##### 



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 FORM 10-Q x
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2004 Commission File Number:
001  31524  BROOKFIELD HOMES CORPORATION (Exact Name of Registrant as Specified in Its Charter)
  Delaware
    
    37-1446709(State or Other Jurisdiction of
    
    (I.R.S. EmployerIncorporation or Organization)
    
    Identification No.)
  12865 Pointe Del MarSuite 200Del Mar, California
    
    92014(Address of Principal Executive Offices)
    
    (Zip Code)
  (858) 481-8500 (Registrants Telephone Number, Including Area Code)
 Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes     þ
    
    No     o
 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 July 30, 2004, the registrant had outstanding 30,966,032 shares of its
common stock, $0.01 par value per share.




---



##### 



INDEX BROOKFIELD HOMES CORPORATION PART I.
    
    FINANCIAL INFORMATION
    
    PAGEItem 1.
    
    Financial StatementsConsolidated Balance Sheets  June 30, 2004 and
December 31, 2003
    
    
    1Consolidated Statements of Income  Three Months and Six
Months Ended June 30, 2004 and 2003
    
    
    2Consolidated Statements of Stockholders Equity  Six
Months ended June 30, 2004 and 2003
    
    
    3Consolidated Statements of Cash Flows  Three Months and Six
Months Ended June 30, 2004 and 2003
    
    
    4Notes to the Consolidated Financial Statements
    
    
    5Item 2.
    
    Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    9Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    14Item 4.
    
    Controls and Procedures
    
    
    14PART II.
    
    OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    15Item 2.
    
    Changes in Securities and Use of Proceeds
    
    
    15Item 3.
    
    Defaults Upon Senior Securities
    
    
    15Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    15Item 5.
    
    Other Information
    
    
    15Item 6.
    
    Exhibits and Reports on Form 8-K
    
    
    15SIGNATURES
    
    
    
    
    16EXHIBITS




---



##### 



PART I. FINANCIAL INFORMATION Item 1. Financial Statements BROOKFIELD HOMES CORPORATION CONSOLIDATED BALANCE SHEETS (all dollar amounts are in thousands of U.S. dollars) (Unaudited)June 30,
    
    December 31,Note
    
    2004
    
    2003AssetsHousing and land inventory
    
    2
    
    $
    680,548
    
    
    $
    567,302Investments in housing and land joint ventures
    
    3
    
    
    76,590
    
    
    
    78,198Consolidated land inventory not owned
    
    2
    
    
    20,925
    
    
    
    25,542Receivables and other assets
    
    
    
    
    64,258
    
    
    
    80,346Cash and cash equivalents
    
    4
    
    
    81,177
    
    
    
    218,606Deferred tax asset
    
    
    
    
    45,915
    
    
    
    43,446$
    969,413
    
    
    $
    1,013,440Liabilities and EquityProject specific and other financings
    
    
    
    $
    484,066
    
    
    $
    426,311Accounts payable and other liabilities
    
    
    
    
    157,834
    
    
    
    145,090Subordinated debt
    
    5
    
    
    137,294
    
    
    
    Minority interest
    
    2
    
    
    58,533
    
    
    
    59,781Stockholders equity
    
    
    
    
    131,686
    
    
    
    382,258$
    969,413
    
    
    $
    1,013,440
 See accompanying notes to financial statements 1




---



##### 



BROOKFIELD HOMES CORPORATION CONSOLIDATED STATEMENTS OF INCOME (all dollar amounts are in thousands of U.S. dollars, except per share amounts) (Unaudited)Three Months Ended June 30,
    
    Six Months Ended June 30,Note
    
    2004
    
    2003
    
    2004
    
    2003RevenueHousing
    
    
    
    $
    212,080
    
    
    $
    183,343
    
    
    $
    351,038
    
    
    $
    264,786Land and other revenues
    
    
    
    
    16,367
    
    
    
    5,953
    
    
    
    20,598
    
    
    
    66,285Equity in earnings from housing and land
joint ventures
    
    
    
    
    3,142
    
    
    
    10,363
    
    
    
    3,993
    
    
    
    12,576231,589
    
    
    
    199,659
    
    
    
    375,629
    
    
    
    343,647Direct Cost of Sales
    
    
    
    
    174,827
    
    
    
    152,983
    
    
    
    280,998
    
    
    
    256,66456,762
    
    
    
    46,676
    
    
    
    94,631
    
    
    
    86,983Selling, general & administrative expense
    
    
    
    
    17,200
    
    
    
    16,819
    
    
    
    33,371
    
    
    
    26,554Interest expense
    
    2
    
    
    6,100
    
    
    
    7,512
    
    
    
    9,980
    
    
    
    13,023Minority interest
    
    
    
    
    4,661
    
    
    
    2,400
    
    
    
    6,807
    
    
    
    3,174Net Income Before Taxes
    
    
    
    
    28,801
    
    
    
    19,945
    
    
    
    44,473
    
    
    
    44,232Income tax expense
    
    
    
    
    10,945
    
    
    
    7,985
    
    
    
    16,900
    
    
    
    17,692Net Income
    
    
    
    $
    17,856
    
    
    $
    11,960
    
    
    $
    27,573
    
    
    $
    26,540Earnings
Per Share  Basic
    
    1
    
    $
    0.58
    
    
    $
    0.37
    
    
    $
    0.89
    
    
    $
    0.83Earnings
Per Share  Diluted
    
    1
    
    $
    0.56
    
    
    $
    0.37
    
    
    $
    0.87
    
    
    $
    0.82
 See accompanying notes to financial statements 2




---



##### 



BROOKFIELD HOMES CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (all dollar amounts are in thousands of U.S. dollars) (Unaudited)Six Months Ended June 30,Note
    
