of common shares
    
    
    8
    
    
    
    (21,695
    )
    
    
    
    
    
    
    299,043
    
    
    
    320,738
    
    
    
    1Combined Companies CapitalOpening balance
    
    
    
    
    
    
    
    
    
    
    286,979
    
    
    
    211,091Contributions of capital
    
    
    
    
    
    
    
    
    
    
    7,037
    
    
    
    36,302Distributions of capital
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income (prior to reorganization)
    
    
    1
    
    
    
    
    
    
    
    26,722
    
    
    
    39,586Recapitalization upon reorganization
    
    
    1
    
    
    
    
    
    
    
    (320,738
    )
    
    
    Ending balance
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    286,979Retained EarningsOpening balance
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income
    
    
    
    
    
    
    88,247
    
    
    
    16,567
    
    
    
    Dividends
    
    
    8
    
    
    
    (5,032
    )
    
    
    (16,567
    )
    
    
    Ending balance
    
    
    
    
    
    
    83,215
    
    
    
    
    
    
    
    Total stockholders equity
    
    
    
    
    
    $
    382,258
    
    
    $
    320,738
    
    
    $
    286,980
 See accompanying notes to financial statements 30




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##### 



BROOKFIELD HOMES CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (all dollar amounts are in thousands of U.S. dollars) Years Ended December 312003
    
    2002
    
    2001Cash Flows From Operating ActivitiesNet income
    
    $
    88,247
    
    
    $
    43,289
    
    
    $
    39,586Adjustments to reconcile net income to net cash provided
by/(used in) operating activities:Undistributed income from housing and land joint ventures
    
    
    (3,179
    )
    
    
    (10,429
    )
    
    
    (8,753
    )Minority interest
    
    
    18,684
    
    
    
    8,566
    
    
    
    6,259Provision for deferred income taxes
    
    
    38,830
    
    
    
    28,858
    
    
    
    26,388Stock option expense
    
    
    5,080
    
    
    
    1,148
    
    
    
    414Changes in operating assets and liabilities:(Increase)/decrease in receivables and other assets
    
    
    (5,812
    )
    
    
    (10,798
    )
    
    
    9,139(Increase)/decrease in housing and land inventory
    
    
    47,389
    
    
    
    16,975
    
    
    
    (86,864
    )Increase/(decrease) in accounts payable and other liabilities
    
    
    19,215
    
    
    
    24,563
    
    
    
    (18,395
    )Net cash provided by/(used in) operating activities
    
    
    208,454
    
    
    
    102,172
    
    
    
    (32,226
    )Cash Flows From Investing ActivitiesNet recovery from/(investment in) housing and land joint ventures
    
    
    5,940
    
    
    
    23,658
    
    
    
    (356
    )Net cash provided by/(used in) investing activities
    
    
    5,940
    
    
    
    23,658
    
    
    
    (356
    )Cash Flows From Financing ActivitiesNet borrowings under revolving project specific and
other financings
    
    
    100,819
    
    
    
    41,307
    
    
    
    72,604Net borrowings/(repayments) under revolving subordinated debt
    
    
    
    
    
    
    (73,635
    )
    
    
    (45,843
    )Repayment of subordinated debt
    
    
    (98,300
    )
    
    
    (43,000
    )
    
    
    Net (distributions to)/contributions from minority interest
    
    
    (7,483
    )
    
    
    1,177
    
    
    
    (1,597
    )Contributions of capital
    
    
    
    
    
    
    35
    
    
    
    269Repurchase of common shares
    
    
    (21,695
    )
    
    
    
    
    
    
    Dividends paid
    
    
    (5,032
    )
    
    
    (16,567
    )
    
    
    Net cash (used in)/provided by financing activities
    
    
    (31,691
    )
    
    
    (90,683
    )
    
    
    25,433Increase/(decrease) in cash and cash equivalents
    
    
    182,703
    
    
    
    35,147
    
    
    
    (7,149
    )Cash and cash equivalents at beginning of year
    
    
    35,903
    
    
    
    756
    
    
    
    7,905Cash and cash equivalents at end of year
    
    $
    218,606
    
    
    $
    35,903
    
    
    $
    756Supplemental Cash Flow InformationInterest paid
    
    $
    19,117
    
    
    $
    25,820
    
    
    $
    34,244Non-cash capital contributions:Benefits of tax losses of consolidated group contributed
    
    
    
    
    
    
    5,854
    
    
    
    35,619Costs of options of former parent issued to management of
the Company
    
    
    
    
    
    
    1,148
    
    
    
    414Consolidated land inventory not owned
    
    
    23,808
    
    
    
    
    
    
    
    
 See accompanying notes to financial statements 31




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##### 



BROOKFIELD HOMES CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Tabular amounts in $U.S. thousands except share and 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 (U.S. GAAP) and
include the consolidated accounts of Brookfield Homes and its subsidiaries and
investments in unconsolidated joint ventures and variable interests in which
the Company is the primary beneficiary. These financial statements for the
comparative periods are presented on a combined basis as if the Land and
Housing Operations had been owned by the Company for the prior periods
presented. In addition, certain of the comparative figures have been
reclassified to conform with the current years presentation.  (b)
    
