Brookfield Homes Corporation
 

 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
Amendment No. 1
þ  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2006
Commission File Number: 001-31524
BROOKFIELD HOMES CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
     
Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
  37-1446709
(I.R.S. Employer
Identification No.)
 
   
8500 Executive Park Avenue
Suite 300
Fairfax, Virginia

(Address of Principal Executive Offices)
   
 
22031
(Zip Code)
(703) 270-1700
(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 a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer  o          Accelerated filer  þ          Non-accelerated filer  o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes  o          No  þ
As of May 3, 2006, the registrant had outstanding 27,087,206 shares of its common stock, $0.01 par value per share.
 
 

 


 

EXPLANATORY NOTE
This form 10-Q/A is being filed to provide additional segment reporting footnote disclosure. We have restated the accompanying unaudited Consolidated Financial Statements to revise our segment disclosure for all periods presented to disaggregate our operations into four reportable segments. See our revised disclosures in Note 7 to the unaudited Consolidated Financial Statements. Unless otherwise indicated, no information in this Form 10-Q/A has been updated for any subsequent information or events from the original filing.
Conforming changes have been made to Items 1, 2 and 4 of this Form 10-Q/A. The aforementioned changes have no effect on the Company’s unaudited consolidated balance sheets as of March 31, 2006 and December 31, 2005 or unaudited consolidated statements of income and related earnings per share amounts, unaudited consolidated statements of stockholders’ equity or unaudited consolidated statements of cash flows for the three months ended March 31, 2006 and 2005.

 


 

INDEX
BROOKFIELD HOMES CORPORATION
             
PART I.   FINANCIAL INFORMATION   PAGE
 
           
  Financial Statements        
 
           
 
  Consolidated Balance Sheets — March 31, 2006 and December 31, 2005     1  
 
           
 
  Consolidated Statements of Income — Three Months Ended March 31, 2006 and 2005     2  
 
           
 
  Consolidated Statements of Stockholders’ Equity — Three Months Ended March 31, 2006 and 2005     3  
 
           
 
  Consolidated Statements of Cash Flows — Three Months Ended March 31, 2006 and 2005     4  
 
           
 
  Notes to the Consolidated Financial Statements     5  
 
           
  Management’s Discussion and Analysis of Financial Condition and Results of Operations     12  
 
           
  Quantitative and Qualitative Disclosures about Market Risk     18  
 
           
  Controls and Procedures     18  
 
           
PART II.
 
  OTHER INFORMATION
 
        
 
           
  Legal Proceedings     20  
 
           
  Risk Factors     20  
 
           
  Unregistered Sales of Equity Securities and Use of Proceeds     20  
 
           
  Defaults Upon Senior Securities     20  
 
           
  Submission of Matters to a Vote of Security Holders     20  
 
           
  Other Information     20  
 
           
  Exhibits     20  
 
           
        21  
 
           
EXHIBITS
           

 


 

PART I.  FINANCIAL INFORMATION
Item 1.  Financial Statements
BROOKFIELD HOMES CORPORATION
CONSOLIDATED BALANCE SHEETS
(all dollar amounts are in thousands of U.S. dollars)
                         
            March 31,     December 31,  
    Note     2006     2005  
    (Unaudited)          
Assets
                       
Housing and land inventory
    2     $ 999,520     $ 912,617  
Investments in housing and land joint ventures
    3       60,728       53,260  
Consolidated land inventory not owned
    2       18,925       22,100  
Receivables and other assets
            43,323       94,081  
Cash and cash equivalents
            63,915       198,411  
Deferred income taxes
            48,754       49,417  
 
                   
 
          $ 1,235,165     $ 1,329,886  
 
                   
Liabilities and Equity
                       
Project specific and other financings
          $ 672,015     $ 691,410  
Accounts payable and other liabilities
            231,218       320,787  
Minority interest
    2       52,454       53,040  
Preferred stock — 10,000,000 shares authorized, no shares issued
                   
Common — 65,000,000 shares authorized, 32,073,781 shares issued and 27,287,206 outstanding (December 31, 2005 — 32,073,781 shares issued and 27,378,181 outstanding)
            321       321  
Additional paid-in-capital
            146,890       146,249  
Treasury stock, at cost — 4,786,575 shares (December 31, 2005 — 4,695,600 shares)
            (221,860 )     (217,182 )
Retained earnings
            354,127       335,261  
 
                   
 
          $ 1,235,165     $ 1,329,886  
 
                   
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)
                         
            Three Months Ended  
            March 31,  
Revenue   Note     2006     2005  
            (Unaudited)  
Housing
          $ 121,823     $ 143,083  
Land and other revenues
            21,075       9,072  
 
                   
 
            142,898       152,155  
Direct Cost of Sales
    2       (91,724 )     (103,978 )
 
                   
 
            51,174       48,177  
Equity in earnings from housing and land joint ventures
    3       907       7,312  
Selling, general and administrative expense
            (19,253 )     (21,224 )
Minority interest
            (2,251 )     (3,209 )
 
                   
Net Income Before Taxes
            30,577       31,056  
Income tax expense
            (11,711 )     (12,112 )
 