    2004
    
    2003Preferred
stock  opening balance
    
    
    
    $
    
    
    
    $
    Common stock
 opening balance
    
    
    
    
    299,043
    
    
    
    320,738Retained
earnings  opening balance
    
    
    
    
    83,215
    
    
    
    Exercise of stock options
    
    
    
    
    2,255
    
    
    
    Repurchase of common shares
    
    
    
    
    
    
    
    
    (1,336
    )Net income
    
    
    
    
    27,573
    
    
    
    26,540Regular dividend
    
    
    
    
    (2,471
    )
    
    
    (2,562
    )Special dividend
    
    5
    
    
    (277,929
    )
    
    
    Total
stockholders equity  end of period
    
    
    
    $
    131,686
    
    
    $
    343,380Authorized and issued shares:Preferred
stock  10,000,000 shares authorized, no shares issuedCommon stock
 65,000,000 shares authorized, 30,966,032 shares
issued and outstanding at June 30, 2004 (excluding 1,107,749
treasury shares with a cost of $21,610)
 See accompanying notes to financial statements 3




---



##### 



BROOKFIELD HOMES CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (all dollar amounts are in thousands of U.S. dollars) (Unaudited)Three Months Ended June 30,
    
    Six Months Ended June 30,2004
    
    2003
    
    2004
    
    2003Cash Flows From Operating ActivitiesNet income
    
    $
    17,856
    
    
    $
    11,960
    
    
    $
    27,573
    
    
    $
    26,540Adjustments to reconcile net income to net cash (used
in)/provided by operating activities:Undistributed income from housing and land joint
ventures
    
    
    
    
    
    
    (594
    )
    
    
    
    
    
    
    (2,807
    )Minority interest
    
    
    4,661
    
    
    
    2,400
    
    
    
    6,807
    
    
    
    3,174Provision for deferred income taxes
    
    
    (5,872
    )
    
    
    7,985
    
    
    
    (2,469
    )
    
    
    17,692Stock option expense
    
    
    1,283
    
    
    
    935
    
    
    
    5,695
    
    
    
    1,258Changes in operating assets and liabilities:Decrease/(increase) in receivables and other assets
    
    
    (45
    )
    
    
    (5,429
    )
    
    
    16,088
    
    
    
    8,185Increase in housing and land inventory
    
    
    (46,301
    )
    
    
    (4,221
    )
    
    
    (113,542
    )
    
    
    (22,549
    )Increase in accounts payable and other liabilities
    
    
    5,620
    
    
    
    11,242
    
    
    
    9,219
    
    
    
    4,165Net cash (used in)/provided by operating activities
    
    
    (22,798
    )
    
    
    24,278
    
    
    
    (50,629
    )
    
    
    35,658Cash Flows From Investing ActivitiesNet recovery from/(investment in) housing and land
joint ventures
    
    
    (1,436
    )
    
    
    2,939
    
    
    
    1,608
    
    
    
    (805
    )Net cash provided by/(used in) investing activities
    
    
    (1,436
    )
    
    
    2,939
    
    
    
    1,608
    
    
    
    (805
    )Cash Flows From Financing ActivitiesNet borrowings/(repayments) under revolving project
specific and other financings
    
    
    27,492
    
    
    
    (9,069
    )
    
    
    57,755
    
    
    
    26,174Repayment of subordinated debt
    
    
    
    
    
    
    (24,000
    )
    
    
    
    
    
    
    (58,300
    )Net (distributions to)/contributions from minority
interest
    
    
    (119
    )
    
    
    160
    
    
    
    (3,142
    )
    
    
    1,597Repurchase of common shares
    
    
    
    
    
    
    (1,336
    )
    
    
    
    
    
    
    (1,336
    )Exercise of stock options
    
    
    85
    
    
    
    
    
    
    
    85
    
    
    
    Dividends paid in cash
    
    
    (143,106
    )
    
    
    (2,562
    )
    
    
    (143,106
    )
    
    
    (2,562
    )Net cash used in financing activities
    
    
    (115,648
    )
    
    
    (36,807
    )
    
    
    (88,408
    )
    
    
    (34,427
    )(Decrease)/increase in cash and cash equivalents
    
    
    (139,882
    )
    
    
    (9,590
    )
    
    
    (137,429
    )
    
    
    426Cash and cash equivalents at beginning of period
    
    
    221,059
    
    
    
    45,919
    
    
    
    218,606
    
    
    
    35,903Cash and cash equivalents at end of period
    
    $
    81,177
    
    
    $
    36,329
    
    
    $
    81,177
    
    
    $
    36,329Supplemental Cash Flow InformationInterest paid
    
    $
    7,032
    
    
    $
    4,233
    
    
    $
    11,452
    
    
    $
    8,854Decrease in consolidated land inventory not owned
    
    $
    11,298
    
    
    $
    
    
    
    $
    4,913
    
    
    $
    Dividends paid through issuance of subordinated debt
    
    $
    137,294
    
    
    $
    
    
    
    $
    137,294
    
    
    $
    
 See accompanying notes to financial statements 4




---



##### 



BROOKFIELD HOMES CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Tabular amounts in $U.S. thousands except per share amounts) Note 1. Significant Accounting Policies  (a)
    
