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UNITED STATES
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, 2004
Commission File Number: 001-31524 BROOKFIELD HOMES CORPORATION  Delaware
    
    37-1446709(State or Other Jurisdiction of
Incorporation or Organization)
    
    (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 
 Title of Each Class
    
    Name of Each Exchange on Which RegisteredCommon Stock
    
    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  þ                    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  þ. Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes  þ                    No  o As of June 30, 2004, the aggregate market value of the voting stock held by non-affiliates of
the registrant was approximately $392,896,225 based upon the closing market price on June 30, 2004
of a share of common stock on the New York Stock Exchange. As of March 1, 2005, the registrant had outstanding 30,860,932 shares of its common stock, $0.01
par value per share. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrants 2005 definitive proxy statement, to be filed with the Commission no
later than April 30, 2005, 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 entitle and 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 the Washington D.C. Area. We 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 continued strong employment growth. Our Washington D.C. Area 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
Washington D.C. Area 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 LLCWashington D.C. Area
    
    
    1984
    
    
    Brookfield Washington LLC
 We also formed Brookfield California Land Holdings LLC to purchase and acquire options to
purchase unentitled 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 usually unentitled property, without the regulatory approvals which allow the
construction of residential, industrial, commercial or mixed-use buildings. Acquiring and
developing 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.
Developers of land, 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 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. The school district normally takes 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 pads 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 pads 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 home-buyers. 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 3




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planning, obtaining government entitlements, developing the land, product design, constructing,
marketing and selling homes and homebuyer customer service. In the five year period ended December
31, 2004, we closed a total of 7,992 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 2004, we closed a total of 1,798 homes, compared with 1,528 in 2003. The breakdown of our home
closings by market in the last three years follows: (Units)
    
    2004
    
    
    2003
    
    
    2002San Francisco Bay
Area
    
    
    407
    
    
    
    275
    
    
    
    273Southland / Los Angeles
    
    
    437
    
    
    
    296
    
    
    
    527San Diego / Riverside
    
    
    507
    
    
    
    452
    
    
    
    293Washington D.C. Area
    
    
    447
    
    
    
    505
    
    
    
    461Total
    
    
    1,798
    
    
    
    1,528
    
    
    
    1,554
 At December 31, 2004, we had in backlog 33% of our planned 1,875 home closings for 2005
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 2004, we sold 400 lots, the majority of which were bulk
sales of raw or undeveloped land in the Washington D.C. Area. In 2003, we sold over 5,000 lots, the
majority of which were bulk sales of raw or undeveloped land in southern California. Our average home price in 2004 was $650,000, an increase of 21% over 2003. 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 follows: 2004
    
    
    2003
    
    
    2002Average
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    AverageSales
    
    
    Price
    
    
    Sales
    
    
    Price
    
    
    Sales
    
    
    Price(Millions)
    
    
    
    
    
    
    (Millions)
    
    
    
    
    
    
    (Millions)San Francisco Bay
Area
    
    $
    328
    
    
    $
    804,000
    
    
    $
    193
    
    
    $
    700,000
    
    
    $
    167
    
    
    $
    612,000Southland / Los Angeles
    
    
    391
    
    
    
    894,000
    
    
    
    258
    
    
    
    872,000
    
    
    
    330
    
    
    
    626,000San Diego / Riverside
    
    
    231
    
    
    
    456,000
    
    
    
    137
    
    
    
    303,000
    
    
    
    98
    
    
    
    334,000Washington D.C. Area
    
    
    219
    
    
    
    491,000
    
    
    
    230
    
    
    
    456,000
    
    
    
    190
    
    
    
    412,000Total
    
    $
    1,169
    
    
    $
    650,000
    
    
    $
    818
    
    
    $
    535,000
    
    
    $
    785
    
    
    $
    505,000
 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. We also acquire options to purchase land rather than purchasing the land outright, in
order to reduce our capital at risk in controlling land. In determining the minimum return we will
accept, we take into account the risk inherent in increasing our land inventory and the specific 4




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development project. In making additional land acquisitions in one of our current markets, we also
consider our recent financial returns achieved in that market. 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. Given the nature of their responsibilities,
the compensation of each of the management teams in our business units is directly related to its
results. 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. Furthermore, certain business unit presidents own a minority equity
interest in their business unit. 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 redeploy capital to an asset providing higher returns or reduce risk
in a market. 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. 5




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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. 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, 2004 were
$895 million, with $618 million of these assets located in California and $277 million in the
Washington D.C. Area. As of December 31, 2004, we controlled 27,966 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. Over 90% of our owned lots are entitled and ready
for development and our optioned lots are generally unentitled and require various regulatory
approvals before development can commence. The number of residential building lots we control in
each of our markets as of December 31, 2004 follows: Owned(Lots)
    
    Directly
    
    
    Joint Ventures
    
    
    Options
    
    
    Total LotsSan Francisco Bay Area
    
    
    704
    
    
    
    709
    
    
    
    2,125
    
    
    
    3,538Southland / Los Angeles
    
    
    330
    
    
    
    180
    
    
    
    2,713
    
    
    
    3,223San Diego / Riverside
    
    
    4,865
    
    
    
    1,815
    
    
    
    2,145
    
    
    
    8,825Sacramento
    
    
    
    
    
    
    310
    
    
    
    4,210
    
    
    
    4,520Washington D.C. Area
    
    
    3,182
    
    
    
    952
    
    
    
    3,726
    
    
    
    7,860Total December 31, 2004
    
    
    9,081
    
    
    
    3,966
    
    
    
    14,919
    
    
    
    27,966Total December 31, 2003
    
    
    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 follows: December 31,
    
    
    December 31,(Book Value, $ millions)
    
    2004
    
    
    2003San Francisco Bay Area
    
    $
    115
    
    
    $
    165Southland / Los Angeles
    
    
    91
    
    
    
    118San Diego / Riverside
    
    
    274
    
    
    
    165Sacramento
    
    
    11
    
    
    
    4Washington D.C. Area
    
    
    189
    
    
    
    115Total
    
    $
    680
    
    
    $
    567
 The book value of our investments in housing and land joint ventures as of December 31, 2004
was $60 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, 2004 follows: December 31,(Book Value, $ millions)
    
    2004Assets
    
    $
    400Liabilities
    
    $
    324Brookfield Homes net investment
    
    $
    60
 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 East 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 Corporation. We have no affiliation with Centex
Corporation or Lennar Corporation. We directly own 226 lots in Windemere and our share of the
remaining joint venture units is 709 lots. 6




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Irvine Ranch and Newport Coast, Orange County. Irvine Ranch and Newport Coast are master-planned
communities owned by the Irvine Company. We acquire lots from the Irvine Company on a rolling
option basis, and believe we have developed a strong reputation for our homes among upper-end
buyers in Orange County, California. We have closed more than 500 homes since 1999, and as of
December 31, 2004, we had under contract to purchase or option 256 lots in this area. Audie Murphy, Riverside County.Audie Murphy Ranch is a 999 acre project in the Menifee Valley in
the County of Riverside. We obtained final approvals in 2004 and grading is planned to commence in
2005. We hold a 50% interest in Audie Murphy, with the remaining 50% held by Woodside Homes. We
have no affiliation with Woodside Homes. Calavera Hills, San Diego County. 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 homes, grading commenced in 2002 and home closings
commenced 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 County. 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 commenced in 2004. We hold a 50% interest in
Sycamore Canyon, with the remaining 50% held by McMillin Companies. We directly own 232 units and
our share of the remaining joint venture is
152 units. Winding Walk, San Diego County. Winding Walk (Otay Ranch Village II) in south San Diego County is a
1,200 acre project. Grading commenced in 2002 on the site, and home closings commenced 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 407 units and our share of the remaining joint venture
is 387 units. Braemar, Washington D.C. Area. Braemar is a master-planned community located in Prince William
County that began development in 1994. Since 1999, we have closed over 2,100 homes and lots. As of
December 31, 2004, we had 1,324 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. 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, 2004, we had 22 completed and unsold homes, excluding
the 36 model homes we currently maintain. 7




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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 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, 2004, we owned 36 model homes, which are not generally available for sale until
the final build-out 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 depending on 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 includes
providing 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. 8




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##### 



Mortgage Brokerage Operations We offer mortgage brokerage services exclusively to our customers in our San Francisco Bay Area,
Southland / Los Angeles, San Diego and Washington D.C. Area 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 provide mortgage origination services to our customers in the Washington D.C. Area and
do not retain or service the mortgages we originate. We customarily sell all of the loans and loan
servicing rights that we originate in the secondary market within a month of origination. For the
year ended December 31, 2004, less than 1% of our revenue and less than 1% 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 the Washington D.C. Area. 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 or subject. For a
description of these agreements refer to Certain Relationships and Related Transactions which is
incorporated by reference into Item 13 of this report from our definitive 2005 proxy statement,
which will be filed with the Securities and Exchange Commission not later than April 30, 2005. 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 Transactions which
is incorporated by reference into Item 13 of this report from our definitive 2005 proxy statement which will be filed with the
Securities and Exchange Commission not later than April 30, 2005. 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, and a deposit facility with a
subsidiary of Brascan, 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 Transactions which is incorporated by reference into Item 13 of this
report from our definitive 2005 proxy statement which will be filed with the Securities and
Exchange Commission not later than April 30, 2005. 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 2005, fiscal 2006 or
fiscal 2007. 9