                   
Net Income
          $ 18,866     $ 18,944  
 
                   
Earnings Per Share
                       
Basic
    4     $ 0.69     $ 0.61  
Diluted
    4     $ 0.68     $ 0.60  
Weighted Average Common Shares Outstanding (in thousands)
                       
Basic
    4       27,375       30,865  
Diluted
    4       27,817       31,517  
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)
                 
    Three Months Ended  
    March 31,  
    2006     2005  
    (Unaudited)  
Common Stock
  $ 321     $ 321  
 
           
Additional Paid-in Capital
               
Opening balance
    146,249       142,016  
Stock option exercises
    641        
 
           
Ending balance
    146,890       142,016  
 
           
Treasury Stock
               
Opening balance
    (217,182 )     (22,091 )
Share repurchases
    (9,698 )     (956 )
Stock option exercises
    5,020        
 
           
Ending balance
    (221,860 )     (23,047 )
 
           
Retained Earnings
               
Opening balance
    335,261       125,870  
Net income
    18,866       18,944  
 
           
Ending balance
    354,127       144,814  
 
           
Total stockholders’ equity
  $ 279,478     $ 264,104  
 
           
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)
                 
    Three Months Ended  
    March 31,  
    2006     2005  
    (Unaudited)  
Cash Flows From Operating Activities
               
Net income
  $ 18,866     $ 18,944  
Adjustments to reconcile net income to net cash used in operating activities:
               
Distributed income from housing and land joint ventures
    486       29  
Minority interest
    2,251       3,209  
Deferred income taxes
    682       (592 )
Other changes in operating assets and liabilities:
               
Decrease in receivables and other assets
    50,758       44,187  
Increase in housing and land inventory
    (89,793 )     (109,338 )
Decrease in accounts payable and other
    (70,457 )     (40,165 )
 
           
Net cash used in operating activities
    (87,207 )     (83,726 )
 
           
 
               
Cash Flows From Investing Activities
               
Investments in housing and land joint ventures
    (8,933 )     (5,379 )
Recovery from housing and land joint ventures
    979       15,513  
 
           
Net cash (used in)/provided by investing activities
    (7,954 )     10,134  
 
           
 
               
Cash Flows From Financing Activities
               
Net (repayments)/borrowings under revolving project specific and other financings
    (19,395 )     17,800  
Distributions to minority interest
    (12,017 )     (9,489 )
Contributions from minority interest
    1,667       4,172  
Repurchase of common shares
    (9,698 )     (956 )
Exercise of stock options
    108        
 
           
Net cash (used in)/provided by financing activities
    (39,335 )     11,527  
 
           
 
               
Decrease in cash and cash equivalents
    (134,496 )     (62,065 )
Cash and cash equivalents at beginning of period
    198,411       186,731  
 
           
Cash and cash equivalents at end of period
  $ 63,915     $ 124,666  
 
           
 
               
Supplemental Cash Flow Information
               
Interest paid
  $ 12,026     $ 5,771  
Income taxes paid
  $ 14,565     $ 39,411  
Non-cash decrease in consolidated land inventory not owned
  $ 6,065     $ 6,602  
See accompanying notes to financial statements

4


 

BROOKFIELD HOMES CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands of U.S. dollars 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 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.
The consolidated financial statements include the accounts of Brookfield Homes and its subsidiaries and investments in joint ventures and variable interests in which the Company is the primary beneficiary.
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information. Since they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements, they should be read in conjunction with the Company’s consolidated financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2005. In the opinion of management, all adjustments necessary for fair presentation of the accompanying consolidated 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 months March 31, 2006 are not necessarily indicative of the results to be expected for the full year.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
(b)  Earnings Per Share
Earnings per share is computed in accordance with Statement of Financial Accounting Standards (“SFAS”) 128. Basic earnings per share is calculated by dividing net income by the weighted average number of common shares outstanding for the period. Diluted earnings per share is calculated by dividing net income by the weighted average number of common shares outstanding including all dilutive potentially issuable shares under various stock option plans.
(c)  Recent Accounting Pronouncements
In December 2004, the FASB issued SFAS 123(R), “Share-Based Payment.” SFAS 123(R) establishes accounting standards for transactions in which a company exchanges its equity instruments for goods or services. In particular, this Statement requires companies to record compensation expense for all share-based payments, such as employee stock options, at fair market value. This Statement became effective January 1, 2006 for the Company and did not have a material impact on its consolidated financial statements. See Note 5, “Stock-Based Compensation”, for further discussion on share-based payments.

5


 

BROOKFIELD HOMES CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands of U.S. dollars except per share amounts)
(d)  Variable Interest Entities
In December 2003, the Financial Accounting Standards Board (“FASB”) issued revised Interpretation 46 (“FIN 46R”), “Consolidation of Variable Interest Entities” (“VIEs”), an Interpretation of Accounting Research Bulletin 51, “Consolidated Financial Statements,” which replaces the previous version of FASB Interpretation 46 issued in January 2003 (“FIN 46”). 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. The Company has determined that it is 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 option contracts and joint ventures.
(e)  Reclassification
Certain prior period amounts in the consolidated financial statements have been reclassified to conform with the March 31, 2006 presentation. In particular, Treasury Stock, Common Stock and Additional Paid-in Capital, which were previously presented in aggregate, have been presented as separate items in the Consolidated Balance Sheet and Consolidated Statement of Stockholders’ Equity.
Note 2.  Housing and Land Inventory
Housing and land inventory includes homes completed, homes under construction, lots ready for 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:
                 