    Basis of Presentation Brookfield Homes Corporation (the Company or Brookfield Homes) was
incorporated on August 28, 2002 as a wholly-owned subsidiary of Brookfield
Properties Corporation (Brookfield Properties) to acquire as of October 1,
2002 all of the California and Northern Virginia homebuilding and land
development operations (the Land and Housing Operations) of Brookfield
Properties pursuant to a reorganization of its business (the Spin-off). On
January 6, 2003, Brookfield Properties completed the Spin-off by distributing
all of the issued and outstanding common stock it owned in the Company to its
common stockholders. Brookfield Homes began trading as a separate company on
the New York Stock Exchange on January 7, 2003. These financial statements have been prepared in conformity with accounting
principles generally accepted in the United States of America (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. The financial statements have been prepared by management without audit by
independent public accountants and should be read in conjunction with the
December 31, 2003 audited financial statements in the Companys Annual Report
on Form 10-K for the year then ended. However, in the opinion of management,
all adjustments necessary for fair presentation of the accompanying
consolidated condensed financial statements have been made. The Company historically has experienced, and expects to continue to
experience, variability in quarterly results. The consolidated statements of
income for the three and six months ended June 30, 2004 are not necessarily
indicative of the results to be expected for the full year. In addition,
certain of the comparative figures have been reclassified to conform with the
current years presentation. The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the amounts reported
in the financial statements and accompanying notes. Actual results could
differ from those estimates.  (b)
    
    Earnings Per Share Earnings per share is computed in accordance with Statement of Financial
Accounting Standards (SFAS) 128. The weighted average number of common shares
outstanding used in the calculation of basic earnings per share for the three
months ended June 30, 2004 and 2003 were 30.9 million and 32.0 million,
respectively, and for the six months ended June 30, 2004 and 2003 were 30.9
million and 32.1 million, respectively. Diluted earnings per share for the
three months ended June 30, 2004 and 2003 were calculated on the basis that
there were 31.6 million and 32.3 million shares outstanding, respectively, and
for the six months ended June 30, 2004 and 2003 there were 31.5 million and
32.3 million shares outstanding, respectively, reflecting the dilutive impact
of options issued by the Company.  (c)
    
    Recent Accounting Pronouncements In April 2003, the FASB issued SFAS 149, Amendment of SFAS 133 on Derivative
Instruments and Hedging Activities (SFAS 149). SFAS 149 amends and clarifies
accounting for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities under SFAS No. 133
Accounting for Derivative Instruments and Hedging Activities (SFAS 133). In
particular, it: clarifies under what circumstances a contract with an initial
net investment meets the characteristic of a derivative; clarifies when a
derivative contains a financing component; amends the definition of an
underlying derivative; and amends certain other existing pronouncements. SFAS
149 is generally effective for contracts entered into or modified after June
30, 2003 and for hedging relationships designated after June 30, 2003. The
adoption of SFAS 149 by the Company has not had a material impact on the
results of operations or financial conditions. 5




---



##### 



BROOKFIELD HOMES CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Tabular amounts in $U.S. thousands except per share amounts) In May 2003, the FASB issued SFAS 150, Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity (SFAS 150).
SFAS 150 establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity. It requires that an issuer classify a financial instrument that is
within its scope as a liability (or an asset in some circumstances). Many of
those instruments were previously classified as equity. Some of the provisions
of this Statement are consistent with the current definition of liabilities in
FASB Concepts Statement No. 6, Elements of Financial Statements. The
remaining provisions of this Statement are consistent with the proposal to
revise that definition to encompass certain obligations that a reporting entity
can or must settle by issuing its own equity shares, depending on the nature of
the relationship established between the holder and the issuer. SFAS 150 is
effective for financial instruments entered into or modified after May 31,
2003, and otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003. The adoption of SFAS 150 by the Company has not
had a material impact on the results of operations or financial condition. In December 2003, the FASB issued revised Interpretation 46 (FIN 46R),
Consolidation of Variable Interest Entities (VIEs), an Interpretation of
Accounting Research Bulletin 51, Consolidated Financial Statements, and
replaces the previous version of FASB Interpretation 46 issued in January 2003
(FIN 46). This interpretation applied immediately to variable interest
entities created after January 31, 2003. A company that holds a variable
interest in a VIE it acquired before February 1, 2003 shall apply the provision
of this interpretation no later than the first fiscal year or interim period
ending after March 15, 2004 unless those entities are considered to be special
purpose entities in which the application is to be no later than the end of the
first reporting period that ends after December 15, 2003. This interpretation
may be applied prospectively with a cumulative-effect adjustment as of the date
on which it is first applied or by restating previously issued financial
statements for one or more years with a cumulative-effect adjustment as of the
beginning of the first year restated. The Company applied the provision of this
new pronouncement effective January 1, 2003 but did not restate any previously
issued financial statements. The decision whether to consolidate a VIE begins
with establishing that a VIE exists. A VIE exists when either the total equity
investment at risk is not sufficient to permit the entity to finance its
activities by itself, or the equity investor lack one of three characteristics
associated with owning a controlling financial interest. Those characteristics
are the direct or indirect ability to make decisions about the entitys
activities through voting rights or similar rights, the obligation to absorb
the expected losses of an entity, and the right to receive the expected
residual returns. The entity with the majority of the expected losses or
expected residual return is considered to be the primary beneficiary of the
entity and is required to consolidate such entity. The Company has determined
they are the primary beneficiary of certain VIEs which are presented in these
financial statements under Consolidated land inventory not owned with the
interest of others included in Minority interest. See Notes 2 and 3 for
further discussion on the consolidation of land options contracts and joint
ventures. Note 2. Housing and Land Inventory Housing and land inventory includes homes completed and under construction,
model homes and land under and held for development which will be used in the
Companys homebuilding operations or sold as building lots to other
homebuilders. The following summarizes the components of housing and land
inventory: June 30,
    