    Housing and Land Inventory (i) Revenue recognition:Revenues from the sale of homes are recognized when
title passes to the purchaser, usually upon closing, wherein all proceeds
are received or collectability is evident. Land sales are recognized when
all material conditions of sale have been met and a significant cash down
payment or appropriate security is received. (ii) Carrying values:Housing and land assets are reviewed for
recoverability whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability is
measured by comparing the carrying amount of an asset to future undiscounted
cash flows expected to be generated by the asset. To arrive at this amount,
the Company estimates the cash flow for the life of each project. These
projections take into account the specific business plans for each project
and managements best estimate of the most probable set of economic
conditions anticipated to prevail in the market area. If these assets are
considered to be impaired, they are then written down to the fair value less
estimated selling costs. The ultimate fair values for the Companys housing
and land inventory are dependent upon future market and economic conditions. (iii) Capitalized costs:Capitalized costs include the costs of acquiring
land, development costs, interest, property taxes and overhead related to
development. These costs are expensed as costs of sales on a specific
identification basis or on a relative value in proportion to anticipated
revenue.  (c)
    
    Joint Ventures Joint ventures, where the Company exercises significant influence and has less
than a controlling interest, are accounted for using the equity method. Equity
income from interests in housing and land joint ventures is included in
revenue.  (d)
    
    Use of Estimates The preparation of financial statements, in conformity with accounting
principles generally accepted in the United States of America, requires
estimates and assumptions that affect the carrying amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from estimates. 32




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##### 



BROOKFIELD HOMES CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)(Tabular amounts in $U.S. thousands except share and per share amounts)  (e)
    
    Cash and Cash Equivalents For purposes of the consolidated statements of cash flows, cash and cash
equivalents include cash on hand, demand deposits, and all highly liquid
short-term investments with original maturity less than 90 days.  (f)
    
    Income Taxes Income taxes are accounted for in accordance with Statement of Financial
Accounting Standards (SFAS) 109, Accounting for Income Taxes. Under SFAS
109, deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities, and are
measured by using enacted tax rates expected to apply to taxable income in the
years in which those differences are expected to reverse.  (g)
    
    Stock-Based Compensation The Company accounts for stock option grants in accordance with Accounting
Principles Board (APB) Opinion 25, Accounting for Stock Issued to
Employees. All stock options granted have exercise prices equal to the market
value of the stock on the date of the grant. Participants in the management
share option plan can elect to purchase shares at the exercise price or receive
cash equal to the difference between the exercise price and the current market
price. Accordingly, the Company records the intrinsic value of these options as
a liability using variable plan accounting. The pro forma disclosures required
by SFAS 123, Accounting for Stock-Based Compensation, and SFAS 148,
Accounting for Stock-Based Compensation  Transition and Disclosure, are not
included in the financial statements as the basis of accounting and disclosure
for the options under SFAS 123, SFAS 148 and APB 25 would yield the same
compensation expense as that already recognized in the financial statements
presented.  (h)
    
    Other Comprehensive Income The Company adheres to U.S. GAAP reporting requirements with respect to the
presentation and disclosure of other comprehensive income; however, it has been
determined by management that no material differences exist between net income
and comprehensive income for each of the periods presented.  (i)
    
    Earnings Per Share Earnings per share is computed in accordance with Statement of Financial
Accounting Standards (SFAS) 128. Earnings per share have been calculated on
the weighted average number of common shares of Brookfield Homes for the year
ended December 31, 2003 and of Brookfield Properties for the comparative period
presented divided by a factor of five to reflect the ratio of distribution of
the Companys shares of Brookfield Properties stockholders. The weighted
average number of common shares outstanding used in the calculation of basic
earnings per share was 31.8 million for the year ended December 31, 2003 and
32.0 million for the years ended December 31, 2002 and 2001. Diluted earnings
per share for the same periods were calculated on the basis that for the years
ended December 31, 2003, 2002 and 2001 there were 32.1 million, 32.0 million
and 32.0 million shares outstanding, respectively, reflecting the dilutive
impact of options issued by the Company.  (j)
    
    Advertising Costs The Company expenses advertising costs as incurred. For the years ended
December 31, 2003, 2002 and 2001, the Company incurred advertising costs of
$6.1 million, $4.5 million, and $4.5 million, respectively. 33




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##### 



BROOKFIELD HOMES CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)(Tabular amounts in $U.S. thousands except share and per share amounts)  (k)
    