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##### 



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. Employees As of December 31, 2004, we had 589 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. NYSE Annual Disclosure We confirm that we have submitted a Section 12(a) CEO Certification to the NYSE in 2004 and filed
with the SEC the CEO / CFO certification required under Section 302 of the Sarbanes-Oxley Act for
the 2004 fiscal year. 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 2007, but we may, at our option, extend the lease for an additional six years. We also maintain administrative offices 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, Related Stockholder Matters and Issuer Purchases of
Equity Securities Our common stock is listed on the New York Stock Exchange under the symbol BHS, and began
regular trading on January 7, 2003. The following table shows high and low sales prices for our
common stock, for the periods included, as reported by the NYSE, as adjusted for the $9.00 per
share Special Dividend paid in 2004. Year Ended December 31, 2004
    
    Year Ended December 31, 2003Cash Dividends
    
    
    
    
    
    
    
    
    
    
    Cash DividendsHigh
    
    
    Low
    
    
    Per Share
    
    
    High
    
    
    Low
    
    
    Per Share1st Quarter
    
    $
    26.71
    
    
    $
    14.90
    
    
    
    
    
    
    $
    4.32
    
    
    $
    0.22
    
    
    
    2nd Quarter
    
    $
    30.91
    
    
    $
    21.75
    
    
    $
    9.08
    (1)
    
    $
    8.81
    
    
    $
    4.10
    
    
    $
    0.083rd Quarter
    
    $
    29.01
    
    
    $
    24.87
    
    
    
    
    
    
    $
    9.75
    
    
    $
    6.26
    
    
    
    4th Quarter
    
    $
    34.66
    
    
    $
    24.81
    
    
    $
    0.08
    
    
    $
    18.25
    
    
    $
    9.50
    
    
    $
    0.08
  (1)
    $4.50 was paid in the form of a subordinate note which was redeemed for cash during
the fourth quarter of 2004. As of March 1, 2005, there were approximately 959 holders of record of our common stock. 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 Brookfield Homes Holdings Inc., our wholly-owned subsidiary, maintain a
tangible net worth of at least $250 million, and the additional requirements of our project
specific financings that Brookfield Homes Holdings Inc. maintain a net debt to tangible net worth
ratio of 1.75 to 1 and a net debt to capitalization ratio of no greater than 65%. 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. In February 2003, our board of directors approved and announced our share repurchase program which
allows us to repurchase up to $40 million of our outstanding common shares. This program does not
have an expiration date. MaximumTotal Number of
    
    
    Approximate DollarTotal
    
    
    Average
    
    
    Shares Purchased
    
    
    Value of Shares ThatNumber
    
    
    Price
    
    
    as Part of Publicly
    
    
    May Yet be Purchasedof Shares
    
    
    Paid Per
    
    
    Announced Plans
    
    
    Under the Plans orPeriod
    
    Purchased
    
    
    Share
    
    
    or Programs
    
    
    ProgramsOctober 1, 2004  October 31, 2004 (1)
    
    
    20,000
    
    
    $
    25.77
    
    
    
    20,000
    
    
    $
    16,367,968November 1, 2004  November 30, 2004
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    16,367,968December 1, 2004  December 31, 2004
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    16,367,968Total
    
    
    20,000
    
    
    $
    25.77
    
    
    
    20,000
    
    
    $
    16,367,968
  (1)
    All shares were purchased pursuant to the publicly announced plan in open-market
transactions. Subsequent to December 31, 2004, our board of directors approved an increase in the share
repurchase program from $16 million to an aggregate of $35 million. 11




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##### 



Securities Authorized for Issuance Under Equity Compensation Plans The following table summarizes our equity compensation plans as of December 31, 2004: (a)
    
    
    (b)
    
    
    (c)Number of SecuritiesRemaining Available forNumber of Securities to be
    
    
    Weighted-average
    
    
    Future Issuance UnderIssued upon Exercise of
    
    
    Exercise Price of
    
    
    Equity Compensation PlansOutstanding Options,
    
    
    Outstanding Options,
    
    
    (Excluding SecuritiesWarrants and Rights
    
    
    Warrants and Rights
    
    
    Reflected in Column (a))Equity compensation plans
approved by stockholders
    
    
    756,625
    
    
    $
    3.83
    
    
    
    1,158,375Equity compensation plans not
approved by stockholders
    
    
    
    
    
    
    n/a
    
    
    
    Total
    
    
    756,625
    
    
    $
    3.83
    
    
    
    1,158,375
 12




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##### 



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, 2004. 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. 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)
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000Housing revenue
    
    $
    1,169
    
    
    $
    818
    
    
    $
    785
    
    
    $
    729
    
    
    $
    590Total revenue(1)
    
    
    1,232
    
    
    
    1,001
    
    
    
    831
    
    
    
    790
    
    
    
    666Gross margin (1) (2)
    
    
    287
    
    
    
    211
    
    
    
    131
    
    
    
    119
    
    
    
    93Operating income (3)
    
    
    268
    
    
    
    166
    
    
    
    81
    
    
    
    72
    
    
    
    52Contribution from bulk land sales to
net income (4)
    
    
    9
    
    
    
    39
    
    
    
    
    
    
    
    2
    
    
    
    Net income
    
    
    146
    
    
    
    88
    
    
    
    43
    
    
    
    40
    
    
    
    29Diluted earnings per share (5)
    
    
    4.64
    
    
    
    2.75
    
    
    
    1.35
    
    
    
    1.23
    
    
    
    0.99Cash dividends per share (6)
    
    
    9.16
    
    
    
    0.16
    
    
    
    0.52
    
    
    
    
    
    
    
    
 At December 31Balance Sheet Data ($ millions)
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000Housing and land inventory
    
    $
    680
    
    
    $
    567
    
    
    $
    616
    
    
    $
    633
    
    
    $
    547Cash and cash equivalents
    
    
    187
    
    
    
    219
    
    
    
    36
    
    
    
    1
    
    
    
    8Total assets
    
    
    1,082
    
    
    
    1,013
    
    
    
    844
    
    
    
    851
    
    
    
    762Total debt
    
    
    512
    
    
    
    426
    
    
    
    424
    
    
    
    499
    
    
    
    472Total liabilities
    
    
    836
    
    
    
    631
    
    
    
    523
    
    
    
    564
    
    
    
    551Total stockholders equity
    
    
    246
    
    
    
    382
    
    
    
    321
    
    
    
    287
    
    
    
    211
 Years Ended December 31Supplemental Financial Data ($ millions)
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000Cash provided by/(used in):Operating activities
    
    $
    164
    
    
    $
    209
    
    
    $
    102
    
    
    $
    (32
    )
    
    $
    99Investment activities
    
    
    25
    
    
    
    6
    
    
    
    24
    
    
    
    
    
    
    
    (51
    )Financing activities
    
    
    (221
    )
    
    
    (32
    )
    
    
    (91
    )
    
    
    25
    
    
    
    (42
    )Net debt to total capitalization % (7)
    
    
    51
    %
    
    
    32
    %
    
    
    53
    %
    
    
    62
    %
    
    
    68
    %
 Years Ended December 31Operating Data (Unaudited)
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000Home closings (units)
    
    
    1,798
    
    
    
    1,528
    
    
    
    1,554
    
    
    
    1,645
    
    
    
    1,467Net new orders (units) (8)
    
    
    1,765
    
    
    
    1,710
    
    
    
    1,580
    
    
    
    1,531
    
    
    
    1,581Backlog (units at end of period) (9)
    
    
    616
    
    
    
    649
    
    
    
    467
    
    
    
    441
    
    
    
    555Average selling price
    
    $
    650,000
    
    
    $
    535,000
    
    
    $
    505,000
    
    
    $
    443,000
    
    
    $
    402,000Lots controlled
    
    
    27,966
    
    
    
    21,606
    
    
    
    22,128
    
    
    
    16,947
    
    
    
    17,280
 13




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##### 



(1)
    To conform to the current year presentation, for years prior to 2004, revenue excludes
equity in earnings from housing and land joint ventures and gross margin excludes equity in
earnings from housing and land joint ventures and includes interest expense.(2)
    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.(3)
    Operating income represents net income before minority interest and income taxes.(4)
    Contribution from bulk land sales to net income represents income from sales of owned parcels
of undeveloped land.(5)
    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.(6)
    The 2004 cash dividend includes a special dividend of $9 per share.(7)
    Net debt to total capitalization % is defined as total project specific financings plus
subordinated debt less cash (net debt) multiplied by 100 and divided by net debt plus
stockholders equity plus minority interest (total capitalization).(8)
    Net new orders for any period represents the aggregate of all homes ordered by customers, net
of cancellations.(9)
    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 the Washington D.C. Area. Our goal is to maximize the total return on our common stockholders equity over the long term. In
2004, we earned a 38% return on opening common stockholders equity. The 27,966 lots that we control, 13,047 of which we own 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 own directly or through joint ventures represent approximately a seven year
lot supply, based on 2005 planned home closings of 1,875. Homebuilding is our primary source of revenue and has represented over 90% of our total revenue
since 2000. Our operations are positioned to close annually between 1,700 and 2,000 homes.
Operating in markets with higher price points and catering to move-up and luxury buyers, our
average sales price in 2004 of $650,000 was well in excess of the national average sales price of
approximately $273,000. We also sell serviced and unserviced lots to other homebuilders generally
on an opportunistic basis where we can redeploy capital to an asset providing higher returns or
reduce risk in a market. In 2004, we sold 400 lots, the majority of which were bulk sales of raw or
undeveloped land in the Washington D.C. Area. In addition to our housing and land inventory and investments in housing and land joint ventures,
which together comprised 73% of our total assets as of December 31, 2004, we had $187 million in
cash and cash equivalents and $108 million in other assets. Other assets consist of homebuyer
receivables of $24 million, deferred taxes of $34 million, and mortgages and other receivables of $50 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 2000, our revenues and net income have grown at compounded annual growth rates of 17% and
50%, respectively. Over the same period, we generated over $500 million in operating cash
flow that was used mainly to return cash to shareholders. At the same time, we believe we have
positioned our business for future growth through the selective optioning or 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. 14