    December 31,2004
    
    2003Housing under construction
    
    $
    309,713
    
    
    $
    200,553Model homes
    
    
    28,443
    
    
    
    21,029Land and land under development
    
    
    342,392
    
    
    
    345,720$
    680,548
    
    
    $
    567,302
 6




---



##### 



BROOKFIELD HOMES CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Tabular amounts in $U.S. thousands except per share amounts) The Company capitalizes interest which is expensed as housing units and
building lots are sold. For the three months ended June 30, 2004 and 2003 and
for the six months ended June 30, 2004 and 2003, interest incurred and
capitalized by the Company was $7.0 million, $4.2 million, $11.5 million and
$8.9 million, respectively. Capitalized interest expensed for the same periods
was $6.1 million, $7.5 million, $10.0 million and $13.0 million, respectively. In the ordinary course of business, the Company has entered into a number of
option contracts to acquire lots in the future in accordance with specific
terms and conditions of such agreements. Under these option contracts, 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 245 lots with aggregate exercise prices of $20.9
million (December 31, 2003  $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
$18.9 million (December 31, 2003  $23.8 million) for the assumed third party
investment in the VIE. Where the land sellers are not required to provide the
Company with 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 $26.4 million (December 31, 2003  $16.0 million) in connection with
options that are not required to be consolidated under the provisions of FIN
46R. The total exercise price of these options is $444.9 million (December 31,
2003  $362.7 million) including the non-refundable deposits identified above.
The number of lots for which the Company has obtained an option to purchase,
excluding those already consolidated, and their respective dates of expiry and
their exercise price are as follows: TotalExerciseYear of Expiry
    
    Number of Lots
    
    Price2004
    
    
    327
    
    
    $
    28,4742005
    
    
    1,112
    
    
    
    108,5032006
    
    
    2,118
    
    
    
    47,175Thereafter
    
    
    7,869
    
    
    
    260,72211,426
    
    
    $
    444,874
 Note 3. Investments in Housing and Land Joint Ventures The Company participates in a number of joint ventures in which it has less
than a controlling interest. Summarized condensed financial information on a
combined 100% basis of the joint ventures is as follows: June 30,
    
    December 31,2004
    
    2003AssetsHousing and land inventory
    
    $
    357,923
    
    
    $
    310,324Other assets
    
    
    56,972
    
    
    
    42,729$
    414,895
    
    
    $
    353,053Liabilities and EquityAccounts payable and other liabilities
    
    $
    25,857
    
    
    $
    15,606Project specific financings
    
    
    214,170
    
    
    
    182,452Investment and advancesBrookfield Homes
    
    
    76,590
    
    
    
    78,198Others
    
    
    98,278
    
    
    
    76,797$
    414,895
    
    
    $
    353,053
 7




---



##### 



BROOKFIELD HOMES CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Tabular amounts in $U.S. thousands except per share amounts) Three Months Ended June 30,
    
    Six Months Ended June 30,2004
    
    2003
    
    2004
    
    2003Revenue and ExpensesRevenue
    
    $
    41,414
    
    
    $
    67,957
    
    
    $
    61,092
    
    
    $
    104,551Expenses
    
    
    (27,771
    )
    
    
    (45,358
    )
    
    
    (45,576
    )
    
    
    (76,414
    )Net income
    
    $
    13,643
    
    
    $
    22,599
    
    
    $
    15,516
    
    
    $
    28,137Companys share of net income
    
    $
    3,142
    
    
    $
    10,363
    
    
    $
    3,993
    
    
    $
    12,576
 In reporting the Companys share of net income, all inter-company profits or
losses from housing and land joint ventures are eliminated on lots purchased by
the Company. 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 requirement of FIN 46R. The Company and/or its joint venture partners have provided varying levels of
guarantees of debt in its joint ventures. At June 30, 2004, the Company had
recourse guarantees of $62.7 million and limited maintenance guarantees of
$30.9 million with respect to debt in its joint ventures. Note 4. Other (a) The Company had demand deposits of $85.0 million at June 30, 2004 (December
31, 2003  $205.0 million) with a financial subsidiary of the Companys largest
stockholder, Brascan Corporation. (b) When selling a home, it is normal course for the Company to provide
customers with standard product one year limited warranties. The following
summarizes the product warranties accrual recorded as part of accounts payable
and other liabilities in the Consolidated Balance Sheet as at June 30: 2004Balance, January 1, 2004
    
    $
    11,417Payments made during the period
    
    
    (2,163
    )Warranties issued during the period
    
    
    3,821Balance, June 30, 2004
    
    $
    13,075
 Note 5. 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 are unsecured and subordinated to all
project specific and other financings of the Company. The subordinated notes
are redeemable by the Company at par at any time. 8