    March 31,     December 31,  
    2006     2005  
Housing inventory
  $ 459,743     $ 441,912  
Model homes
    38,810       20,837  
Land and land under development
    500,967       449,868  
 
           
 
  $ 999,520     $ 912,617  
 
           
The Company capitalizes interest which is expensed as housing units and building lots are sold. For the three months ended March 31, 2006 and 2005, interest incurred and capitalized by the Company was $12.0 million and $5.8 million, respectively. Capitalized interest expensed for the same periods was $2.7 million and $3.1 million, respectively.
Capitalized costs are expensed as costs of sales on a specific identification basis or on a relative value basis in proportion to anticipated revenue. Included in direct cost of sales is $84.7 million of costs related to housing revenue for the three months ended March 31, 2006 (March 31, 2005 — $101.6 million) and $7.0 million of costs related to land sales and other revenues (March 31, 2005 — $2.4 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 of options for 577 lots with an aggregate exercise price of $18.9 million (December 31, 2005 — 577 lots with an aggregate exercise price of $22.1 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 $12.2 million (December 31, 2005 — $18.3 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.

6


 

BROOKFIELD HOMES CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands of U.S. dollars except per share amounts)
Housing and land inventory includes non-refundable deposits and other costs totaling $74.1 million (December 31, 2005 — $58.3 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 $776.7 million (December 31, 2005 — $720.6 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:
                 
            Total  
    Number     Exercise  
Year of Expiry   of Lots     Price  
2006
    3,777     $ 210,923  
2007
    3,807       159,627  
2008
    418       53,983  
Thereafter
    8,226       352,144  
 
           
 
    16,228     $ 776,677  
 
           
The Company holds agreements for a further 3,763 acres of land that may provide upon obtaining entitlements additional lots. However, based on the current stage of land entitlement, the Company has concluded at this time that the level of uncertainty in entitling these properties does not warrant including them in the above totals.
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:
                 
    March 31,     December 31,  
    2006     2005  
Assets
               
Housing and land inventory
  $ 336,871     $ 357,833  
Other assets
    48,577       64,866  
 
           
 
  $ 385,448     $ 422,699  
 
           
Liabilities and Equity
               
Accounts payable and other liabilities
  $ 57,616     $ 90,459  
Project specific financings
    230,707       289,851  
Investment and advances
               
Brookfield Homes
    60,728       53,260  
Others
    36,397       (10,871 )
 
           
 
  $ 385,448     $ 422,699  
 
           
                 
    Three Months Ended  
    March 31,  
    2006     2005  
Revenue and Expenses
               
Revenue
  $ 10,832     $ 44,349  
Expenses
    (8,846 )     (28,803 )
 
           
Net income
  $ 1,986     $ 15,546  
 
           
Company’s share of net income
  $ 907     $ 7,312  
 
           
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 for which this interpretation applies, none of these joint ventures were considered to be a VIE requiring consolidation pursuant to the requirements of FIN 46R.

7


 

BROOKFIELD HOMES CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands of U.S. dollars except per share amounts)
The Company and/or its joint venture partners have provided varying levels of guarantees of debt in its joint ventures. At March 31, 2006, the Company had recourse guarantees of $2.7 million (December 31, 2005 — $2.0 million) and limited maintenance guarantees of $61.7 million (December 31, 2005 — $91.6 million) with respect to debt in its joint ventures. As of March 31, 2006, the fair market value of the recourse guarantees was insignificant.
Note 4.  Earnings Per Share
Basic and diluted earnings per share for the three months ended March 31, 2006 and 2005 were calculated as follows (in thousands except per share amounts):
                 
    Three Months Ended  
    March 31,  
    2006     2005  
Numerator:
               
Net income
  $ 18,866     $ 18,944  
 
           
Denominator:
               
Basic average shares outstanding
    27,375       30,865  
Net effect of stock options assumed to be exercised
    442       652  
 