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##### 



Results of Operations Years Ended December 31Selected Financial Information ($ millions)
    
    2004
    
    
    2003
    
    
    2002Revenue:Housing
    
    $
    1,169
    
    
    $
    818
    
    
    $
    785Land and other revenues
    
    
    63
    
    
    
    183
    
    
    
    46Total revenues (1)
    
    
    1,232
    
    
    
    1,001
    
    
    
    831Direct cost of sales(1)
    
    
    (945
    )
    
    
    (790
    )
    
    
    (700
    )Gross margin(1)
    
    
    287
    
    
    
    211
    
    
    
    131Equity in earnings from housing and land joint ventures
    
    
    61
    
    
    
    22
    
    
    
    11Selling, general and administrative expense
    
    
    (80
    )
    
    
    (67
    )
    
    
    (61
    )Operating income
    
    
    268
    
    
    
    166
    
    
    
    81Minority interest
    
    
    (28
    )
    
    
    (19
    )
    
    
    (9
    )Net income before taxes
    
    
    240
    
    
    
    147
    
    
    
    72Income tax expense
    
    
    (94
    )
    
    
    (59
    )
    
    
    (29
    )Net income
    
    $
    146
    
    
    $
    88
    
    
    $
    43
 Years Ended December 31Selected Operating Data
    
    2004
    
    
    2003
    
    
    2002Home closings (units):San Francisco Bay Area
    
    
    407
    
    
    
    275
    
    
    
    273Southland / Los Angeles
    
    
    437
    
    
    
    296
    
    
    
    527San Diego / Riverside
    
    
    507
    
    
    
    452
    
    
    
    293Washington D.C. Area
    
    
    447
    
    
    
    505
    
    
    
    461Total
    
    
    1,798
    
    
    
    1,528
    
    
    
    1,554Average selling price:San Francisco Bay Area
    
    $
    804,000
    
    
    $
    700,000
    
    
    $
    612,000Southland / Los Angeles
    
    
    894,000
    
    
    
    872,000
    
    
    
    626,000San Diego / Riverside
    
    
    456,000
    
    
    
    303,000
    
    
    
    334,000Washington D.C. Area
    
    
    491,000
    
    
    
    456,000
    
    
    
    412,000Average
    
    $
    650,000
    
    
    $
    535,000
    
    
    $
    505,000Net new orders (units): (2)San Francisco Bay Area
    
    
    348
    
    
    
    342
    
    
    
    284Southland / Los Angeles
    
    
    338
    
    
    
    358
    
    
    
    440San Diego / Riverside
    
    
    674
    
    
    
    447
    
    
    
    329Washington D.C. Area
    
    
    405
    
    
    
    563
    
    
    
    527Total
    
    
    1,765
    
    
    
    1,710
    
    
    
    1,580Backlog (units at end of year): (3)San Francisco Bay Area
    
    
    54
    
    
    
    113
    
    
    
    46Southland / Los Angeles
    
    
    86
    
    
    
    185
    
    
    
    123San Diego / Riverside
    
    
    281
    
    
    
    114
    
    
    
    119Washington D.C. Area
    
    
    195
    
    
    
    237
    
    
    
    179Total
    
    
    616
    
    
    
    649
    
    
    
    467Lots controlled:Lots owned:San Francisco
    
    
    1,413
    
    
    
    1,928
    
    
    
    2,051Southland / Los Angeles
    
    
    510
    
    
    
    404
    
    
    
    697San Diego / Riverside
    
    
    6,680
    
    
    
    6,282
    
    
    
    7,054Sacramento
    
    
    310
    
    
    
    310
    
    
    
    Washington D.C. Area
    
    
    4,134
    
    
    
    2,081
    
    
    
    1,93713,047
    
    
    
    11,005
    
    
    
    11,739Lots under option
    
    
    14,919
    
    
    
    10,601
    
    
    
    10,389Total
    
    
    27,966
    
    
    
    21,606
    
    
    
    22,128
  (1)
    To conform to the current years presentation, for years prior to 2004, revenue excludes
equity in earnings from housing and land joint ventures and gross margin excludes equity in
earnings from housing and land joint ventures and includes interest expense. 15




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##### 



(2)
    Net new orders for any period represent the aggregate of all homes ordered by customers, net
of cancellations for consolidated projects.(3)
    Backlog represents the number of new homes subject to pending sales contracts for consolidated
projects. Year Ended December 31, 2004 Compared with Year Ended December 31, 2003 Net Income Net income for the year ended December 31, 2004 was $146 million, an increase of $58 million over
the year ended December 31, 2003. Our increase in net income in 2004 was primarily attributable to
house price appreciation as a result of continued strong market conditions in all our markets. In
addition, we increased our number of homes closed by 18% and the contribution to net income from
our joint ventures increased by $24 million, partially offset by lower net income from fewer bulk
lot sales of $30 million. Results of Operations Housing revenues were $1,169 million in 2004, an increase of $351 million or 43% over 2003. The
increase in housing revenue was primarily a result of strong market conditions, particularly in our
California markets where our homes closed increased by 328 units or 32% and our average selling
price increased to $703,000, an increase of 22%. The gross margin on housing revenues in 2004 was $258 million or 22.1% compared with $144 million
or 17.6% in 2003. The increase in gross margin is primarily attributable to house price
appreciation in all our markets and an increase of 18% in the number of homes closed. Land and other revenues totaled $63 million in 2004 compared with $183 million in 2003. The gross
margin on land and other revenues in 2004 was $28 million or 45.2% compared with $66 million or
36.1% in 2003. The contribution from land sales may vary significantly from period to period due to
the timing and nature of land sales as they generally occur on an opportunistic basis. Equity in earnings from housing and land joint ventures increased to $61 million, an increase of
$39 million over 2003. The increase was primarily attributable to our Windemere joint venture in
the San Francisco Bay Area where single family lot sales increased 69%. Other Expenses Selling, general and administrative expense was $80 million in 2004 compared with $67 million in
2003. The increase in 2004 was primarily a result of an increase in stock compensation expense of
$14 million over 2003. Excluding stock compensation expense, selling, general and administrative
expense as a percentage of housing revenue was 4.9% in 2004 compared to 7.2% in 2003. The
improvement in this percentage is a result of our ongoing focus to control corporate overhead costs
and increased sales absorptions have assisted us in controlling sales and marketing costs. Sales Activity Net new orders were 1,765 units in 2004, an increase of 55 units over 2003. The increase was
primarily a result of continued strong market conditions in all our markets and a number of
successful new project openings in San Diego offset by a delay in new project openings in the
Washington D.C. Area. Our backlog of sales at December 31, 2004 was 616 units compared to 649 units
last year. The decrease in backlog is primarily a result of fewer homes available for sale within
communities nearing build-out in the San Francisco Bay Area and Southland / Los Angeles. 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 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 strong market
conditions in all our markets. 16




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##### 



Results of Operations Housing revenues were $818 million in 2003, an increase of $33 million or 4% over 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. The gross margin on housing revenues in 2003 was $144 million or 17.6% compared
with $124 million or 15.8% in 2002. Land and other revenues totaled $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
the nature of bulk lot sales generally occur on an opportunistic basis. The gross margin on land and other revenues in 2003 was $66 million or 36.1%, compared with $7
million or 15.0% in 2002. The increase was a result of strong market conditions in southern
California, the area where the majority of this revenue was generated. 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 held in a joint venture, which contributed earnings of $7 million. 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 compensation expense of $7 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. Sales Activity Net new orders were 1,710 units in 2003, an increase of 130 units over 2002. The increase was
primarily a result of additional active projects and continued strong market conditions in all our
markets. Liquidity and Capital Resources Financial Position Our total assets as of December 31, 2004 were $1,082 million, compared to $1,013 million as of
December 31, 2003, an increase of $69 million. The increase in 2004 was primarily a result of an
increase in housing and land inventory of $113 million partially offset by a decrease of $32
million in cash and cash equivalents. The increase in housing and land assets is mainly due to the
acquisition of over 2,200 lots in our Washington D.C. Area market for a purchase price of $87
million. Our total debt as of December 31, 2004 was $512 million, an increase of $86 million over December
31, 2003. Total debt as of December 31, 2004 consisted mainly of project specific financings of
$462 million 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 includes deferred compensation of $38 million on which interest is paid at
prime, and loans outstanding relating to mortgages we originated totaling $12 million, which are
repaid when the underlying mortgages are sold to permanent lenders. As of December 31, 2004, the
average interest rate on our debt was 5.7% with maturities as follows: MaturitiesPost($ millions)
    