---



##### 



Item 2.
    Managements Discussion and Analysis of Financial Condition and
Results of Operations 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 elsewhere in this report and in our Annual Report
on Form 10-K for the year ended December 31, 2003. Overview We design, construct and market single-family and multi-family homes primarily
to move-up and luxury homebuyers and develop land for our operations as well as
for sale to other homebuilders. Our operations are currently focused primarily
in five markets: San Francisco Bay Area; Southland / Los Angeles; San Diego /
Riverside; Sacramento and Northern Virginia. Our goal is to maximize the total
return on our common stockholders equity over the long term. We control 23,104 lots of which we own 11,433 directly or through joint
ventures. Our lots provide a strong foundation for our future homebuilding
business as well as visibility on our future cash flow and earnings. The lots
we control represent a 12 year lot supply, based on the average of our fiscal
year 2004 and 2005 planned home closings. Homebuilding is our primary source of revenue and has represented approximately
90% of our total revenue since 1999. Our operations are positioned to close
between 1,700 and 2,000 homes per year. Operating in markets with higher price
points and catering to move-up and luxury buyers, our average sales price as of
June 30, 2004 of $609,000 was well in excess of the national average sales
price of approximately $245,000. We also sell serviced and unserviced lots to
other homebuilders generally on an opportunistic basis where we can enhance our
returns, reduce risk in a market or redeploy capital to an asset providing
higher returns. In addition to our housing and land inventory and investments in housing and
land joint ventures, which together comprised 80% of our total assets as of
June 30, 2004, we had $81 million in cash and cash equivalents and $110 million
in other assets. Other assets consist of homebuyer receivables of $21 million,
deferred taxes of $46 million, and mortgages and other receivables of $43
million. Homebuyer receivables consist primarily of proceeds due from
homebuyers on the closing of homes. Our mortgages receivable and other
receivables relate primarily to land assets we have sold or on which we have
granted options to purchase. Since 1999, our revenues and net income have grown at compounded annual growth
rates of 16% and 34%, respectively. Over this period, we generated
approximately $400 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 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. Special Dividend On April 30, 2004, we paid a special dividend of $9.00 per common share, or
$277.9 million in the aggregate, payable partly in cash and partly in principal
amount of the Companys 12% senior subordinated notes due June 30, 2020. The
subordinated notes, which total $137.3 million are unsecured and subordinated
to all our project specific and other financings. The subordinated notes are
redeemable by us at par at any time. In declaring the special dividend, we considered our strong operating results
and the cash received from bulk lot sales during 2003. While our net debt to
capitalization has increased significantly in the short term, we believe we
will generate strong operating cash flow during the remainder of 2004 and 2005
to significantly improve this ratio.  9




---



##### 



Results of Operations Three Months Ended June 30,
    
    Six Months Ended June 30,2004
    
    2003
    
    2004
    
    2003Selected Financial Information ($ millions)Revenue:Housing
    
    $
    212
    
    
    $
    184
    
    
    $
    351
    
    
    $
    265Land and other revenues
    
    
    17
    
    
    
    6
    
    
    
    21
    
    
    
    66Equity in earnings from housing and land joint ventures
    
    
    3
    
    
    
    10
    
    
    
    4
    
    
    
    13Total revenues
    
    
    232
    
    
    
    200
    
    
    
    376
    
    
    
    344Cost of sales
    
    
    175
    
    
    
    153
    
    
    
    281
    
    
    
    257Gross margin
    
    
    57
    
    
    
    47
    
    
    
    95
    
    
    
    87Selling, general and administrative expense
    
    
    17
    
    
    
    17
    
    
    
    33
    
    
    
    27Interest expense
    
    
    6
    
    
    
    8
    
    
    
    10
    
    
    
    13Operating income
    
    
    34
    
    
    
    22
    
    
    
    52
    
    
    
    47Minority interest
    
    
    5
    
    
    
    2
    
    
    
    7
    
    
    
    3Net income before taxes
    
    
    29
    
    
    
    20
    
    
    
    45
    
    
    
    44Income tax expense
    
    
    11
    
    
    
    8
    
    
    
    17
    
    
    
    17Net income
    
    $
    18
    
    
    $
    12
    
    
    $
    28
    
    
    $
    27Selected Operating DataHome closings (units):San Francisco Bay Area
    
    
    75
    
    
    
    69
    
    
    
    129
    
    
    
    100Southland / Los Angeles
    
    
    115
    
    
    
    68
    
    
    
    173
    
    
    
    104San Diego / Riverside
    
    
    46
    
    
    
    96
    
    
    
    97
    
    
    
    133Northern Virginia
    
    
    96
    
    
    
    91
    
    
    
    177
    
    
    
    146Consolidated total
    
    
    332
    
    
    
    324
    
    
    
    576
    
    
    
    483Unconsolidated joint ventures
    
    
    13
    
    
    
    37
    
    
    
    26
    
    
    
    64Total
    
    
    345
    
    
    
    361
    
    
    
    602
    
    
    
    547Average selling price:San Francisco Bay Area
    
    $
    695,000
    
    
    $
    626,000
    
    
    $
    715,000
    
    
    $
    600,000Southland / Los Angeles
    
    
    802,000
    
    
    
    1,047,000
    
    
    
    778,000
    
    
    
    968,000San Diego / Riverside
    
    
    433,000
    
    
    
    292,000
    
    
    
    365,000
    
    
    
    294,000Northern Virginia
    
    
    498,000
    
    
    
    451,000
    
    
    
    502,000
    
    
    