           
Diluted average shares outstanding
    27,817       31,517  
 
           
Basic earnings per share
  $ 0.69     $ 0.61  
 
           
Diluted earnings per share
  $ 0.68     $ 0.60  
 
           
Note 5.  Stock Based Compensation
Pursuant to the Company’s stock option plan, Brookfield Homes grants options to purchase shares of the Company’s common stock at 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.
Prior to January 1, 2006, the Company accounted for stock option grants in accordance with APB 25. Accordingly, the Company recorded the intrinsic value of options as a liability using variable plan accounting. Effective January 1, 2006, the Company adopted the provisions of SFAS 123R using the modified-prospective-transition method.
As a result of adopting SFAS 123R, the incremental charge to net income before taxes and net income for the three months ended March 31, 2006 was $0.5 million and $0.3 million, respectively. The impact of adopting SFAS 123R on both basic and diluted earnings per share for the three months ended March 31, 2006 was an additional expense of $0.01 per share.
Compensation expense related to the Company’s stock options during the three months ended March 31, 2006 was $2.8 million (2005 — $5.5 million). If the Company had adopted the provisions of SFAS 123R in 2005, there would be no change to net income before taxes, net income or earnings per share.
The fair value of each of the Company’s stock option awards is estimated at each reporting date using a Black-Scholes option-pricing model that uses the assumptions noted in the table below. The fair value of the Company’s stock option awards, which are subject to graded vesting, is expensed over the vesting period of the stock options. Expected volatility is based on historical volatility of the Company’s stock. The risk-free rate for periods within the contractual life of the stock option award is based on the yield curve of a zero-coupon U.S. Treasury bond with a maturity equal to the expected term of the stock option award granted. The Company uses historical data to estimate stock option exercises and forfeitures within its valuation model. The expected term of stock option awards granted for some participants is derived from historical exercise experience under the Company’s share-based payment plan and represents the period of time that stock option awards granted are expected to be outstanding. The expected term of stock options granted for the remaining participants is derived by using the short cut method.

8


 

BROOKFIELD HOMES CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands of U.S. dollars except per share amounts)
The significant weighted average assumptions relating to the valuation of the Company’s stock options for the three months ended March 31, 2006 were as follows:
         
    2006  
Dividend yield
    0.57% – 0.88%  
Volatility rate
    33%  
Risk-free interest rate
    4.8%  
Expected option life (years)
    1.0 – 7.0  
 
     
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:
                 
    March 31, 2006  
            Weighted  
            Average for  
            Share Exercise  
    Shares     Price  
Outstanding, January 1, 2006
    678,576     $ 10.52  
Granted
    140,000     $ 52.00  
Exercised
    (108,525 )   $ 1.00  
Cancelled
           
 
           
Outstanding, March 31, 2006
    710,051     $ 20.15  
 
           
Options exercisable at March 31, 2006
    114,801     $ 15.88  
 
           
Note 6.  Commitments, Contingent Liabilities and Other
(a)  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.
(b)  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 three months ended March 31, 2006 and 2005:
                 
    2006     2005  
Balance, January 1
  $ 17,743     $ 18,202  
Payments made during the period
    (773 )     (716 )
Warranties issued during the period
    1,489       1,198  
 
           
Balance, March 31
  $ 18,459     $ 18,684  
 
           
(c)  The Company entered into an interest rate swap contract during the third quarter of 2004 which effectively fixes $60.0 million of the Company’s variable rate debt at 5.89% until the contract expires in 2009. At March 31, 2006, the fair market value of the contract was $2.4 million and is included in receivables and other assets. During the second quarter of 2005, the Company entered into an additional interest rate swap contract which effectively fixes $50.0 million of the Company’s variable rate debt at 6.54% until the contract expires in 2010. At March 31, 2006, the fair market value of the contract was $1.1 million and is included in Receivables and other assets. Income of $1.4 million was recognized during the three months ended March 31, 2006 and was included in Land and other revenues (March 31, 2005 — $1.3 million). Both interest rate swaps are recorded at fair market value because hedge accounting has not been applied.

9


 

BROOKFIELD HOMES CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands of U.S. dollars except per share amounts)
Note 7.  Segment Information (as restated)
As defined in SFAS 131, “Disclosures About Segments of an Enterprise and Related Information,” we have five operating segments. Historically, the Company has aggregated its operating segments into one reportable segment. Subsequent to the issuance of our consolidated financial statement for the quarter ended March 31, 2005, we have concluded that we should revise our segment disclosure for all periods presented by providing disclosure for each of our four reportable segments: Northern California, Southland / Los Angeles, San Diego / Riverside, and the Washington D.C. Area. The Company’s fifth operating segment does not meet the quantitative thresholds for separate disclosure. See below for the accompanying consolidated financial statements that the Company has restated to revise its segment disclosures for all periods presented.
The Company is a residential homebuilder and land developer. The Company is organized and manages its business based on the geographical areas in which it operates. Each of the Company’s segments specialize in lot entitlement and development and the construction of single-family and multi-family homes. The Company evaluates performance and allocates capital based primarily on return on assets together with a number of other risk factors. Earnings performance is measured using segment operating income. The accounting policies of the segments are the same as those described in Note 1, “Significant Accounting Policies”.
                 
    Three Months Ended  
    March 31,  
    2006     2005  
Revenues
               
Northern California
  $ 8,345     $ 28,601  
Southland / Los Angeles
    14,183       25,745  
San Diego / Riverside
    42,520       48,675  
Washington, D.C. Area
    66,882       43,116  
Corporate and Other
    10,968       6,018  
 
           
 
  $ 142,898     $ 152,155  
 
           
Segment Operating Income
               
Northern California
  $ (564 )   $ 5,666  
Southland / Los Angeles (1)
    513       9,626  
San Diego / Riverside
    16,130       15,533  
Washington D.C. Area (2)
    17,120       10,599  
Corporate and Other (3)
    (371 )     (7,159 )
 
           
 
    32,828       34,265  
Minority Interest
    (2,251 )     (3,209 )
 
           
Net Income before Taxes
  $ 30,577     $ 31,056  
 
           
 
(1)   Includes equity in earnings from housing and land joint ventures of nil and $6.2 million for the three months ended March 31, 2006 and 2005, respectively.
 