    2005
    
    
    2006
    
    
    2007
    
    
    2007
    
    
    TotalSan Francisco Bay
Area
    
    $
    74
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    74Southland / Los Angeles
    
    
    51
    
    
    
    17
    
    
    
    
    
    
    
    
    
    
    
    68San Diego / Riverside
    
    
    131
    
    
    
    81
    
    
    
    
    
    
    
    
    
    
    
    212Washington D.C. Area
    
    
    32
    
    
    
    5
    
    
    
    50
    
    
    
    21
    
    
    
    108Other
    
    
    12
    
    
    
    19
    
    
    
    12
    
    
    
    7
    
    
    
    50Total
    
    $
    300
    
    
    $
    122
    
    
    $
    62
    
    
    $
    28
    
    
    $
    512
 17




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##### 



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. A summary of our lots owned and their stage of development at
December 31, 2004 compared with the same period last year follows: 2004
    
    
    2003Housing units started and model
homes
    
    
    498
    
    
    
    477Lots ready for house construction
    
    
    1,183
    
    
    
    1,027Graded lots and lots commenced grading
    
    
    1,391
    
    
    
    1,506Undeveloped land
    
    
    9,975
    
    
    
    7,99513,047
    
    
    
    11,005
 Cash provided by our operating activities totaled $164 million for the year ended December 31,
2004, compared with $209 million in 2003. The decrease in cash generated was primarily the result
of fewer lot sales in 2004, an increase in lots purchased, particularly in our Washington D.C. Area
market, partially offset by increased net income and accounts payable. Cash provided by our investing activities in joint ventures for the year ended December 31, 2004
was $25 million, compared with $6 million in 2003. The increase in cash generated was
primarily a result of distributions of capital at our Windemere joint venture in the San Francisco
Bay Area. Cash used in our financing activities for the year ended December 31, 2004 was $221 million,
compared with $32 million in 2003. Our use of cash in 2004 related primarily to common share
dividends of $283 million, including a special dividend of $278 million of which $141 million was
paid in cash and $137 million was paid in the form of a subordinated note which was redeemed in
2004. 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
tax 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 accounts payable and other liabilities include $25 million related to the
uncertainties in tax attributes which were recorded when we left the Brookfield Properties
consolidated tax group with $115 million of net operating losses. For example, if the Brookfield
Properties consolidated group of companies was reassessed for taxation years prior to 2003, this
would have a direct impact on the net operating losses available to the Company on the Spin-off.
There is also a $17 million liability included in accounts payable and other liabilities and a $6 million valuation
allowance in deferred taxes that relates to the tax cost of properties in excess of the fair value
of properties at the time of reorganization of the Company which may not be realized. The exact
amount of these tax liabilities will be determined at the earlier of review of the Spin-off
transaction by taxation authorities or 2007. A further liability of $4 million has been recorded in
respect of tax positions taken. 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, 2004, we had available project specific debt lines of $222 million
that were available to complete land development and construction activities. As of December 31,
2004, we also had available cash and cash equivalents of $187 million. A total of $422 million of our project specific and other financings mature prior to the end of
2006. Our high level of debt maturities in 2005 and 2006 are 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 2005 and 2006 to repay these obligations. Our net debt to
total capitalization ratio as of December 31, 2004, which is defined as total 18




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##### 



interest-bearing debt less cash divided by total interest-bearing debt less cash plus stockholders
equity and minority interest, was 51%, an increase from 32% as of December 31, 2003. The increase
in this ratio is a result of paying a special dividend in 2004 of $278 million. 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, Brookfield Homes Holdings Inc., a wholly-owed
subsidiary, is required to maintain a tangible net worth of at least $250 million. In addition, our
project specific financings require Brookfield Homes Holdings Inc. to maintain a net debt to
capitalization ratio of no greater than 65% and a debt to tangible net worth ratio of no greater
than 1.75 to 1. A summary of our contractual obligations as of December 31, 2004 follows: Payment Due by PeriodLess than
    
    
    1-3
    
    
    3-5
    
    
    More thanTotal
    
    
    1 Year
    
    
    Years
    
    
    Years
    
    
    5 YearsProject specific and other
financings(a)
    
    
    512
    
    
    
    300
    
    
    
    212
    
    
    
    
    
    
    
    Operating lease obligations(b)
    
    
    9
    
    
    
    3
    
    
    
    5
    
    
    
    1
    
    
    
    Purchase obligations(c)
    
    
    675
    
    
    
    120
    
    
    
    364
    
    
    
    191
    
    
    
    Total
    
    
    1,196
    
    
    
    423
    
    
    
    581
    
    
    
    192
    
    
    
    
  (a)
    Amounts are included on the Consolidated Balance Sheets. See Note 4 of the Notes to
the Consolidated Financial Statements for additional information regarding project specific and
other financings and related matters.(b)
    Amounts relate to multiple non-cancelable operating leases involving office space, design
centers and model homes.(c)
    Amounts are included in the Notes to the Consolidated Financial Statements. See Note 2 for
additional information regarding purchase obligations and related matters. 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 the land for an extended period of time, until options expire and/or we
are ready to develop the land to construct homes or sell the land. This reduces our financial risk
associated with land holdings. As of December 31, 2004, we had $41 million of primarily non-refundable option deposits and advanced costs. The total exercise
price of these options was $675 million. Pursuant to FIN 46R, as defined elsewhere in this Form
10-K, we have consolidated $47 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 3,966 lots through joint ventures. As of December 31, 2004, our investment in
housing and land joint ventures was $60 million. We have provided varying levels of guarantees of
debt in our joint ventures. As of December 31, 2004, we had recourse guarantees of $13 million and
limited maintenance guarantees of $64 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, 2004, we had $20 million in letters of credit outstanding and $305 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, 2004, we had repurchased 76,400 of our shares at an average cost of $25.42 per share.
During the year ended December 31, 2003, we repurchased 1,192,749 of our shares at an average cost
of $18.19 per share. At December 31, 2004, the remaining amount approved for repurchases is $16
million. Subsequent to December 31, 2004, our board of directors approved an increase in our share
repurchase program from $16 million to $35 million. 19




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##### 



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 and construction costs, interest, property taxes and overhead directly related
to the development of the land and housing. Direct costs are capitalized to individual homes and
lots and other costs are allocated to each lot in proportion to our anticipated revenue. Estimates of costs to complete homes and lots sold are recorded at the time of closing. These
estimates are prepared on an individual home and lot basis and take into account the specific cost
components of each individual home and lot. The estimation process to allocate costs to homes and
lots is dependent on project budgets that are based on various assumptions, including construction
schedules and future costs to be incurred. These estimates are reviewed for accuracy based on
actual payments made after closing and adjustments are made if necessary. If the 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 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 December 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 123(R), Share-Based Payment.SFAS No. 123(R) establishes
accounting standards for transactions in which a company exchanges its equity instruments for goods
or services. In particular, this Statement would require companies to record compensation expense
for all share-based payments, such as employee stock options, at fair market value. This Statement
is effective as of the beginning of the first interim or annual reporting period that begins after
June 15, 2005. We are currently reviewing the effect of this Statement on our consolidated
financial statements. 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 20




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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)
    
    2004
    
    
    2003
    
    
    2004
    
    
    2003
    
    
    2004
    
    
    2003
    
    
    2004
    
    
    2003Total revenue
    
    $
    547
    
    
    $
    383
    
    
    $
    313
    
    
    $
    286
    
    
    $
    229
    
    
    $
    190
    
    
    $
    143
    
    
    $
    142Gross margin
    
    
    138
    
    
    
    78
    
    
    
    68
    
    
    
    71
    
    
    
    48
    
    
    
    29
    
    
    
    33
    
    
    
    33Contribution from bulk land
sales to net income
    
    
    9
    
    
    
    14
    
    
    
    
    
    
    
    11
    
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    10Net income
    
    
    89
    
    
    
    33
    
    
    
    29
    
    
    
    28
    
    
    
    18
    
    
    
    12
    
    
    
    10
    
    
    
    15Diluted earnings per share
    
    
    2.83
    
    
    
    1.06
    
    
    
    0.94
    
    
    
    0.87
    
    
    
    0.56
    
    
    
    0.37
    
    
    
    0.31
    
    
    
    0.45Home closings (units)
    
    
    726
    
    
    
    585
    
    
    
    496
    
    
    
    460
    
    
    
    332
    
    
    
    324
    
    
    
    244
    
    
    
    159Total assets
    
    
    1,082
    
    
    
    1,013
    
    
    
    1,021
    
    
    
    877
    
    
    
    969
    
    
    
    845
    
    
    
    1,067
    
    
    
    855Total debt
    
    
    512
    
    
    
    426
    
    
    
    616
    
    
    
    387
    
    
    
    621
    
    
    
    392
    
    
    
    457
    
    
    