    Recent Accounting Pronouncements In June 2002, the FASB issued SFAS 146, Accounting for Exit or Disposal
Activities. This statement addresses the recognition, measurement and
reporting of costs that are associated with exit and disposal activities. This
statement includes the restructuring activities that are currently accounted
for pursuant to the guidance set forth in EITF 94-3, Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring) and costs related to
terminating a contract that is not a capital lease and one-time benefit
arrangements received by employees who are involuntarily terminated 
nullifying the guidance under EITF 94-3. Under SFAS 146, the cost associated
with an exit or disposal activity is recognized in the periods in which it is
incurred rather than at the date the Company committed to the exit plan. This
statement is effective for exit or disposal activities initiated after December
31, 2002 with earlier application encouraged. The provisions of EITF 94-3 shall
continue to apply for exit plans initiated prior to the adoption of SFAS 146.
The adoption of SFAS 146 did not have a material impact on the Companys
results of operations, financial position or cash flows. In November 2002, the FASB issued Interpretation 45, Guarantors Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others, which elaborates on the disclosures to be made by a
guarantor about its obligations under certain guarantees issued. It also
clarifies that a guarantor is required to recognize, at the inception of a
guarantee, a liability for the fair value of the obligation undertaken in
issuing the guarantee. Interpretation 45 expands on the accounting guidance of
SFAS 5 Accounting for Contingencies, SFAS 57 Related Party Disclosures, and
SFAS 107 Disclosure About Fair Value of Financial Instruments. Interpretation
45 also incorporates, without change, the provisions of FASB Interpretation 34,
Disclosure of Indirect Guarantees of Indebtedness of Others, which it
supersedes. Interpretation 45 does identify several situations where the
recognition of a liability at inception for a guarantors obligation is not
required. The initial recognition and measurement provisions of Interpretation
45 apply on a prospective basis to guarantees issued or modified after December
31, 2002, regardless of the guarantors fiscal year-end. The disclosures are
effective for financial statements of interim or annual periods ending after
December 15, 2002. The Company has provided the required disclosures in these
financial statements. In April 2003, the FASB issued SFAS 149, Amendment of SFAS 133 on Derivative
Instruments and Hedging Activities (SFAS 149). SFAS 149 amends and clarifies
accounting for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities under SFAS No. 133
Accounting for Derivative Instruments and Hedging Activities (SFAS 133). In
particular, it: clarifies under what circumstances a contract with an initial
net investment meets the characteristic of a derivative; clarifies when a
derivative contains a financing component; amends the definition of an
underlying derivative; and amends certain other existing pronouncements. SFAS
149 is generally effective for contracts entered into or modified after June
30, 2003 and for hedging relationships designated after June 30, 2003. The
adoption of SFAS 149 by the Company has not had a material impact on the
results of operations or financial conditions. In May 2003, the FASB issued SFAS 150, Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity (SFAS 150).
SFAS 150 establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity. It requires that an issuer classify a financial instrument that is
within its scope as a liability (or an asset in some circumstances). Many of
those instruments were previously classified as equity. Some of the provisions
of this Statement are consistent with the current definition of liabilities in
FASB Concepts Statement No. 6, Elements of Financial Statements. The
remaining provisions of this Statement are consistent with the proposal to
revise that definition to encompass certain obligations that a reporting entity
can or must settle by issuing its own equity shares, depending on the nature of
the relationship established between the holder and the issuer. SFAS 150 is
effective for financial instruments entered into or modified after May 31,
2003, and otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003. The adoption of SFAS 150 by the Company has not
had a material impact on the results of operations or financial condition. 34




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##### 



BROOKFIELD HOMES CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)(Tabular amounts in $U.S. thousands except share and per share amounts) In December 2003, the FASB issued revised Interpretation 46 (FIN 46R),
Consolidation of Variable Interest Entities (VIEs), an Interpretation of
Accounting Research Bulletin 51, Consolidated Financial Statements, and
replaces the previous version of FASB Interpretation 46 issued in January 2003
(FIN 46). This interpretation applied immediately to variable interest
entities created after January 31, 2003. A company that holds a variable
interest in a VIE it acquired before February 1, 2003 shall apply the provision
of this interpretation no later than the first fiscal year or interim period
ending after March 15, 2004 unless those entities are considered to be special
purpose entities in which the application is to be no later than the end of the
first reporting period that ends after December 15, 2003. This interpretation
may be applied prospectively with a cumulative-effect adjustment as of the date
on which it is first applied or by restating previously issued financial
statements for one or more years with a cumulative-effect adjustment as of the
beginning of the first year restated. The Company applied the provision of this
new pronouncement effective January 1, 2003 but did not restate any previously
issued financial statements. The decision whether to consolidate a VIE begins
with establishing that a VIE exists. A VIE exists when either the total equity
investment at risk is not sufficient to permit the entity to finance its
activities by itself, or the equity investor lack one of three characteristics
associated with owning a controlling financial interest. Those characteristics
are the direct or indirect ability to make decisions about the entitys
activities through voting rights or similar rights, the obligation to absorb
the expected losses of an entity, and the right to receive the expected
residual returns. The entity with the majority of the expected losses or
expected residual return is considered to be the primary beneficiary of the
entity and is required to consolidate such entity. The Company has determined
they are the primary beneficiary of certain VIEs which are presented in these
financial statements under Consolidated land inventory not owned with the
interest of others included in Minority interest. See Notes 2 and 3 for
further discussion on the consolidation of land options contracts and joint
ventures. 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: December 312003
    
    2002Housing under construction
    
    $
    200,553
    
    
    $
    200,734Model homes
    
    
    21,029
    
    
    
    29,015Land and land under
development
    
    
    345,720
    
    
    