    445,000Average
    
    $
    639,000
    
    
    $
    566,000
    
    
    $
    609,000
    
    
    $
    548,000Net new orders (units): (1)San Francisco Bay Area
    
    
    140
    
    
    
    108
    
    
    
    271
    
    
    
    188Southland / Los Angeles
    
    
    136
    
    
    
    98
    
    
    
    276
    
    
    
    159San Diego / Riverside
    
    
    243
    
    
    
    180
    
    
    
    404
    
    
    
    331Northern Virginia
    
    
    123
    
    
    
    193
    
    
    
    258
    
    
    
    323Total
    
    
    642
    
    
    
    579
    
    
    
    1,209
    
    
    
    1,001Backlog (units at end of period): (2)San Francisco Bay Area
    
    
    255
    
    
    
    134Southland / Los Angeles
    
    
    288
    
    
    
    178San Diego / Riverside
    
    
    421
    
    
    
    317Northern Virginia
    
    
    318
    
    
    
    356Total
    
    
    1,282
    
    
    
    985Lots Controlled: (3)San Francisco Bay Area
    
    
    3,866
    
    
    
    3,356Southland / Los Angeles
    
    
    2,499
    
    
    
    1,445San Diego / Riverside
    
    
    6,903
    
    
    
    9,081Sacramento
    
    
    4,520
    
    
    
    1,800Virginia
    
    
    5,316
    
    
    
    4,650Total
    
    
    23,104
    
    
    
    20,332
   (1)
    
    Net new orders for any period represent the aggregate of all homes ordered
by customers, net of cancellations for consolidated projects.(2)
    
    Backlog represents the number of new homes subject to pending sales
contracts for consolidated projects.(3)
    
    Lots controlled represents the total of residential lots owned and lots
controlled under option. 10




---



##### 



Three Months and Six Months Ended June 30, 2004 Compared with Three Months and
Six Months Ended June 30, 2003 Net Income Net income was $18 million and $28 million for the three months and six months
ended June 30, 2004, an increase of $10 million and $15 million, respectively,
over the three and six months ending June 30, 2003, excluding net income of $4
million and $14 million, respectively, from the bulk sale of lots in southern
California in 2003. The increase in net income for the three and six months
ended June 30, 2004 was primarily due to continued strong market conditions in
all our markets. Results of Operations Housing revenues were $212 million and $351 million for the three and six
months ended June 30, 2004, an increase of $28 million and $86 million,
respectively, over the three and six months ending June 30, 2003. The increase
in housing revenue for the three months ending June 30, 2004 was due primarily
to a 13% increase in our average selling price to $639,000. The gross margin on housing revenues for the three months ended June 30, 2004
was $48 million or 22.5% compared with $35 million or 19.2% for the same period
in 2003. The gross margin on housing revenues for the six months ended June 30,
2004 was $82 million or 23.4% compared with $53 million or 20.2% for the same
period in 2003. The increase in the gross margin percentage is due to continued
strong market conditions in all our markets. Land and other revenues for the three months ended June 30, 2004 were $17
million, an increase of $11 million over the same period in 2003. For the six
months ended June 30, 2004, land and other revenues totaled $21 million, a
decrease of $45 million compared to the same period in 2003. The decrease for
the six month period was primarily the result of the $52 million bulk sale of
2,600 lots in 2003 in Riverside County, California. Our land revenues may vary
significantly from period to period due to the timing and the nature of land
sales as they generally occur on an opportunistic basis. The gross margin on land and other revenues for the three and six months ended
June 30, 2004 was $6 million and $9 million, respectively, compared with $1
million and $21 million for the same periods in 2003. The increase for the
three month period ended June 30, 2004 was due primarily to the close-out of
our $60 million interest rate swap contract for a gain of $3 million. The
decrease for the six month period ended June 30, 2004 was primarily the result
of $18 million realized on the sale of 2,600 lots in 2003 in Riverside County,
California. Equity in earnings from housing and land joint ventures for the three and six
months ended June 30, 2004 was $3 million and $4 million, respectively,
compared with $10 million and $13 million for the same periods in 2003. The
decrease for the three and six months ended June 30, 2004 was primarily the
result of the contribution of $7 million from the bulk sale of certain lots in
southern California in 2003. Other Expenses Selling, general and administrative expense for the three and six months ended
June 30, 2004 was $17 million and $33 million, respectively, compared to $17
million and $27 million for the same periods in 2003. The increase for the six
month period ended June 30, 2004 was primarily a result of additional active
projects and an increase in stock option expense of $4 million over the same
period in 2003. Excluding stock option expense, selling, general and
administrative expense as a percentage of housing revenue was 7.5% and 7.9%,
respectively, for the three and six months ended June 30, 2004 compared with
8.7% and 9.6% for the same periods in 2003. Our selling, general and
administrative expense as a percentage of annual housing revenue is targeted to
be 8%, however, the percentage will fluctuate between quarters depending on the
number of homes closed in any particular quarter. Interest expense as a percentage of total revenue was 3% for the three and six
months ended June 30, 2004, compared with 4% for the same periods in 2003.
Given that we capitalize interest costs to our projects, our level of interest
expense may vary from period to period due to the mix of the projects that have
home closings. Sales Activity Net new orders increased by 63 units for the three months ended June 30, 2004,
compared to the same period in 2003. The increase was due mainly to continued
strong market conditions in California. Net new orders for the first six months
of 2004 of 1,209 units, added to the order backlog at December 31, 2003 of 649
units, totaled at June 30, 2004, in excess of our 1,850 planned home closings
for 2004. 11