    425
 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, 2004, the
amount on deposit was $125 million. For details of these arrangements and other non-arms length
transactions refer to Certain Relationships and Related Transactions, which is incorporated by
reference into Item 13 of this report from our definitive 2005 proxy statement, which will be filed
with the Securities and Exchange Commission not later than April 30, 2005. 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,
planned, estimate, project, future, and other expressions which are predictions of or
indicate future events and trends and which do not relate 21




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##### 



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:  
    planned home closings, deliveries and lot sales (and the timing thereof);
    sources of and strategies for future growth;
    lot supply;
    visibility of cash flow and earnings;
    financing sources;
    expectations of future cash flow;
    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;
    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. 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 22




---



##### 



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. 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. 23




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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, 2004, 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 the Washington D.C. Area are susceptible to, and are
significantly affected by, adverse weather conditions and natural disasters such as hurricanes,
tornadoes, earthquakes, floods and fires. These 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. 24




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##### 



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. In addition, we have an interest rate swap contract which
effectively fixes $60 million of our variable rate debt at 5.89%. Based on our debt levels as of
December 31, 2004, 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. 26




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Item 8. Financial Statements and Supplementary Data INDEX TO FINANCIAL STATEMENTS PageBrookfield Homes CorporationReport of Independent Registered Chartered Accountants
    
    
    28Consolidated Balance Sheets as at December 31, 2004 and 2003
    
    
    29Consolidated Statements of Income
for each of the Three Years Ended December 31, 2004, 2003 and 2002
    
    
    30Consolidated Statements of Stockholders Equity
for each of the Three Years Ended December 31, 2004, 2003 and 2002
    
    
    31Consolidated Statements of Cash Flows
for each of the Three Years Ended December 31, 2004, 2003 and 2002
    
    
    32Notes to Consolidated Financial Statements
    
    
    33
 27




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##### 



REPORT OF INDEPENDENT REGISTERED CHARTERED ACCOUNTANTS To the Board of Directors and 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, 2004 and 2003, and the related consolidated
statements of income, stockholders equity, and cash flows for each of the three years in the
period ended December 31, 2004. 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 the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether 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, such consolidated financial statements present fairly, in all material respects,
the financial position of Brookfield Homes Corporation and subsidiaries as of December 31, 2004 and
2003, and the results of their operations and their cash flows for each of the three years in the
period ended December 31, 2004, in conformity with accounting principles generally accepted in the
United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the effectiveness of the Companys internal control over financial reporting
as of December 31, 2004, based on the criteria established in Internal Control  Integrated
Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission and our
report dated February 16, 2005 expressed an unqualified opinion on managements assessment of the
effectiveness of the Companys internal control over financial reporting and an unqualified opinion
on the effectiveness of the Companys internal control over financial reporting. (DELOITTE & TOUCHE LLP) Independent Registered Chartered Accountants
Toronto Ontario, Canada
February 16, 2005 28




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##### 



BROOKFIELD HOMES CORPORATION CONSOLIDATED BALANCE SHEETS (all dollar amounts are in thousands of U.S. dollars) As at December 31Note
    
    2004
    
    
    2003AssetsHousing and land inventory
    
    2
    
    $
    679,930
    
    
    $
    567,302Investments in housing and land joint ventures
    
    3
    
    
    59,810
    
    
    
    78,198Consolidated land inventory not owned
    
    2
    
    
    47,240
    
    
    
    25,542Receivables and other assets
    
    
    
    
    73,986
    
    
    
    80,346Cash and cash equivalents
    
    9
    
    
    186,731
    
    
    
    218,606Deferred income taxes
    
    6
    
    
    33,924
    
    
    
    43,446$
    1,081,621
    
    
    $
    1,013,440Liabilities and EquityProject specific and other financings
    
    4
    
    $
    512,098
    
    
    $
    426,311Accounts payable and other liabilities
    
    5
    
    
    256,985
    
    
    
    145,090Minority interest
    
    2
    
    
    66,422
    
    
    
    59,781Preferred stock  10,000,000 shares authorized, no shares issued
    
    8
    
    
    
    
    
    
    Common stock and additional paid-in capital  65,000,000 shares
authorized,
30,889,632 shares issued and outstanding with par value of $309,
excluding
1,184,149 treasury shares with a cost of $23,552 (December 31, 2003 
30,881,032 shares issued and outstanding with a par value of $309,
excluding 1,192,749 treasury shares with a cost of $21,695)
    
    8
    
    
    120,246
    
    
    
    299,043Retained earnings
    
    8
    
    
    125,870
    
    
    
    83,215$
    1,081,621
    
    
    $
    1,013,440
 See accompanying notes to consolidated financial statements 29




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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
    
    2004
    
    
    2003
    
    
    2002RevenueHousing
    
    
    
    $
    1,169,073
    
    
    $
    817,774
    
    
    $
    784,807Land and other revenues
    
    
    
    
    62,677
    
    
    
    183,421
    
    
    
    46,4311,231,750
    
    
    
    1,001,195
    
    
    
    831,238Direct Cost of Sales
    
    2
    
    
    (945,387
    )
    
    
    (790,877
    )
    
    
    (700,132
    )286,363
    
    
    
    210,318
    
    
    
    131,106Equity in earnings from housing and land joint ventures
    
    3
    
    
    61,394
    
    
    
    22,055
    
    
    
    10,429Selling, general and administrative expense
    
    
    
    
    (79,904
    )
    
    
    (66,612
    )
    
    
    (60,822
    )Minority interest
    
    
    
    
    (28,140
    )
    
    
    (18,684
    )
    
    
    (8,566
    )Net Income Before Taxes
    
    
    
    
    239,713
    
    
    
    147,077
    
    
    
    72,147Income tax expense
    
    6
    
    
    (93,297
    )
    
    
    (58,830
    )
    
    
    (28,858
    )Net Income
    
    
    
    $
    146,416
    
    
    $
    88,247
    
    
    $
    43,289Earnings Per ShareBasic
    
    1
    
    $
    4.74
    
    
    $
    2.78
    
    
    $
    1.35Diluted
    
    1
    
    $
    4.64
    
    
    $
    2.75
    
    
    $
    1.35Weighted Average Common Shares Outstanding(in thousands)Basic
    
    1
    
    
    30,903
    
    
    
    31,751
    
    
    
    32,044Diluted
    
    1
    
    
    31,547
    
    
    
    32,048
    
    
    
    32,044
 See accompanying notes to consolidated financial statements 30




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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
    
    2004
    
    
    2003
    
    
    2002Common Stock and Additional Paid-in CapitalOpening balance
    
    1
    
    $
    299,043
    
    
    $
    320,738
    
    
    $
    1Recapitalization upon reorganization
    
    
    
    
    
    
    
    
    
    
    
    
    320,737Repurchase of common shares
    
    8
    
    
    (1,942
    )
    
    
    (21,695
    )
    
    
    Exercise of stock options
    
    8
    
    
    2,255
    
    
    
    
    
    
    
    Special dividend
    
    8
    
    
    (179,110
    )
    
    
    
    
    
    
    Ending balance
    
    
    
    
    120,246
    
    
    
    299,043
    
    
    
    320,738Combined Companies CapitalOpening balance
    
    
    
    
    
    
    
    
    
    
    
    
    286,979Contributions of capital
    
    
    
    
    
    
    
    
    
    
    
    
    7,037Net income (prior to reorganization)
    
    1
    
    
    
    
    
    
    
    
    
    
    26,722Recapitalization upon reorganization
    
    1
    
    
    
    
    
    
    
    
    
    
    (320,738
    )Ending balance
    
    
    
    
    
    
    
    
    
    
    
    
    Retained EarningsOpening balance
    
    
    
    
    83,215
    
    
    
    
    
    
    
    Net income
    
    
    
    
    146,416
    
    
    
    88,247
    
    
    
    16,567Dividends
    
    8
    
    
    (4,942
    )
    
    
    (5,032
    )
    
    
    (16,567
    )Special dividend
    
    8
    
    
    (98,819
    )
    
    
    
    
    
    
    Ending balance
    
    
    
    
    125,870
    
    
    
    83,215
    
    
    
    Total stockholders equity
    
    
    
    $
    246,116
    
    
    $
    382,258
    
    
    $
    320,738
 See accompanying notes to consolidated financial statements 31




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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 312004
    
    
    2003
    
    
    2002Cash Flows From Operating ActivitiesNet income
    
    $
    146,416
    
    
    $
    88,247
    
    
    $
    43,289Adjustments to reconcile net income to net cash provided by
operating activities:Undistributed income from housing and land joint ventures
    
    
    (6,755
    )
    
    
    (3,179
    )
    
    
    (10,429
    )Minority interest
    
    
    28,140
    
    
    
    18,684
    
    
    
    8,566Deferred income taxes
    
    
    17,867
    
    
    
    29,967
    
    
    
    28,858Other changes in operating assets and liabilities:Decrease/(increase) in receivables and other assets
    
    
    6,360
    
    
    
    (5,812
    )
    
    
    (10,798
    )(Increase)/decrease in housing and land inventory
    
    
    (115,374
    )
    
    
    47,389
    
    
    
    16,975Increase in accounts payable and other
    
    
    87,516
    
    
    
    33,158
    
    
    
    25,711Net cash provided by operating activities
    
    
    164,170
    
    
    