    386,676$
    567,302
    
    
    $
    616,425
 The Company capitalizes interest which is expensed as housing units and
building lots are sold. For the years ended December 31, 2003, 2002 and 2001,
interest incurred and capitalized by the Company was $19.1 million, $25.8
million and $34.2 million, respectively. Capitalized interest expensed for the
same periods was $33.4 million, $35.3 million and $37.7 million, respectively. In the ordinary course of business, the Company has entered into a number of
option contracts to acquire lots in the future in accordance with specific
terms and conditions of such agreements. Under these option agreements, the
Company will fund deposits to secure the right to purchase land or lots at a
future point in time. The Company has evaluated its option contracts and
determined that for those entities considered to be VIEs, it is the primary
beneficiary on options for 311 lots with aggregate exercise prices of $25.5
million, which are required to be consolidated. In these cases, the only asset
recorded is the Companys exercise price for the option to purchase, with an
increase in minority interest of $23.8 million for the assumed third party
investment in the VIE. Where the land sellers are not required to provide the
Company financial information related to the VIE, certain assumptions by the
Company were required in its assessment as to whether or not it is the primary
beneficiary. 35




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##### 



BROOKFIELD HOMES CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)(Tabular amounts in $U.S. thousands except share and per share amounts) Housing and land inventory includes non-refundable deposits and other costs
totaling $16.0 million in connection with options that are not required to be
consolidated under the provision of FIN 46R. The total exercise price of these
options is $362.7 million including the non-refundable deposits identified
above. The number of lots which the Company has obtained an option to purchase,
excluding those already consolidated, and their respective dates of expiry and
their exercise price follows: TotalNumber of
    
    
    ExerciseYear of Expiry
    
    Lots
    
    Price2004
    
    
    762
    
    
    $
    81,0012005
    
    
    1,068
    
    
    
    67,7212006
    
    
    2,060
    
    
    
    47,700Thereafter
    
    
    6,400
    
    
    
    166,32610,290
    
    
    $
    362,748
 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 follows: December 312003
    
    2002AssetsHousing and land inventory
    
    $
    310,324
    
    
    $
    327,588Other assets
    
    
    42,729
    
    
    
    39,738$
    353,053
    
    
    $
    367,326Liabilities and EquityAccounts payable and other liabilities
    
    $
    15,606
    
    
    $
    9,623Project specific financings
    
    
    182,452
    
    
    
    201,574Investment and advancesBrookfield Homes
    
    
    78,198
    
    
    
    80,959Others
    
    
    76,797
    
    
    
    75,170$
    353,053
    
    
    $
    367,326Revenue and ExpensesRevenue
    
    $
    375,351
    
    
    $
    246,804Expenses
    
    
    (264,470
    )
    
    
    (186,364
    )Net income
    
    $
    110,881
    
    
    $
    60,440Companys share of net income
    
    $
    22,055
    
    
    $
    10,429
 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. As described in Note 1(c), joint ventures in which the Company has a
non-controlling interest are accounted for using the equity method. In
addition, the Company has performed an evaluation of its existing joint venture
relationships by applying the provisions of FIN 46R. The Company has determined
that for those entities in which this interpretation applies, none of these
joint ventures were considered to be a VIE requiring consolidation pursuant to
the requirements of FIN 46R. The Company and/or its joint venture partners have provided varying levels of
guarantees of debt in its joint ventures. At December 31, 2003, the Company had
recourse guarantees of $66.4 million and limited maintenance guarantees of
$24.2 million with respect to debt in its joint ventures. 36




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##### 



BROOKFIELD HOMES CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)(Tabular amounts in $U.S. thousands except share and per share amounts) Note 4. Project Specific and Other Financings The Company has total project specific and other financings outstanding as at
December 31, 2003 of $426.3 million (2002  $325.5 million). Project specific financings of $360.5 million (2002  $288.0 million) are
revolving in nature, bear interest at floating rates with a weighted average
rate of 4.4% as at December 31, 2003 (December 31, 2002  4.7%) and are secured
by housing and land inventory. The weighted average rate was calculated as of
the end of each period, based upon the amount of debt outstanding and the
related interest rates applicable on that date. Interest rates charged under project specific financings include LIBOR and
prime rate pricing options. The maximum amount of borrowings during the years
ended December 31, 2003, 2002 and 2001 were $360.5 million, $305.3 million and
$293.8 million, respectively. The average borrowings during 2003, 2002, 2001
were $326.3 million, $274.5 million, and $263.1 million, respectively. Other financings of $65.8 million (2002  $37.4 million) consist of deferred
compensation under the Companys Supplemental Retirement Income Plan. The
amount outstanding is credited quarterly with interest at the prime rate. Project specific and other financings mature as follows: 2004  $260.9 million;
2005  $87.2 million; 2006  $60.0 million; and 2007  $18.2 million. Note 5. Subordinated Debt Brookfield Properties had advanced to a subsidiary of Brookfield Homes $98.3
million at December 31, 2002 pursuant to an unsecured subordinated Note bearing
interest at 10% and maturing in 2005. During 2003, this amount was fully
repaid. Note 6. Income Taxes Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of the assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes and the benefit
of net operating losses. The differences that give rise to the net deferred tax
asset (liability) follows: December 312003
    
    2002Net operating losses
    
    $
    
    
    
    $
    47,845Compensation deductible for tax purposes when
paid
    
    
    43,446
    
    
    
    13,270Differences relating to properties
    
    
    10,840
    
    
    
    Valuation allowance
    
    
    (10,840
    )
    