(2)   Includes equity in earnings from housing and land joint ventures of $0.9 million and $1.3 million for the three months ended March 31, 2006 and 2005, respectively.
 
(3)   Includes operating income related to our other operations, interest and other income, corporate general and administrative expenses including stock compensation income and expenses.

10


 

BROOKFIELD HOMES CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands of U.S. dollars except per share amounts)
                 
    March 31,     December 31,  
    2006     2005  
Housing and Land Assets(1)
               
Northern California
  $ 170,308     $ 167,985  
Southland / Los Angeles
    220,222       185,309  
San Diego / Riverside
    345,180       293,804  
Washington, D.C. Area
    290,974       291,380  
Corporate and Other
    52,489       49,499  
 
           
 
  $ 1,079,173     $ 987,977  
 
           
 
(1)   Consists of housing and land inventory, investments in housing and land joint ventures and consolidated land inventory not owned.
The following table sets forth additional financial information relating to the Company’s reportable operating segments:
                 
    March 31,     December 31,  
    2006     2005  
Investments in Housing and Land Joint Ventures
               
Northern California
  $ (15,530 )   $ (14,989 )
Southland / Los Angeles
    2,733       2,733  
San Diego / Riverside
    35,719       30,152  
Washington, D.C. Area
    30,815       30,091  
Corporate and Other
    6,991       5,273  
 
           
Total
  $ 60,728     $ 53,260  
 
           

11


 

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” and Item 1A — “Risk Factors” elsewhere in this report and in our Annual Report on Form 10-K/A for the year ended December 31, 2005.
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 regional 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. We plan to achieve this by actively managing our assets and creating value on the lots we own or control.
We operate in the following geographic regions which are presented as our reportable segments: Northern California (San Francisco Bay Area and Sacramento), Southland / Los Angeles, San Diego / Riverside and Washington D.C. Area. Our other operations that do not meet the quantitative thresholds for separate disclosure are included in “Corporate and Other.”
The 29,660 lots that we control, 12,855 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 an eight year lot supply, based on 2006 planned home closings of 1,625.
Homebuilding is our primary source of revenue and has represented approximately 90% of our total revenue since 2001. Our operations are positioned to close annually between 1,600 and 2,000 homes. Operating in markets with higher price points and catering to move-up and luxury buyers, our average sales price for the three months ended March 31, 2006 of $634,000 was well in excess of the national average sales price. 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. We have previously announced the possible sale of 1,500 lots. To date, we have closed 386 of these lots for net income of $13 million, or $0.46 per share.
In addition to our housing and land inventory and investments in housing and land joint ventures which together comprised 87% of our total assets as of March 31, 2006, we had $64 million in cash and cash equivalents and $92 million in other assets. Other assets consist of homebuyer receivables of $12 million, deferred income taxes of $49 million, and mortgages and other receivables of $31 million. Homebuyer receivables consist primarily of proceeds due from homebuyers on the closing of homes.
Since 2001, our revenues and net income have grown at compounded annual growth rates of 12% and 53%, respectively. Over the same period, we generated over $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 optioning or acquisition of a significant number of large projects and the level of lots controlled. Our recent growth is primarily the result of strong economic fundamentals in the markets in which we operate and our success in acquiring strategic parcels of land.
Critical Accounting Policies and Estimates
There have been no significant changes to our critical accounting policies and estimates during the three months ended March 31, 2006 compared to those disclosed in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our annual report on Form 10-K/A for the year ended December 31, 2005.

12


 

Results of Operations
                 
Selected Financial Information   Three Months Ended  
    March 31,  
($ millions)   2006     2005  
                 
Revenue:
               
Housing
  $ 122     $ 143  
Land and other revenues
    21       9  
 
           
Total revenues
    143       152  
Direct cost of sales
    (92 )     (104 )
 
           
Gross margin
    51       48  
Equity in earnings from housing and land joint ventures
    1       7  
Selling, general and administrative expense
    (19 )     (21 )
 
           
Operating income
    33       34  
Minority interest
    (2 )     (3 )
 
           
Net income before taxes
    31       31  
Income tax expense
    (12 )     (12 )
 
           
Net income
  $ 19     $ 19  
 
           
 
               
Segment Information
               
Housing revenue ($ millions):
               
Northern California
  $ 8     $ 29  
Southland / Los Angeles
    14       25  
San Diego / Riverside
    30       49  
Washington D.C. Area
    62       39  
Corporate and Other
    8       1  
 
           
Total
  $ 122     $ 143  
 
           
Land and Other revenues ($ millions):
               
Northern California
  $     $  
Southland / Los Angeles
           
San Diego / Riverside
    13        
Washington D.C. Area
    5       4  
Corporate and Other
    3       5  
 
           
Total
  $ 21     $ 9  
 
           
Gross Margin ($ millions):
               
Northern California
  $ 2     $ 8  
Southland / Los Angeles
    3       5  
San Diego / Riverside
    19       18  
Washington D.C. Area
    22       14  
Corporate and Other
    5       3  
 
           
Total
  $ 51     $ 48  
 
           
Home closings (units):
               
Northern California
    7       34  
Southland / Los Angeles
    19       22  
San Diego / Riverside
    47       83  
Washington D.C. Area
    108       81  
Corporate and Other
    11       2  
 