    208,454
    
    
    
    102,172Cash Flows From Investing ActivitiesNet recovery from housing and land joint ventures
    
    
    25,143
    
    
    
    5,940
    
    
    
    23,658Net cash provided by investing activities
    
    
    25,143
    
    
    
    5,940
    
    
    
    23,658Cash Flows From Financing ActivitiesNet borrowings under revolving project specific and
other financings
    
    
    85,787
    
    
    
    100,819
    
    
    
    41,307Net repayments under revolving subordinated debt
    
    
    
    
    
    
    
    
    
    
    (73,635
    )Repayment of subordinated debt
    
    
    (137,294
    )
    
    
    (98,300
    )
    
    
    (43,000
    )Net (distributions to)/contributions from minority interest
    
    
    (22,247
    )
    
    
    (7,483
    )
    
    
    1,177Contributions of capital
    
    
    
    
    
    
    
    
    
    
    35Exercise of stock options
    
    
    85
    
    
    
    
    
    
    
    Repurchase of common shares
    
    
    (1,942
    )
    
    
    (21,695
    )
    
    
    Dividends paid in cash
    
    
    (145,577
    )
    
    
    (5,032
    )
    
    
    (16,567
    )Net cash used in financing activities
    
    
    (221,188
    )
    
    
    (31,691
    )
    
    
    (90,683
    )(Decrease)/increase in cash and cash equivalents
    
    
    (31,875
    )
    
    
    182,703
    
    
    
    35,147Cash and cash equivalents at beginning of year
    
    
    218,606
    
    
    
    35,903
    
    
    
    756Cash and cash equivalents at end of year
    
    $
    186,731
    
    
    $
    218,606
    
    
    $
    35,903Supplemental Cash Flow InformationInterest paid
    
    $
    31,788
    
    
    $
    19,117
    
    
    $
    25,820Income taxes paid
    
    
    71,128
    
    
    
    20,000
    
    
    
    Non-cash capital contributions:Benefits of tax losses of consolidated group contributed
    
    
    
    
    
    
    
    
    
    
    5,854Costs of options of former parent issued to management of
the Company
    
    
    
    
    
    
    
    
    
    
    1,148Increase in consolidated land inventory not owned
    
    
    18,952
    
    
    
    23,808
    
    
    
    Dividends paid through issuance of subordinated debt
    
    
    137,294
    
    
    
    
    
    
    
    
 See accompanying notes to consolidated financial statements 32




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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 Washington D.C. Area 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.  (b)
    Housing and Land Inventory (i) Revenue recognition:Revenues from the sale of homes are recognized when title passes to the
purchaser upon closing, wherein all proceeds are received or collectability is evident. Land
sales are recognized when title passes to the purchaser upon closing, all material conditions of
the sales contract 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 and
construction costs, interest, property taxes and overhead related to the development of the land
and housing. Direct costs are capitalized to individual homes and lots and other costs are
allocated to each lot in proportion to our 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.  (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.  (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. 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)  (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)
    Minority Interest Minority interest represents the equity in consolidated subsidiaries that are owned by others.
Total minority interest as at December 31, 2004 of $66.4 million (2003  $59.8 million) consisted
of assumed third party investments of consolidated variable interest entities of $42.8 million
(2003  $23.8 million), ownership interests of certain business unit presidents of the Company
totaling $21.6 million (2003  $34.0 million) and preferred shares issued by a wholly-owned
subsidiary of $2.0 million (2003  $2.0 million). Included in accounts payable and other
liabilities is $29.2 million (2003  $11.0 million) of amounts due to minority interest.  (h)
    Stock-Based Compensation The Company accounts for stock option grants and deferred share unit 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 and deferred share units as a
liability using variable plan accounting as disclosed in accounts payable. 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.  (i)
    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.  (j)
    Earnings Per Share Earnings per share is computed in accordance with the Statement of Financial Accounting Standards
(SFAS) 128. Basic earnings per share is calculated by dividing net income by the average number
of common shares outstanding for the year. Diluted earnings per share is calculated by dividing net
income by the average number of common shares outstanding including all dilutive potentially
issuable shares under various stock option plans. Basic and diluted earnings per share for the years ended December 31, 2004, 2003 and 2002 were
calculated as follows (in thousands except per share amounts): Years Ended December 312004
    
    
    2003
    
    
    2002Numerator:Net income
    
    $
    146,416
    
    
    $
    88,247
    
    
    $
    43,289Denominator:Basic average shares outstanding
    
    
    30,903
    
    
    
    31,751
    
    
    
    32,044Net effect of stock options assumed to be exercised
    
    
    644
    
    
    
    297
    
    
    
    Diluted average shares outstanding
    
    
    31,547
    
    
    
    32,048
    
    
    
    32,044Basic earnings per share
    
    $
    4.74
    
    
    $
    2.78
    
    
    $
    1.35Diluted earnings per share
    
    $
    4.64
    
    
    $
    2.75
    
    
    $
    1.35
 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)  (k)
    Advertising Costs The Company expenses advertising costs as incurred. For the years ended December 31, 2004, 2003 and
2002, the Company incurred advertising costs of $5.1 million, $6.1 million, and $4.5 million,
respectively.  (l)
    Segment Information The Company designs, constructs and sells a wide range of homes designed to meet the specific needs
of each of its markets. For internal reporting purposes, the Company is organized into geographical
housing and land regions. Because each of the Companys geographical housing and land regions has
similar economic characteristics, housing products and class of prospective buyers, the geographic
housing and land regions have been aggregated into a single housing and land segment in accordance
with Statement of Financial Accounting Standards No. 131, Disclosure About Segments of an
Enterprise and Related Information (SFAS 131). All revenues are from external customers and are of origin in the United States. There were no
customers that contributed 10% or more of the Companys total revenues during the years ended
December 31, 2004, 2003 or 2002. All of the Companys assets are in the United States.  (m)
    Warranty Costs Estimated future warranty costs are accrued and charged to cost of sales at the time the revenue
associated with the sale of each home is recognized. Factors that affect the Companys warranty
liability include the number of homes sold, historical and anticipated rates of warranty claims,
and cost per claim.  (n)
    Recent Accounting Pronouncements In December 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 123(R), Share-Based Payment.SFAS No. 123(R) establishes
accounting standards for transactions in which a company exchanges its equity instruments for goods
or services. In particular, this Statement would require companies to record compensation expense
for all share-based payments, such as employee stock options, at fair market value. This Statement
is effective as of the beginning of the first interim or annual reporting period that begins after
June 15, 2005. The Company is currently reviewing the effect of this Statement on its consolidated
financial statements. 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. 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)  (o)
    Reclassification Certain prior year amounts in the consolidated financial statements have been reclassified to
conform with the 2004 presentation. In particular, reclassifications have been made to equity in
earnings from housing and land joint ventures (now shown as a component of operating income
separately from revenue) and to interest expense (now included as a component of Direct Cost of
Sales). 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 312004
    
    
    2003Housing under construction
    
    $
    244,041
    
    
    $
    200,553Model homes
    
    
    19,179
    
    
    
    21,029Land and land under
development
    
    
    416,710
    
    
    
    345,720$
    679,930
    
    
    $
    567,302
 The Company capitalizes interest which is expensed as housing units and building lots are
sold. For the years ended December 31, 2004, 2003 and 2002, interest incurred and capitalized by
the Company was $31.8 million, $19.1 million and $25.8 million, respectively. Capitalized interest expensed as direct cost of
sales for the same periods was $29.1 million, $33.4 million and $35.3 million, respectively. Capitalized costs are expensed as costs of sales on a specific identification basis or on a
relative value in proportion to anticipated revenue. Included in direct costs of sales is $911.1
million of costs related to housing revenue (2003  $673.8 million) and $34.3 million of costs
related to land sales and other revenues (2003  $117.1 million). 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 375
lots with aggregate exercise prices of $47.2 million (2003  311 lots with an exercise
price 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 $42.8 million (2003  $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. Housing and land inventory includes non-refundable deposits and other costs totaling $36.0 million
(2003  $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 $627.7 million (2003  $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
    
    
    Price2005
    
    
    975
    
    
    $
    88,5742006
    
    
    3,831
    
    
    
    214,2332007
    
    
    3,276
    
    
    
    133,550Thereafter
    
    
    6,462
    
    
    
    191,38514,544
    
    
    $
    627,742
 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 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 312004
    
    
    2003AssetsHousing and land inventory
    
    $
    345,939
    
    
    $
    310,324Other assets
    
    
    54,510
    
    
    
    42,729$
    400,449
    
    
    $
    353,053Liabilities and EquityAccounts payable and other liabilities
    
    $
    46,313
    
    
    $
    15,606Project specific financings
    
    
    277,568
    
    
    
    182,452Investment and advancesBrookfield Homes
    
    
    59,810
    
    
    
    78,198Others
    
    
    16,758
    
    
    
    76,797$
    400,449
    
    
    $
    353,053Revenue and ExpensesRevenue
    
    $
    466,260
    
    
    $
    375,351Expenses
    
    
    (265,277
    )
    