    
    (25,000
    )$
    43,446
    
    
    $
    36,115
 SFAS 109 requires the reduction of deferred tax assets by a valuation allowance
if, based on the weight of available evidence, it is more likely than not that
a portion or all of the deferred tax asset will not be realized. At December
31, 2003, the Company had a valuation allowance of $10.8 million (2002  $25.0
million) for tax attributes which may not be realized. During the year, the
Company reclassified its 2002 valuation allowance to accounts payable and other
liabilities. The Company has computed the tax provisions for the periods
presented based upon accounting income realized, adjusted for expenses that are
not deductible for tax purposes. 37




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##### 



BROOKFIELD HOMES CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)(Tabular amounts in $U.S. thousands except share and per share amounts) A reconciliation of the statutory income tax rate and the effective rate
follows: December 312003
    
    2002Statutory Federal
rate
    
    
    35.0
    %
    
    
    35.0
    %State income tax
    
    
    5.0
    %
    
    
    5.0
    %Effective rate
    
    
    40.0
    %
    
    
    40.0
    %
 Note 7. Stock-Based Compensation Option Plan Pursuant to the Companys stock option plan, Brookfield Homes grants options to
purchase shares of the Companys common stock at the market price of the shares
on the day the options are granted. A maximum of two million shares are
authorized for issuance under the plan. The timing of vesting of options
granted under the plan is at the discretion of the Companys board of directors
or the committee of the board of directors administering the plan. Upon
exercise of a vested option and upon payment to the Company of the exercise
price, participants will receive one share of the Companys common stock. The
Companys compensation committee may permit participants to, rather than
exercising an in-the-money option (in-the-money means the market value of
shares under the option exceeds the exercise price of the option prior to
related income taxes), receive an amount equal to the difference between the
market price of the shares underlying the option and the exercise price of the
option. The excess amount will be payable either in cash or by the Company
issuing to the participant a number of shares calculated by dividing the excess
by the market price of the underlying shares. The Company has recorded the
intrinsic value of these options as a liability using variable plan accounting,
as required under APB 25. The liability is expensed over the vesting period and
re-measured at each reporting date to reflect the current intrinsic value. The following table sets out the number of common shares that employees of the
Company may acquire under options granted under the Companys stock option
plan: December 31, 2003
    
    December 31, 2002
    
    December 31, 2001Weighted Average
    
    
    
    
    
    Weighted Average
    
    
    
    
    
    Weighted AveragePer Share Exercise
    
    
    
    
    
    Per Share Exercise
    
    
    
    
    
    Per Share ExerciseShares
    
    Price
    
    Shares
    
    Price
    
    Shares
    
    PriceOutstanding, beginning of
year
    
    
    542,625
    
    
    $
    10.00
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Granted
    
    
    205,000
    
    
    $
    10.74
    
    
    
    542,625
    
    
    $
    10.00
    
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Cancelled
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Outstanding, end of year
    
    
    747,625
    
    
    $
    10.20
    
    
    
    542,625
    
    
    $
    10.00
    
    
    
    
    
    
    
    Options
exercisable at year end
    
    
    108,525
    
    
    $
    10.00
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    
 The following table summarizes information about stock options held by
employees of the Company outstanding at December 31, 2003: Options Outstanding
    
    Options ExercisableNumber
    
    Weighted
    
    Weighted
    
    Number
    
    WeightedOutstanding at
    
    Average
    
    Average
    
    Outstanding at
    
    AverageRange of Per Share
    
    December 31,
    
    Remaining
    
    Per Share
    
    December 31,
    
    Per ShareExercise Prices
    
    2003
    
    Contract Life
    
    Exercise Price
    
    2002
    
    Exercise Price$10.00
    
    
    542,625
    
    
    3.9 years
    
    $
    10.00
    
    
    
    108,525
    
    
    $
    10.00$10.74
    
    
    205,000
    
    
    4.2 years
    
    $
    10.74
    
    
    
    
    
    
    