           
Total
    192       222  
 
           
Average selling price:
               
Northern California
  $ 1,212,000     $ 844,000  
Southland / Los Angeles
    719,000       1,159,000  
San Diego / Riverside
    637,000       586,000  
Washington D.C. Area
    575,000       484,000  
Corporate and Other
    691,000       586,000  
 
           
Average
  $ 634,000     $ 645,000  
 
           

13


 

                 
    Three Months Ended  
    March 31,  
    2006     2005  
                 
Net new orders (units):(1)
               
Northern California
    15       63  
Southland / Los Angeles
    93       77  
San Diego / Riverside
    40       159  
Washington D.C. Area
    69       201  
Corporate and Other
    10       17  
 
           
Total
    227       517  
 
           
Backlog (units at end of period):(2)
               
Northern California
    20       83  
Southland / Los Angeles
    179       139  
San Diego / Riverside
    75       357  
Washington D.C. Area
    157       315  
Corporate and other
    59       17  
 
           
Total
    490       911  
 
           
Lots controlled (units at end of period):
               
Lots owned:
               
San Francisco Bay Area
    1,342       1,678  
Southland / Los Angeles
    1,107       360  
San Diego / Riverside
    6,648       6,435  
Washington D.C. Area
    3,595       3,991  
Corporate and Other
    163       254  
 
           
 
    12,855       12,718  
Lots under option
    16,805       17,030  
 
           
Total
    29,660       29,748  
 
           
 
(1)   Net new orders for any period represent the aggregate of all homes ordered by customers, net of cancellations, excluding joint ventures.
 
(2)   Backlog represents the number of new homes subject to pending sales contracts, excluding joint ventures.
Three Months Ended March 31, 2006 Compared with Three Months Ended March 31, 2005
Net Income
Net income was $19 million for the three months ended March 31, 2006, consistent with the three months ended March 31, 2005.
Results of Operations
Company-wide: Housing revenues were $122 million for the three months ended March 31, 2006, a decrease of $21 million over the three months ended March 31, 2005. The decrease in housing revenue for the three months ended March 31, 2006 was due primarily to a decrease in home closings.
The gross margin on housing revenues for the three months ended March 31, 2006 was $37 million or 31% compared with $41 million or 29% for the same period in 2005. The increase in the gross margin percentage is due to a higher percentage of home closings in San Diego and the Washington D.C. Area where our housing margins are the highest as we are building on land that we entitled and developed.
Northern California: Housing revenues were $8 million for the three months ended March 31, 2006, a decrease of $21 million over the three months ended March 31, 2005. The decrease in housing revenue for the three months ended March 31, 2006 was due to a decrease in home closings, partially offset by an increase in the average selling price. The gross margin on housing revenues for the three months ended March 31, 2006 was $2 million or 27% compared with $8 million or 27% for the same period in 2005.
Southland / Los Angeles: Housing revenues were $14 million for the three months ended March 31, 2006, a decrease of $11 million over the three months ended March 31, 2005. The decrease is primarily due to a decrease in the average selling price. The gross margin on housing revenues for the three months ended March 31, 2006 was $3 million or 23% compared with $5 million or 20% for the same period in 2005.
San Diego / Riverside: Housing revenues were $30 million for the three months ended March 31, 2006, a decrease of $19 million over the three months ended March 31, 2005. The decrease is due to a decrease in home closings, partially offset by an increase in the average selling price. The gross margin on housing revenue for the three months ended March 31, 2006 was $10 million or 34% compared with $18 million or 36% for the same period in 2005.

14


 