---



##### 



Liquidity and Capital Resources Financial Position Our total assets as of June 30, 2004 were $969 million, a decrease of $44
million compared to December 31, 2003. The decrease is due primarily to a
reduction in cash and cash equivalents as a result of our special dividend
offset by an increase in our housing and land inventory. The increase in our
housing and land inventory is due to a higher number of homes under
construction as a result of our significant increase in sales backlog. Our total debt as of June 30, 2004 was $621 million, an increase of $195
million compared to December 31, 2003. The increase in debt is due primarily to
the issue of 12% subordinated notes in connection with our special dividend.
Total debt as of June 30, 2004 consisted mainly of project specific financings
which represent construction and development loans that are repaid from home
and lot sales proceeds. As new homes are constructed, further loan facilities
are arranged on a rolling basis. Our major project specific lenders are Bank of
America, Housing Capital Corporation and Wells Fargo. Other debt comprises 12%
subordinated notes and deferred compensation on which interest is paid at
prime. As of June 30, 2004, the average interest rate on our debt was 6.4% with
maturities as follows: Maturities($ millions)
    
    2004
    
    2005
    
    2006
    
    Post 2006
    
    TotalSan Francisco Bay Area
    
    $
    59
    
    
    $
    26
    
    
    $
    
    
    
    $
    
    
    
    $
    85Southland / Los Angeles
    
    
    56
    
    
    
    59
    
    
    
    
    
    
    
    
    
    
    
    115San Diego / Riverside
    
    
    95
    
    
    
    56
    
    
    
    15
    
    
    
    
    
    
    
    166Northern Virginia
    
    
    
    
    
    
    27
    
    
    
    38
    
    
    
    
    
    
    
    65Other
    
    
    20
    
    
    
    18
    
    
    
    15
    
    
    
    137
    
    
    
    190Total
    
    $
    230
    
    
    $
    186
    
    
    $
    68
    
    
    $
    137
    
    
    $
    621
 Cash Flow Our principal uses of working capital include purchases of land, land
development and home construction. Cash flows for each of our communities
depend upon the applicable stage of the development cycle and can differ
substantially from reported earnings. Early stages of development require
significant cash outlays for land acquisitions, site approvals and
entitlements, construction of model homes, roads, certain utilities and other
amenities and general landscaping. Because these costs are capitalized, income
reported for financial statement purposes during such early stages may
significantly exceed cash flow. Later, cash flow can significantly exceed
earnings reported for financial statement purposes, as cost of sales includes
charges for substantial amounts of previously expended costs. Cash used in our operating activities during the six months ended June 30, 2004
was $51 million compared with cash provided of $36 million for the same period
in 2003. The cash used in the first six months of 2004 was a result of
significant expenditures on the construction of our homes in sales backlog. Our
cash generated in the first six months of 2003 was due primarily to the sale of
lots in Riverside County, California. Cash provided in our investing activities in joint ventures for the six months
ended June 30, 2004 was $2 million, compared to cash used of $1 million for the
same period in 2003. Cash used in our financing activities for the six months ended June 30, 2004
was $88 million compared with $34 million for the same period in 2003. Cash
used in our financing activities through the first six months of 2004 was
primarily a result of the payment of dividends. Contractual Obligations and Other Commitments We generally fund the development of our communities through the use of project
specific financings. As of June 30, 2004, we had project specific debt lines of
$213 million available to complete land development and construction
activities. A total of $416 million of our project specific and other financings mature
prior to the end of 2005. The high level of maturities in 2004 and 2005 is due
to our expected project completions over this period. Although the level of our
maturing debt is high, we expect to generate cash flow from our assets in 2004
and 2005 to repay these obligations. Our net debt to total capitalization ratio
as of June 30, 2004, which is defined as total interest-bearing debt less cash
divided by total interest-bearing debt less cash plus stockholders equity and
minority interest, was 74% compared to 34% at March 31, 2004. The increase in
this ratio is a result of our special dividend reducing our stockholders
equity by $278 million. We expect to improve this ratio significantly by the
end of 2004 as we expect to generate at least $100 million in
cash flow from operations during the year and additional net income of $103
million in the remainder of 2004 based on our current earnings guidance. For a
description of the specific risks facing us if, for any reason, we are unable
to 12




---



##### 



meet these obligations, refer to the section of our 2003 Annual Report on
Form 10-K entitled Risk Factors  Our Debt and Leverage Could Adversely
Affect our Financial Condition. In May 2004, we closed out our $60 million interest rate swap contract and as a
result realized a gain of $2.7 million. Off-Balance Sheet Arrangements In the ordinary course of business, we use lot option contracts and joint
ventures to acquire control of land to mitigate the risk of declining land
values. Option contracts for the purchase of land permit us to control lots for
an extended period of time, until options expire and/or we are ready to
construct homes or sell the land. This reduces our financial risk associated
with land holdings. As of June 30, 2004, we had $28 million of primarily
non-refundable option deposits and advanced costs. The total exercise price of
these options is $466 million. Pursuant to FIN 46R, as defined in Note 1 to our
consolidated financial statements included elsewhere in this Form 10-Q, we have
consolidated $21 million of these option contracts. Please see Note 2 to our consolidated financial statements included elsewhere
in this Form 10-Q for additional information on our lot options. We also control 3,995 lots through joint ventures, formed to own housing and
land assets with joint venture partners. As of June 30, 2004, our investment in
housing and land joint ventures was $77 million. We have provided varying
levels of guarantees of debt in our joint ventures. As of June 30, 2004, we had
recourse guarantees of $63 million and limited maintenance guarantees of $31
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 June 30, 2004, we had for these purposes $17 million in letters of credit
outstanding and $260 million in performance bonds for these purposes.
The cost to complete related to our letters of credit and performance bonds are $13 million
and $99 million, respectively. We do not
believe that any of these letters of credit or bonds are likely to be drawn
upon. Forward-Looking Statements This quarterly report on Form 10-Q contains forward-looking statements within
the meaning of the United States federal securities laws. The words may,
believe, will, anticipate, expect, estimate, project, future, and
other expressions which are predictions of or indicate future events and trends
and which do not relate to historical matters identify forward-looking
statements. The forward-looking statements in this quarterly report on Form
10-Q include, among others, statements with respect to:  
    