    
 38




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##### 



BROOKFIELD HOMES CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)(Tabular amounts in $U.S. thousands except share and per share amounts) Total compensation costs recognized in income for stock-based employee
compensation for the years ended December 31, 2003, 2002 and 2001 were $5.1
million, $1.1 million, and $0.4 million, respectively. Deferred Share Unit Plan The Company has adopted a Deferred Share Unit Plan (DSUP) under which its
executive officers may, at their option, receive all or a portion of their
annual bonus awards in the form of deferred share units. The annual bonus
awards are convertible into units based on the closing price of the Companys
shares on the New York Stock Exchange on the date of the award. The portion of
the annual bonus award elected by an officer to be received in units may, at
the discretion of the Companys Board, be increased by a factor of up to two
times for purposes of calculating the number of units to be allocated under the
plan. An executive who holds units will receive additional units as dividends
are paid on shares of the Companys common stock, on the same basis as if the
dividends were reinvested. The units vest over a five year period and
participants are allowed to redeem the units only upon ending their employment
with the Company through retirement, termination or death, after which time the
units terminate unless redeemed no later than 12 months following such
retirement, termination or death. The cash value of the units, when redeemed,
will be equivalent to the market value of an equivalent number of shares of our
common stock where written notice of redemption is received. As of December 31,
2003, the Company granted 384,771 units under the DSUP all of which were
outstanding at December 31, 2003, and of which 68,230 units are vested and
316,541 units vest over the next five years. The pro forma disclosures required
under SFAS 123 are not included in the financial statements as they would yield
the same compensation expense as that which is already recognized in the
financial statements presented. Total compensation costs recognized in income
in connection with the DSUP for the years ended December 31, 2003, 2002 and
2001 were $2.1 million, nil and nil, respectively. Note 8. Stockholders Equity (a) Preferred Stock The Company currently does not have shares of preferred
stock outstanding. (b) Common Stock Repurchases In February 2003, the Companys board of
directors approved a stock repurchase plan authorizing the purchase of up to
$40 million of the Companys outstanding common stock. In August 2003, the
Companys board of directors also approved a Dutch Auction tender offer which
expired on September 30, 2003. During 2003, the Company repurchased a total of
1,192,749 shares for an aggregate purchase price of $21.7 million or
approximately $18.19 per share. (c) Dividends In February, the Companys Board of Directors declared a
semi-annual cash dividend of $0.08 per common share payable in June and
December. Note 9. Commitments, Contingent Liabilities and Other (a) The Company, in the normal course of its business, has issued performance
bonds and letters of credit pursuant to various facilities which at December
31, 2003, amounted to $271.5 million (December 31, 2002  $233.8 million, 2001
 $206.0 million) and $16.2 million, (December 31, 2002  $32.0 million, 2001 
$11.0 million), respectively. The majority of these commitments have been
issued to municipal authorities as part of the obligations of the Company in
connection with the land servicing requirements. (b) The Company is party to various legal actions arising in the ordinary
course of business. Management believes that none of these actions, either
individually or in the aggregate, will have a material adverse effect on the
financial condition or results of operations of the Company. (c) The Company is exposed to financial risk that arises from the fluctuations
in interest rates. The interest bearing assets and liabilities of the Company
are mainly at floating rates and, accordingly, their fair values approximate
cost. The Company would be negatively impacted, on balance, if interest rates
were to increase. 39




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##### 



BROOKFIELD HOMES CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)(Tabular amounts in $U.S. thousands except share and per share amounts) (d) The Company has not presented segmented data as it operates in only one
business segment in the United States of America. (e) The Company had demand deposits of $205.0 million at December 31, 2003
(2002  $35.0 million) with a financial subsidiary of the Companys largest
stockholder, Brascan Corporation. (f) When selling a home, it is normal course for the Company to provide
customers with standard product one year limited warranties. The following
summarizes the product warranties accrual recorded as part of accounts payable
and other liabilities in the Consolidated Balance Sheet as at December 31: 2003Balance, at beginning of year
    
    $
    10,209Payments made during the year
    
    
    (1,691
    )Warranties issued during the
year
    
    
    2,899Balance, at end of year
    
    $
    11,417
 Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure Not applicable. Item 9A. Controls and Procedures  (a)
    
    Evaluation of Disclosure Controls and Procedures As of December 31, 2003, an evaluation of the effectiveness of our disclosure
controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) of the
United States Securities Exchange Act of 1934 (the Exchange Act)) was carried
out under the supervision of our Chief Executive Officer (CEO) and Chief
Financial Officer (CFO). Based upon that evaluation, the CEO and CFO have
concluded that as of December 31, 2003 our disclosure controls and procedures
are effective to ensure that information required to be disclosed by us in
reports that we file or submit under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in Securities and
Exchange Commission rules and forms. It should be noted that while our management, including the CEO and CFO,
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.  (b)
    
    Changes in Internal Control Over Financial Reporting There was no change in our internal control over financial reporting during the
quarter ended December 31, 2003, that has materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting. 40




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PART III Item 10. Directors and Executive Officers of the Registrant Information about our directors and the remaining information called for by
this item is incorporated by reference from our 2004 definitive proxy
statement, which will be filed with the Securities and Exchange Commission not
later than April 30, 2004 (120 days after the end of our fiscal year). The
following table provides the name, age and position of each of our current
executive officers and significant employees. Name
    