Washington D.C. Area: Housing revenues were $62 million for the three months ended March 31, 2006, an increase of $23 million over the three months ended March 31, 2005. The increase in housing revenue for the three months ended March 31, 2006 was due to an increase in home closings and an increase in the average selling price. The gross margin on housing revenue for the three months ended March 31, 2006 was $21 million or 33% compared with $12 million or 31%.
Company-wide: Land and other revenues totaled $21 million for the three ended March 31, 2006, an increase of $12 million over the three months ended March 31, 2005. The increase in land and other revenues for the three months ended March 31, 2006 was primarily due to an increase in the number of lots sold. 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 months ended March 31, 2006 was $14 million compared with $7 million for the same period in 2005. The increase is due to the bulk sale of 114 lots which contributed $8 million to our gross margin.
San Diego / Riverside: Land and other revenues totaled $13 million for the three months ended March 31, 2006, compared to nil for the three months ended March 31, 2005. The increase in land and other revenues for the three months ended March 31, 2006 was due to the sale of 115 lots.
Washington D.C. Area: Land and other revenues totaled $5 million for the three months ended March 31, 2006, an increase of $1 million over the three months ended March 31, 2005.
Equity in earnings from housing and land joint ventures for the three months ended March 31, 2006 was $1 million, a decrease of $6 million, over the three months ended March 31, 2005. The decrease in earnings was primarily a result of the bulk sale of 41 lots during the three months ended March 31, 2005 in Southern California held in a joint venture, which contributed earnings of $5 million.
Other Expenses
Selling, general and administrative expense was $19 million for the three months ended March 31, 2006 and $21 million for the three months ended March 31, 2005. These expenses typically vary with the level of housing revenues. In addition, for the three months ended March 31, 2006 and 2005, selling, general and administrative expense included stock compensation costs of $5 million and $9 million, respectively.
Sales Activity
Net new orders for the quarter ended March 31, 2006 totaled 227 units, compared to 517 units in the first quarter of 2005. The decline in net new orders was primarily in the San Diego/Riverside and Washington D.C. markets with 251 fewer net new orders, when compared to the first quarter of 2005, resulting from a slower, and more competitive market environment. The decline of 48 units in new orders in the San Francisco Bay Area market is a result of fewer homes available for sale with only one active selling community. In January 2006, the Company forecasted 3,125 home and bulk lot closings for 2006. With the current San Diego/Riverside and Washington market conditions, it will be mid-summer 2006 when a better assessment of the 2006 home closings will be made. The Company continues to anticipate bulk lot sale closings of 1,500 units during 2006, of which 386 units have been closed to-date for net income of $13 million or $0.46 per share.
Liquidity and Capital Resources
Financial Position
Our total assets as of March 31, 2006 were $1,235 million, a decrease of $95 million compared to December 31, 2005. The decrease is due primarily to decreases in cash and cash equivalents and in receivables and other assets, partially offset by an increase in housing and land inventory.
Our total debt as of March 31, 2006 was $672 million, a decrease of $19 million compared to December 31, 2005. Total debt as of March 31, 2006 consisted mainly of project specific financings, which represent construction and development loans that are repaid from home and lot sales proceeds. As new homes are constructed, further loan facilities are arranged on a rolling basis. Our major project specific lenders are Bank of America, Housing Capital Corporation and Wells Fargo. Other debt comprises deferred compensation on which interest is paid at prime, loans outstanding relating to mortgages we originated that are repaid when the underlying mortgages are sold to permanent lenders, and project specific financings related to our other operations. As of March 31, 2006, the average interest rate on our debt was 7.9%, with maturities as follows:

15


 

                                         
    Maturities  
($ millions)   2006     2007     2008     Post 2008     Total  
                                         
Northern California
  $ 67     $ 39     $     $     $ 106  
Southland / Los Angeles
    57       43                   100  
San Diego / Riverside
    126       128                   254  
Washington D.C. Area
    78       46       21             145  
Other
    5       37       18       7       67  
 
                             
Total
  $ 333     $ 293     $ 39     $ 7     $ 672  
 
                             
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 lots owned and their stage of development at March 31, 2006 compared with the same period last year follows:
                 
    2006     2005  
Housing units and model homes
    991       926  
Lots ready for house construction
    1,130       721  
Graded lots and lots commenced grading
    2,711       1,351  
Undeveloped land
    8,023       9,720  
 
           
 
    12,855       12,718  
 
           
Cash used in our operating activities during the three months ended March 31, 2006 was $87 million compared with cash used of $84 million for the same period in 2005. We normally invest capital in the first half of a year as we build out our backlog of homes. We also purchased 800 lots previously held under option for $17 million.
Cash used in our investing activities in joint ventures for the three months ended March 31, 2006 was $8 million, compared with cash provided of $10 million for the same period in 2005. The decrease in cash flow during the three months ended March 31, 2006 is primarily a result of contributions of capital in our joint ventures in San Diego during the three months ended March 31, 2006 and the bulk sale of 41 lots in Southern California during the three months ended March 31, 2005.
Cash used by our financing activities for three months ended March 31, 2006 was $39 million compared with cash provided of $12 million for the same period in 2005. The decrease in cash flow is primarily due to an increase in share repurchases and repayment of debt.
Contractual Obligations and Other Commitments
Our contractual obligations and other commitments have not changed materially from those reported in Management’s Discussion and Analysis of Financial Conditions and Results of Operations in our Annual Report on Form 10-K/A for the fiscal year ended December 31, 2005.
We generally fund the development of our communities through the use of project specific financings. As of March 31, 2006, we had available project specific debt lines of $262 million that were available to complete land development and construction activities.
A total of $626 million of our project specific and other financings mature prior to the end of 2007. The high level of maturities in 2006 and 2007 is due to our expected project completions over this period. Although the level of our maturing debt is high, we expect to generate sufficient cash flow from our assets in 2006 and 2007 to repay these obligations. Our net debt to total capitalization ratio as of March 31, 2006, 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 65% compared to 61% at December 31, 2005. 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 our Annual Report on Form 10-K/A for the year ended December 31, 2005 entitled “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-owned 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.