    expected home closings and project completions and the timing thereof;
    
    expected lot supply;
    
    estimates of revenues, cash flows, net income, debt levels and debt to capitalization ratio;
    
    the visibility on our future cash flow and earnings;
    
    sources of future growth;
    
    the effect of interest rate changes on our cash flows;
    
    targeted selling, general and administrative expenses as a percentage of housing revenue;
    
    the effect on our business of existing lawsuits; and
    
    whether or not our letters of credit or performance bonds will be drawn upon. Undue 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; 13




---



##### 




    
    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 our Form 10-K for the year ended December 31, 2003 and our other
SEC filings. 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. Item 3. Quantitative and Qualitative Disclosures About Market Risk Exchange Rates We conduct business in U.S. dollars only, so we are not exposed to currency
risks. Interest Rates We are exposed to financial risks that arise from the fluctuations in interest
rates. Our interest bearing assets and liabilities are mainly at floating
rates, so we would be negatively affected, on balance, if interest rates
increase. Based on our debt levels as of June 30, 2004, a 1% change up or down
in interest rates would have either a positive or negative effect of
approximately $5 million on our cash flows. Item 4. Controls and Procedures (a) Evaluation of Disclosure Controls and Procedures. As of the end of our
fiscal quarter ended June 30, 2004, an evaluation of the effectiveness of our
disclosure controls and procedures (as such term is 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 the end of such fiscal
quarter our disclosure controls and procedures are effective to ensure that
information required to be disclosed by us in reports that we file or submit
under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in Securities and Exchange Commission rules and
forms. It should be noted that while our management, including the CEO and CFO,
believe our disclosure controls and procedures provide a reasonable level of
assurance, they do not expect that our disclosure controls and procedures or
internal controls will prevent all error and all fraud. A control system, no
matter how well conceived or operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system are met. (b) Changes in Internal Control over Financial Reporting. There was no change
in our internal control over financial reporting during the quarter ended June
30, 2004, that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting. 14




---



##### 



PART II. OTHER INFORMATION Item 1. 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 2. Changes in Securities and Use of Proceeds None. Item 3. Defaults Upon Senior Securities None. Item 4. Submission of Matters to a Vote of Security Holders Our 2004 Annual Meeting of Stockholders was held on May 4, 2004. The following
proposals were submitted to and approved by security holders at the Annual
Meeting. All numbers reported are shares of our common stock. 1.     The election of nine directors to hold office in accordance with our By-laws
until the 2005 Annual Meeting of Stockholders and until their respective
successors have been duly elected and qualified. Nominee
    
    For
    
    Withheld AuthorityGordon E. Arnell
    
    
    27,585,938
    
    
    
    297,350Ian G. Cockwell
    
    
    27,690,953
    
    
    
    192,335Robert A. Ferchat
    
    
    27,743,190
    
    
    
    140,098J. Bruce Flatt
    
    
    27,682,258
    
    
    
    201,030Bruce T. Lehman
    
    
    27,731,583
    
    
    
    151,705Alan Norris
    
    
    27,684,255
    
    
    
    199,033David M. Sherman
    
    
    27,866,811
    
    
    
    16,477Robert L. Stelzl
    
    
    27,732,037
    
    
    
    151,251Michael D. Young
    
    
    27,877,302
    
    
    
    5,986
 2.     The ratification of the appointment of Deloitte & Touche LLP as our
independent auditors for the 2004 fiscal year. For
    
    Against
    
    Abstain27,529,769
    
    
    351,777
    
    
    
    1,742
 Item 5. Other Information None. Item 6. Exhibits and Reports on Form 8-K  (a)
    
    Exhibits.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.(b)
    
    Reports on Form 8-K: During the quarter ended June 30, 2004, we filed the following Current Reports
on Form 8-K:  (1)
    
    On April 7, 2004, we filed a Current Report on Form 8-K for the purpose
of filing a press release announcing our net new orders and active selling
communities for the quarterly period ended March 31, 2004.(2)
    
    On May 11, 2004, we filed a Current Report on Form 8-K for the purpose of
filing a press release announcing our earnings and results of operations
for the quarterly period ended March 31, 2004. 15




---



##### 



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 9th day of
August, 2004. BROOKFIELD HOMES CORPORATIONBy:
    /s/ PAUL G. KERRIGANPaul G. KerriganExecutive Vice President, Chief Financial Officer
and Treasurer 16




---



##### 



EXHIBIT INDEX Exhibit
    
    Description31.1
    
    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.