    Age
    
    Position HeldOfficers:Ian G. Cockwell
    
    
    56
    
    
    President and Chief Executive OfficerPaul G. Kerrigan
    
    
    36
    
    
    Executive Vice President, Chief Financial Officer and TreasurerShane D. Pearson
    
    
    31
    
    
    SecretaryWilliam B. Seith
    
    
    54
    
    
    Executive Vice President, Risk ManagementSignificant Employees:Stephen P. Doyle
    
    
    46
    
    
    President, Brookfield Homes San Diego Inc.Robert Hubbell
    
    
    46
    
    
    President, Brookfield Washington Inc.Jeffrey J. Prostor
    
    
    50
    
    
    President, Brookfield Homes Southland Inc.John J. Ryan
    
    
    44
    
    
    President, Brookfield Homes Bay Area Inc.Richard T. Whitney
    
    
    40
    
    
    President, Brookfield California Land Holdings LLC
 Ian Cockwellwas appointed President and Chief Executive Officer in October
2002. Since 1994 to December 2002, Mr. Cockwell served in various senior
executive positions with Brookfield Residential Group, a division of Brookfield
Properties. From 1998 to December 2002, Mr. Cockwell was Chairman and Chief
Executive Officer of Brookfield Residential Group. Paul Kerriganwas appointed Executive Vice President, Chief Financial Officer
and Treasurer in October 2002. From 1999 to December 2002, Mr. Kerrigan served
as Senior Vice President and Chief Financial Officer of Brookfield Residential
Group, a division of Brookfield Properties. Mr. Kerrigan joined Brookfield
Properties in 1996 and holds a Chartered Accountant designation. Shane Pearsonwas appointed Secretary in October 2002. From 2001 to December
2002, Mr. Pearson served as Corporate Secretary of Brookfield Residential
Group, a division of Brookfield Properties. Mr. Pearson joined Brookfield
Properties in 2001. Prior to joining Brookfield Properties, Mr. Pearson was
employed by a law firm from 1999 to 2001. William Seithwas appointed Executive Vice President, Risk Management in
October 2002. From 1994 to December 2002, Mr. Seith served in various senior
executive positions with Brookfield Residential Group. Stephen Doylewas appointed President of our San Diego / Riverside business
unit in 1996. Mr. Doyle has 25 years of experience in the real estate industry.
Prior to joining Brookfield Properties, Mr. Doyle spent 15 years working for
other California homebuilders. Mr. Doyle is a licensed attorney and registered
civil engineer in California. Robert Hubbellwas appointed President of our Northern Virginia business unit
in 1998. Mr. Hubbell has 21 years of experience in the real estate industry. 41




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Jeffrey Prostorwas appointed President of our Southland / Los Angeles business
unit in 1996. Mr. Prostor has 21 years of experience in the real estate
industry. Prior to joining Brookfield Properties, Mr. Prostor spent six years
in city planning and seven years with another homebuilder. John Ryanwas appointed President of our San Francisco Bay Area business unit
in 1995. Mr. Ryan has 21 years of real estate and development experience. After
six years as a manager in public accounting, specializing in real estate, Mr.
Ryan spent eight years with another public homebuilder before joining
Brookfield Properties in 1995. Mr. Ryan is a licensed Certified Public
Accountant and general contractor. Richard Whitneywas appointed President of Brookfield California Land Holdings
LLC in 2002. Prior to his appointment, Mr. Whitney served as Senior Vice
President, Finance of Brookfield Residential Group. Mr. Whitney joined
Brookfield Properties in 1994. Item 11. Executive Compensation The information called for by this item is incorporated by reference from our
2004 definitive proxy statement, which will be filed with the Securities and
Exchange Commission not later than April 30, 2004 (120 days after the end of
our fiscal year). Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters The information called for by this item is incorporated by reference from our
2004 definitive proxy statement, which will be filed with the Securities and
Exchange Commission not later than April 30, 2004 (120 days after the end of
our fiscal year). Item 13. Certain Relationships and Related Transactions The information called for by this item is incorporated by reference from our
2004 definitive proxy statement, which will be filed with the Securities and
Exchange Commission not later than April 30, 2004 (120 days after the end of
our fiscal year). Item 14. Principal Accounting Fees and Services The information called for by this item is incorporated by reference from our
2004 definitive proxy statement, which will be filed with the Securities and
Exchange Commission not later than April 30, 2004 (120 days after the end of
our fiscal year). 42




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PART IV Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K  (a)
    
    The following documents are filed as part of this report:  (i)
    
    Financial Statements:See Item 8 of this report, beginning on page 26.(ii)
    
    Financial Statement Schedules:Schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission have either
been incorporated in the consolidated financial statements and
accompanying notes or are not applicable to us.(iii)
    
    Exhibits:Refer to the Exhibit Index to this report.  (b)
    
    Reports on Form 8-K: During the quarter ended December 31, 2003, we filed the following Current
Reports on Form 8-K:  (i)
    
    On October 10, 2003, we filed a Current Report on Form 8-K for the
purpose of filing a press release announcing our net new orders and
active selling communities for the quarterly periods ended September
30, 2003 and 2002.(ii)
    
    On November 4, 2003, we filed a Current Report on Form 8-K for the
purpose of filing a press release announcing our earnings and results
of operations for the quarterly periods ended September 30, 2003 and
2002. 43




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SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on this
15th day of
March, 2004. BROOKFIELD HOMES CORPORATIONBy:
    
    /s/ IAN G. COCKWELLIan G. CockwellPresident and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated. Signature
    
    Title
    
    Date/s/ J. BRUCE FLATT
J. Bruce Flatt
    
    Chairman of the Board
    
    March 15, 2004/s/ IAN G. COCKWELL
Ian G. Cockwell
    
    President and Chief Executive Officer and Director (Principal Executive Officer)
    
    March 15, 2004/s/ PAUL G. KERRIGAN
Paul G. Kerrigan
    
    Executive Vice President, Chief Financial Officer and Treasurer
(Principal Financial Officer and Principal Accounting Officer)
    