16


 

During the third quarter of 2004, we entered into an interest rate swap contract which effectively fixes $60 million of our variable rate debt at 5.89% until the contract expires in 2009. During the second quarter of 2005, we entered into an additional interest rate swap contract that effectively fixes $50 million of our variable rate debt at 6.54% until the contract expires in 2010. At March 31, 2006, the fair market value of these contracts was $3.5 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 March 31, 2006, we had $81 million of primarily non-refundable option deposits and advanced costs. The total exercise price of these options is $796 million. Pursuant to FIN 46R, as defined in Note 1 to our consolidated financial statements included elsewhere in this Form 10-Q/A, we have consolidated $19 million of these option contracts.
Please see Note 2 to our consolidated financial statements included elsewhere in this Form 10-Q/A for additional information on our lot options.
We also control 4,160 lots through joint ventures, formed to own housing and land assets with joint venture partners. As of March 31, 2006, our investment in housing and land joint ventures was $61 million. We have provided varying levels of guarantees of debt in our joint ventures. As of March 31, 2006, we had recourse guarantees of $3 million and limited maintenance guarantees of $62 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 March 31, 2006, we had for these purposes $26 million in letters of credit outstanding and $265 million in performance bonds. The costs to complete related to our letters of credit and performance bonds are $21 million and $124 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/A 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 that are predictions of or indicate future events and trends and that do not relate to historical matters identify forward-looking statements. The forward-looking statements in this quarterly report on Form 10-Q/A include, among others, statements with respect to:
  expected home closings and project completions and the timing thereof;
  targeted lot sales and the proceeds thereof;
  expected lot supply;
  estimates of revenues and cash flows;
  the visibility on our future cash flow and earnings;
  sources of future growth;
  the effect of interest rate changes on our cash flows;
  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;
  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;

17


 

  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/A for the year ended December 31, 2005 and our other SEC filings.
We undertake no obligation to publicly update any forward-looking statements unless required by law, 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. In addition, we have an interest rate swap contract which effectively fixes $60 million of our variable rate debt at 5.89% and an interest rate swap contract which effectively fixes $50 million of our variable interest rate debt at 6.54%. Based on our net debt levels as of March 31, 2006, a 1% change up or down in interest rates would have either a negative or positive effect of approximately $5 million on our cash flows.
Item 4.  Controls and Procedures
Evaluation of Disclosure Controls and Procedures. As of the end of our fiscal quarter ended March 31, 2006, 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 and with the participation 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: (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 CEO and CFO, to allow timely decisions regarding required disclosure.
As described in Note 7 to the unaudited Consolidated Financial Statements, we have restated our Note 7 to the unaudited Consolidated Financial Statements to disaggregate our operations into four reportable segments. Our management, including our CEO and CFO, has re-evaluated our disclosure controls and procedures as of the end of the period covered by this report to determine whether the restatement changes their prior conclusion, and have determined that it does not change their conclusion that at March 31, 2006, our disclosure controls and procedures were effective. The restatement represents a change in judgment under current practice as to the application of Statement of Financial Accounting Standards No. 131, “Disclosures about Segments of an Enterprise and Related Information.” The treatment of our homebuilding business as a single, national, reportable segment was in accordance with the practice followed by substantially all the large, geographically diverse homebuilders that file reports with the SEC. The change in the way we report segment information did not result in any change to the Company’s unaudited consolidated balance sheets, unaudited consolidated statements of income, unaudited consolidated statements of stockholders’ equity and unaudited consolidated statements of cash flows for any of the periods presented.

18


 

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 March 31, 2006, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

19


 

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 1A.  Risk Factors
Not applicable.
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds
Our Board of Directors approved a share repurchase program that allows us to repurchase in aggregate up to $109 million of our outstanding common shares. Since the initial approval of the program in February 2003, the following annual share repurchases have been made under the program: 2003 — 1,192,749 shares at an average price of $18.19; 2004 — 76,400 shares at an average price of $25.39; 2005 — 707,500 shares at an average price of $47.81. In addition, during the first quarter of 2006 we repurchased 199,500 shares at an average price of $48.58. At March 31, 2006, the remaining amount approved for repurchases is $42 million. Separately, during the fourth quarter of 2005 we repurchased 3,000,000 of our shares through a fixed price tender offer at a purchase price of $55.00 per share.
                                 
                            Maximum
Approximate
 
                    Total Number of     Dollar Value of  
                    Shares Purchased     Shares that May  
    Total Number             as Part of Publicly     Yet be Purchased  
    of Shares     Average Price     Announced Plans     Under the Plans  
Period   Purchased(1)     Paid Per Share     or Programs     or Programs  
January 1, 2005 — January 31, 2006
    10,000     $ 48.90       10,000     $ 51,639,294  
February 1, 2006 — February 28, 2006
    145,000     $ 49.20       145,500     $ 44,480,459  
March 1, 2006 — March 31, 2006
    44,000     $ 46.45       44,000     $ 42,436,744  
 
                       
Total
    199,500     $ 48.58       199,500     $ 42,436,744  
 
(1)   All shares were purchased pursuant to the publicly announced plan in open-market transactions.
Item 3.  Defaults Upon Senior Securities
None.
Item 4.  Submission of Matters to a Vote of Security Holders
None.
Item 5.  Other Information
None.
Item 6.  Exhibits
(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 and Chief Financial Officer.
 
32.1   Section 1350 certification of the Chief Executive Officer and Chief Financial Officer.

20


 

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 22nd day of December, 2006.
 
         
  BROOKFIELD HOMES CORPORATION
 
 
 
  By:   /s/  PAUL G. KERRIGAN    
    Paul G. Kerrigan   
    Executive Vice President and Chief Financial Officer  

21


 

EXHIBIT INDEX
     
Exhibit   Description
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 and Chief Financial Officer.
 
   
32.1
  Section 1350 certification of the Chief Executive Officer and Chief Financial Officer.