    
    (264,470
    )Net income
    
    $
    200,983
    
    
    $
    110,881Companys share of net income
    
    $
    61,394
    
    
    $
    22,055
 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, 2004, the Company had recourse guarantees of $12.5 million and
limited maintenance guarantees of $64.4 million with respect to debt in its joint ventures. Note 4. Project Specific and Other Financings The Company has total project specific and other financings outstanding as at December 31, 2004 of
$512.1 million (2003  $426.3 million). Project specific financings of $462.8 million (2003  $360.5 million) are revolving in
nature, bear interest at floating rates with a weighted average rate of 5.7% as at December 31,
2004 (December 31, 2003  4.4%) 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, 2004, 2003 and 2002
were $485.0 million, $360.5 million, and $305.3 million, respectively. The average borrowings
during 2004, 2003, 2002 were $422.0 million, $326.3 million, and $274.5 million, respectively. 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) Other financings of $49.3 million (2003  $65.8 million) consist of deferred compensation
under the Companys Supplemental Retirement Income Plan and mortgage loans. Other financings bear
interest at a weighted average rate of 5.3% as at December 31, 2004 (December 31, 2003  4.0%). Project specific and other financings mature as follows: 2005  $300.4 million; 2006  $121.9
million; 2007  $62.2 million; and 2008  $27.6 million. Note 5. Accounts Payable and Other Liabilities The components of accounts payable and other liabilities included in the Companys balance sheet
are summarized as follows: December 312004
    
    
    2003Trade payables and cost to complete
accruals
    
    $
    74,388
    
    
    $
    37,671Warranty costs
    
    
    18,202
    
    
    
    14,917Customer deposits
    
    
    9,147
    
    
    
    9,843Stock-based compensation
    
    
    30,264
    
    
    
    10,353Due to minority interest
    
    
    29,240
    
    
    
    11,036Accrued compensation
    
    
    25,007
    
    
    
    10,011Income tax liabilities
    
    
    58,808
    
    
    
    46,160Other accrued expenses
    
    
    11,929
    
    
    
    5,099$
    256,985
    
    
    $
    145,090
 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. The differences that give rise to the net deferred tax asset are
as follows: December 312004
    
    
    2003Compensation deductible for tax purposes when
paid
    
    $
    28,614
    
    
    $
    43,446Differences relating to properties
    
    
    11,149
    
    
    
    10,840Valuation allowance
    
    
    (5,839
    )
    
    
    (10,840
    )$
    33,924
    
    
    $
    43,446
 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, 2004, the Company had a valuation allowance of $5.8
million (2003  $10.8 million) for tax attributes that relates to the tax cost of properties in
excess of the fair market value of properties at the time of reorganization of the Company which
may not be realized. The Company reclassified $5.0 million (2003  $12.0 million)
of valuation allowance to accounts payable and other liabilities that relate to the realization of
tax attributes that were subject to a valuation allowance. If these tax attributes are ultimately
disallowed, the Company will owe additional tax. 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) As described in Note 5, included in accounts payable and other liabilities is $58.8 million
(2003  $46.2 million) for income tax liabilities. The following table summaries these amounts. December 312004
    
    
    2003Current taxes payable
    
    $
    13,167
    
    
    $
    8,863Other tax liabilities
    
    
    45,641
    
    
    
    37,297$
    58,808
    
    
    $
    46,160
 Included in other tax liabilities is $25.0 million (2003  $25.0 million) related to the
uncertainties in tax attributes which were recorded at the time of the Spin-off discussed in Note
1(a). On the Spin-off, the Company left the Brookfield Properties consolidated tax group with
$115.0 million of net operating losses. The tax provisions that apply in connection with the
reorganization, including the departure of a member of a consolidated group, are detailed and
complex and thereby subject to uncertainty. In addition, for example, if the Brookfield Properties
consolidated group of companies was reassessed for taxation years prior to 2003, this would have a
direct impact on the net operating losses available to the Company on the Spin-off. Also included
is an additional income tax liability of $17.0 million (2003  $12.0 million) that relates to the
tax cost of properties in excess of the fair value of properties as described above. The exact
amount of these tax liabilities will be determined at the earlier of review of the Spin-off
transaction by taxation authorities or 2007. A further liability of $3.6 million (2003  $0.3
million) has been recorded in respect of tax positions taken. 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. The provision
for income taxes for each of the three years ended December 31, 2004, 2003 and 2002 was as follows: December 312004
    
    
    2003
    
    
    2002Current
    
    $
    75,430
    
    
    $
    28,863
    
    
    $
    Deferred
    
    
    17,867
    
    
    
    29,967
    
    
    
    28,858Total
    
    $
    93,297
    
    
    $
    58,830
    
    
    $
    28,858
 A reconciliation of the statutory income tax rate and the effective rate follows: December 312004
    
    
    2003
    
    
    2002Statutory Federal
rate
    
    
    35.0
    %
    
    
    35.0
    %
    
    
    35.5
    %State income tax
    
    
    3.9
    %
    
    
    5.0
    %
    
    
    5.0
    %Effective Rate
    
    
    38.9
    %
    
    
    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 and is set during the granting period.
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 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) 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, 2004
    
    
    December 31, 2003
    
    
    December 31, 2004Weighted
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    AveragePer Share
    
    
    
    
    
    
    Per Share
    
    
    
    
    
    
    Per ShareShares
    
    
    Exercise Price
    
    
    Shares
    
    
    Exercise Price
    
    
    Shares
    
    
    Exercise PriceOutstanding, beginning
of year
    
    
    747,625
    
    
    $
    1.20
    
    
    
    542,625
    
    
    $
    1.00
    
    
    
    
    
    
    
    Granted
    
    
    95,000
    
    
    $
    21.94
    
    
    
    205,000
    
    
    $
    1.74
    
    
    
    542,625
    
    
    $
    1.00Exercised
    
    
    (86,000
    )
    
    $
    1.01
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Cancelled
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Outstanding, end of year
    
    
    756,625
    
    
    $
    3.83
    
    
    
    747,625
    
    
    $
    1.20
    
    
    
    542,625
    
    
    $
    1.00Options exercisable at
year end
    
    
    172,050
    
    
    $
    1.17
    
    
    
    108,525
    
    
    $
    1.00
    
    
    
    
    
    
    $
    
 The share exercise price was adjusted by the $9.00 special dividend paid in April 2004. The following table summarizes information about stock options held by employees of the Company
outstanding at December 31, 2004: Options
    
    
    Weighted
    
    
    OptionsOutstanding at
    
    
    Average
    
    
    Exercisable atDecember
    
    
    Remaining
    
    
    DecemberExercise Prices Per Share
    
    31,2004
    
    
    Contract Life
    
    
    31,2004$
    1.00
    
    
    457,625
    
    
    2.9 years
    
    
    132,050$
    1.74
    
    
    204,000
    
    
    3.2 years
    
    
    40,000$
    21.94
    
    
    95,000
    
    
    4.2 years
    
    
    
 Total compensation costs recognized in income for stock option employee compensation for the
years ended December 31, 2004, 2003 and 2002 were $11.9 million, $5.1 million, and $1.1 million,
respectively. Deferred Share Unit Plan The Company has adopted a Deferred Share Unit Plan (DSUP) under which its executive officers and
directors may, at their option, receive all or a portion of their annual bonus awards or retainers,
respectively, in the form of deferred share units. The annual 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 of directors, 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 or
director 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 the Companys common stock where written notice of redemption is received. 40




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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) The DSUP provides no shares of the Companys common stock will be issued, authorized,
reserved, purchased or
sold at any time in connection with units allocated and under no circumstances are units considered
shares of common stock, or entitle any participation to the exercise of any other rights arising
from the ownership of shares of
common stock. As of December 31, 2004, the Company had granted 544,052 units under the DSUP all of
which were outstanding at December 31, 2004, and of which 185,270 units are vested and 357,502
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, 2004, 2003 and
2002 were $10.2 million, $2.6 million and $ nil, respectively. Compensation costs recognized in
income will fluctuate based on the year end share price. 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. During 2004, the Company repurchased a total of
76,400 shares for an aggregate purchase price of $1.9 million or approximately $25.42 per share. (c) Dividends During the year, the Companys board of directors declared a semi-annual cash
dividend of $0.08 per common share payable in June and December. (d) Special Dividend On April 30, 2004, the Company paid a special dividend of $9.00 per common
share, $277.9 million in the aggregate, consisting of $140.6 million in cash and $137.3 million in
principal amount of the Companys 12% senior subordinated notes due 2020. The subordinated notes
were redeemed by the Company on December 20, 2004 at par. The special dividend has been reflected
as a reduction of retained earnings accumulated from the date of the Spin-off (see Note 1) to April
30, 2004, the date the special dividend was paid, with the balance reflected as a reduction of
additional paid-in capital. (e) Exercise of Stock Options During the year ended December 31, 2004, certain officers exercised
options to purchase 86,000 shares of the Companys common stock at a price of $1.01 per share. 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, 2004, amounted to $305.0 million
(December 31, 2003  $271.5 million, 2002  $233.8 million) and $19.6 million (December 31, 2003 
$16.2 million, 2002  $32.0 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. (d) The Company had demand deposits included in cash and cash equivalents of $125.0 million at
December 31, 2004 (2003  $205.0 million) with a financial subsidiary of the Companys largest
stockholder, Brascan Corporation. 41