    March 15, 2004/s/ GORDON E. ARNELL
Gordon E. Arnell
    
    Director
    
    March 15, 2004/s/ ROBERT A. FERCHAT
Robert A. Ferchat
    
    Director
    
    March 15, 2004/s/ BRUCE T. LEHMAN
Bruce T. Lehman
    
    Director
    
    March 15, 2004/s/ ALAN NORRIS
Alan Norris
    
    Director
    
    March 15, 2004/s/ DAVID M. SHERMAN
David M. Sherman
    
    Director
    
    March 15, 2004/s/ ROBERT L. STELZL
Robert L. Stelzl
    
    Director
    
    March 15, 2004/s/ MICHAEL D. YOUNG
Michael D. Young
    
    Director
    
    March 15, 2004
 44




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EXHIBIT INDEX Exhibit
    
    Description2.1
    
    Purchase Agreement between Brookfield California Holdings Inc. and Brookfield Homes
Corporation, effective as of September 30, 2002  Incorporated by reference to Exhibit
2.1 of the Registrants Registration Statement on Form 10 (Commission File No. 001-31524)
filed with the Commission.2.2
    
    Purchase Agreement between Brookfield Homes (US) Inc. and Brookfield Homes Holdings Inc.,
effective as of September 30, 2002  Incorporated by reference to Exhibit 2.2 of the
Registrants Registration Statement on Form 10 (Commission File No. 001-31524) filed with
the Commission.2.3
    
    Purchase Agreement between Brookfield Washington Inc. and Brookfield Homes Holdings Inc.,
effective as of September 30, 2002  Incorporated by reference to Exhibit 2.3 of the
Registrants Registration Statement on Form 10 (Commission File No. 001-31524) filed with
the Commission.2.4
    
    Purchase Agreement between Brookfield Homes of California Inc. and Brookfield Homes
Holdings Inc., effective as of September 30, 2002  Incorporated by reference to Exhibit
2.4 of the Registrants Registration Statement on Form 10 (Commission File No. 001-31524)
filed with the Commission.2.5
    
    Purchase Agreement between Brookfield Washington Inc., Brookfield Homes of California
Inc. and Brookfield Homes Corporation, effective as of September 30, 2002  Incorporated
by reference to Exhibit 2.5 of the Registrants Registration Statement on Form 10
(Commission File No. 001-31524) filed with the Commission.2.6
    
    Purchase Agreement between Brookfield Homes of California Inc. and Intercontinental
Investment & Development Bank Corporation, effective as of September 30, 2002 
Incorporated by reference to Exhibit 2.6 of the Registrants Registration Statement on
Form 10 (Commission File No. 001-31524) filed with the Commission.3.1
    
    Amended and Restated Certificate of Incorporation  Incorporated by reference to Exhibit
3.1 of the Registrants Registration Statement on Form 10 (Commission File No. 001-31524)
filed with the Commission.3.2
    
    By-laws  Incorporated by reference to Exhibit 3.2 of the Registrants Registration
Statement on Form 10 (Commission File No. 001-31524) filed with the Commission.4.1
    
    Description of Common Stock (see Article FOURTH of Exhibit A to Exhibit 3.1) 
Incorporated by reference to Exhibit 4.1 of the Registrants Registration Statement on
Form 10 (Commission File No. 001-31524) filed with the Commission.4.2
    
    Form of Deposit Facility.*4.3
    
    Letter furnished to Securities and Exchange Commission agreeing to furnish certain debt
instruments.*10.1
    
    License Agreement  Incorporated by reference to Exhibit 10.1 of the Registrants
Registration Statement on Form 10 (Commission File No. 001-31524) filed with the
Commission.10.2
    
    Shared Services Agreement  Incorporated by reference to Exhibit 10.2 of the Registrants
Registration Statement on Form 10 (Commission File No. 001-31524) filed with the
Commission.10.3
    
    Guarantee Indemnity Agreement  Incorporated by reference to Exhibit 10.3 of the
Registrants Registration Statement on Form 10 (Commission File No. 001-31524) filed with
the Commission.10.4
    
    Bond Indemnity Agreement  Incorporated by reference to Exhibit 10.4 of the Registrants
Registration Statement on Form 10 (Commission File No. 001-31524) filed with the
Commission.10.5
    
    Form of Stock Option Plan  Incorporated by reference to Exhibit 10.5 of the Registrants
Registration Statement on Form 10 (Commission File No. 001-31524) filed with the
Commission.10.6
    
    Form of Deferred Share Unit Plan  Incorporated by reference to Exhibit 10.6 of the
Registrants Registration Statement on Form 10 (Commission File No. 001-31524) filed with
the Commission.21.1
    
    List of Subsidiaries  Incorporated by reference to Exhibit 21.1 of the Registrants
Registration Statement on Form 10 (Commission File No. 001-31524) filed with the
Commission.31.1
    
    Rule 13a-14(a) certification by Ian G. Cockwell, President and Chief Executive Officer.*31.2
    
    Rule 13a-14(a) certification by Paul G. Kerrigan, Executive Vice President, Chief
Financial Officer and Treasurer.*32.1
    
    Section 1350 certification of the Chief Executive Officer and Chief Financial Officer.*
   *
    
    Filed herewith. Copies of the exhibits filed with or incorporated by reference into this annual
report on Form 10-K do not accompany copies of this annual report on Form 10-K
distributed to our stockholders. We will furnish a copy of any of such exhibits
to any stockholder requesting the same.