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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) When selling a home, the Companys subsidiaries provide customers with a limited warranty.
The Company estimates the costs that may be incurred under each limited warranty and records a
liability in the amount of such costs at the time the revenue associated with the sale of each home
is recognized. In addition, the Company has insurance in place where its subsidiaries are subject
to the respective warranty statutes in the State where the Company conducts business which range up
to ten years for latent construction defects. Factors that affect the Companys warranty liability
include the number of homes sold, historical and anticipated rates of warranty claims, and cost per
claim. The Company periodically assesses the adequacy of its recorded warranty liabilities and
adjusts the amounts as necessary. The following table reflects the changes in the Companys
warranty liability for the years ended December 31, 2004, 2003 and 2002: 2004
    
    
    2003
    
    
    2002Balance, at beginning of year
    
    $
    14,917
    
    
    $
    13,709
    
    
    $
    11,872Payments made during the year
    
    
    (3,624
    )
    
    
    (1,691
    )
    
    
    (3,445
    )Warranties issued during the year
    
    
    6,909
    
    
    
    2,899
    
    
    
    5,282Balance, at end of year
    
    $
    18,202
    
    
    $
    14,917
    
    
    $
    13,709
 (f) The Company leases certain facilities under non-cancelable operating leases. Rental
expense incurred by the Company amounted to $2.4 million for 2004. At December 31, 2004, future
minimum rent payments under these operating leases were $2.6 million for 2005, $2.1 million for
2006, $1.7 million for 2007, $1.5 million for 2008 and $1.3 million thereafter. (g) In February 2004, we entered into a $60 million interest rate swap contract which effectively
fixed $60 million of our variable debt at 5.07%. In May 2004, we closed this interest rate swap
contract and as a result realized a gain of $2.7 million. During the third quarter, we entered into
an additional interest rate swap contract which effectively fixes $60 million of our variable rate
debt at 5.89% until the contract expires in 2009. At December 31, 2004, the fair market value of
the contract was nominal. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. Item 9A. Controls and Procedures Conclusions Regarding the Effectiveness of Disclosure Controls and Procedures As of December 31, 2004, 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, 2004, our disclosure controls and procedures are effective
(i) 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 the Securities and Exchange Commission rules and forms and (ii) to ensure that
information required to be disclosed in the reports that we file or submit under the Exchange Act
is accumulated and communicated to our management, including our chief executive officer and chief
financial officer, to allow timely decisions regarding required disclosure. 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. There was no change in our internal control over financial reporting during the quarter ended
December 31, 2004, that has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting. 42




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Managements Report on Internal Control over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over
financial reporting, as such term is defined in Exchange Act Rules 13a-15(f). Under the supervision
and with the participation of our management, including our principal executive officer and
principal financial officer, we conducted an evaluation of the effectiveness of our internal
control over financial reporting using the framework in Internal Control  Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on our
evaluation under the framework in Internal Control  Integrated Framework, our management
concluded that our internal control over financial reporting was effective as of December 31, 2004. We have not identified any material weakness in our internal control over financial reporting. Internal control systems, no matter how well designed, have inherent limitations. Therefore, even
those systems determined to be effective can provide only reasonable assurance with respect to
financial statement preparation and presentation. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate. Our managements assessment of the effectiveness of our internal control over financial reporting
as of December 31, 2004 has been audited by Deloitte & Touche, LLP, an independent registered public
accounting firm, as stated in their report which is included herein. 43




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REPORT OF INDEPENDENT REGISTERED CHARTERED ACCOUNTANTS To the Board of Directors and Stockholders of Brookfield Homes Corporation We have audited managements assessment, included in the accompanying Managements Report on
Internal Control over Financial Reporting, that Brookfield Homes Corporation and subsidiaries (the
Company) maintained effective internal control over financial reporting as of December 31, 2004,
based on criteria established in Internal Control  Integrated Frameworkissued by the Committee of
Sponsoring Organizations of the Treadway Commission. The Companys management is responsible for
maintaining effective internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting. Our responsibility is to express an
opinion on managements assessment and an opinion on the effectiveness of the Companys internal
control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, evaluating managements assessment, testing and evaluating the
design and operating effectiveness of internal control, and performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis
for our opinions. A companys internal control over financial reporting is a process designed by, or under the
supervision of, the companys principal executive and principal financial officers, or persons
performing similar functions, and effected by the companys board of directors, management, and
other personnel to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A companys internal control over financial reporting includes
those policies and procedures that (1) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles,
and that receipts and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the financial statements. Because of the inherent limitations of internal control over financial reporting, including the
possibility of collusion or improper management override of controls, material misstatements due to
error or fraud may not be prevented or detected on a timely basis. Also, projections of any
evaluation of the effectiveness of the internal control over financial reporting to future periods
are subject to the risk that the controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may deteriorate. In our opinion, managements assessment that the Company maintained effective internal control over
financial reporting as of December 31, 2004, is fairly stated, in all material respects, based on
the criteria established in Internal Control  Integrated Frameworkissued by the Committee of
Sponsoring Organizations of the Treadway Commission. Also in our opinion, the Company maintained,
in all material respects, effective internal control over financial reporting as of December 31,
2004, based on the criteria established in Internal Control  Integrated Frameworkissued by the
Committee of Sponsoring Organizations of the Treadway Commission. We have also audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated financial statements as of and for the year ended December
31, 2004 of the Company and our report dated February 16, 2005 expressed an unqualified opinion on
those financial statements. (DELOITTE & TOUCHE LLP) Independent Registered Chartered Accountants
Toronto, Ontario, Canada
February 16, 2005 Item 9B. None. 44




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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 2005 definitive proxy statement, which will be filed with the
Securities and Exchange Commission not later than April 30, 2005 (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
    
    
    57
    
    
    President and Chief Executive OfficerPaul G. Kerrigan
    
    
    37
    
    
    Executive Vice President, Chief Financial Officer and TreasurerShane D. Pearson
    
    
    32
    
    
    SecretaryWilliam B. Seith
    
    
    55
    
    
    Executive Vice President, Risk ManagementSignificant Employees:Stephen P. Doyle
    
    
    47
    
    
    President, Brookfield Homes San Diego Inc.Adrian Foley
    
    
    42
    
    
    President, Brookfield Homes Southland Inc.Robert Hubbell
    
    
    47
    
    
    President, Brookfield Washington Inc.John J. Ryan
    
    
    45
    
    
    President, Brookfield Homes Bay Area Inc.Richard T. Whitney
    
    
    41
    
    
    President, Brookfield California Land Holdings LLC
 Ian Cockwellwas appointed President and Chief Executive Officer in October 2002. From 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. Adrian Foleywas appointed President of our Southland / Los Angeles business unit in 2004. Mr.
Foley has 18 years of experience in the real estate industry. Prior to joining Brookfield in 1996,
Mr. Foley was employed by another California homebuilder. Mr. Foley holds a bachelors degree in
Construction from the University of London. Robert Hubbellwas appointed President of our Washington D.C. Area business unit in 1998. Mr.
Hubbell has 21 years of experience in the real estate industry and has been with Brookfield for 15
years. 45




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##### 



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 2005 definitive
proxy statement, which will be filed with the Securities and Exchange Commission not later than
April 30, 2005 (120 days after the end of our fiscal year). Item 12. Security Ownership of Certain Beneficial Owners and Management The information called for by this item is incorporated by reference from our 2005 definitive
proxy statement, which will be filed with the Securities and Exchange Commission not later than
April 30, 2005 (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 2005 definitive
proxy statement, which will be filed with the Securities and Exchange Commission not later than
April 30, 2005 (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 2005 definitive
proxy statement, which will be filed with the Securities and Exchange Commission not later than
April 30, 2005 (120 days after the end of our fiscal year). 46




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PART IV Item 15. Exhibits, Financial Statement Schedules  (a)
    The following documents are filed as part of this report:  (i)
    Financial Statements:See Item 8 of this report, beginning on page 27.(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. 47




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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, 2005. 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 FLATTJ. Bruce Flatt
    
    Chairman of the Board
    
    March 15, 2005/s/ IAN G. COCKWELLIan G. Cockwell
    
    President and Chief Executive
Officer and Director
(Principal Executive Officer)
    
    March 15, 2005/s/ PAUL G. KERRIGANPaul G. Kerrigan
    
    Executive Vice President,
Chief Financial Officer and
Treasurer (Principal Financial
Officer and Principal
Accounting Officer)
    
    March 15, 2005/s/ ROBERT A. FERCHATRobert A. Ferchat
    
    Director
    
    March 15, 2005/s/ BRUCE T. LEHMANBruce T. Lehman
    
    Director
    
    March 15, 2005/s/ ALAN NORRISAlan Norris
    
    Director
    
    March 15, 2005/s/ TIMOTHY R. PRICETimothy R. Price
    
    Director
    
    March 15, 2005/s/ DAVID M. SHERMANDavid M. Sherman
    
    Director
    
    March 15, 2005/s/ ROBERT L. STELZLRobert L. Stelzl
    
    Director
    
    March 15, 2005/s/ MICHAEL D. YOUNGMichael D. Young
    
    Director
    
    March 15, 2005
 48




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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
    
    
    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.10.4
    
    
    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  Executive Officers management contract or compensatory plan or arrangement 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.