EX-4.5 3 a2230872zex-4_5.htm EX-4.5

Exhibit 4.5

 

CONSOLIDATED FINANCIAL STATEMENTS

 

CONSOLIDATED BALANCE SHEETS

 

 

(UNAUDITED)

(MILLIONS)

 

 Note

 

Sep. 30,
2016

 

Dec. 31,
2015

Assets

 

 

 

 

 

 

Cash and cash equivalents

 

 

 

 $

4,372

 

 $

2,774

Other financial assets

 

5, 6

 

5,096

 

6,156

Accounts receivable and other

 

6

 

8,882

 

7,044

Inventory

 

6

 

5,869

 

5,281

Assets classified as held for sale

 

7

 

3,760

 

1,397

Equity accounted investments

 

 

 

24,453

 

23,216

Investment properties

 

 

 

50,374

 

47,164

Property, plant and equipment

 

8

 

45,203

 

37,273

Intangible assets

 

 

 

6,294

 

5,170

Goodwill

 

 

 

3,932

 

2,543

Deferred income tax assets

 

 

 

1,602

 

1,496

Total Assets

 

 

 

 $

159,837

 

 $

139,514

 

 

 

 

 

 

 

Liabilities and Equity

 

 

 

 

 

 

Accounts payable and other

 

6

 

 $

12,478

 

 $

11,366

Liabilities associated with assets classified as held for sale

 

7

 

1,985

 

522

Corporate borrowings

 

 

 

4,674

 

3,936

Non-recourse borrowings

 

 

 

 

 

 

Property-specific mortgages

 

6

 

50,910

 

46,044

Subsidiary borrowings

 

6

 

9,663

 

8,303

Deferred income tax liabilities

 

 

 

9,465

 

8,785

Subsidiary equity obligations

 

 

 

3,543

 

3,331

Equity

 

 

 

 

 

 

Preferred equity

 

 

 

3,732

 

3,739

Non-controlling interests

 

 

 

40,955

 

31,920

Common equity

 

10

 

22,432

 

21,568

Total equity

 

 

 

67,119

 

57,227

Total Liabilities and Equity

 

 

 

 $

159,837

 

 $

139,514

 

BROOKFIELD ASSET MANAGEMENT

 


 

CONSOLIDATED STATEMENTS OF OPERATIONS

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

(UNAUDITED)
FOR THE PERIODS ENDED SEP. 30
(MILLIONS, EXCEPT PER SHARE AMOUNTS)

 Note

 

2016

 

2015

 

2016

 

2015

Revenues

 

 

 $

6,285

 

 $

5,056

 

 $

17,476

 

 $

14,375

Direct costs

 

 

(4,590)

 

(3,740)

 

(12,568)

 

(10,341)

Other income and gains

 

 

325

 

133

 

391

 

145

Equity accounted income

 

 

454

 

304

 

1,041

 

1,174

Expenses

 

 

 

 

 

 

 

 

 

Interest

 

 

(825)

 

(691)

 

(2,407)

 

(2,117)

Corporate costs

 

 

(20)

 

(25)

 

(68)

 

(83)

Fair value changes

11

 

(59)

 

389

 

358

 

1,572

Depreciation and amortization

 

 

(541)

 

(436)

 

(1,538)

 

(1,265)

Income taxes

 

 

992

 

(145)

 

556

 

22

Net income

 

 

 $

2,021

 

 $

845

 

 $

3,241

 

 $

3,482

Net income attributable to:

 

 

 

 

 

 

 

 

 

Shareholders

 

 

 $

1,036

 

 $

289

 

 $

1,478

 

 $

1,663

Non-controlling interests

 

 

985

 

556

 

1,763

 

1,819

 

 

 

 $

2,021

 

 $

845

 

 $

3,241

 

 $

3,482

Net income per share:

 

 

 

 

 

 

 

 

 

Diluted

10

 

 $

1.03

 

 $

0.26

 

 $

1.41

 

 $

1.60

Basic

10

 

1.05

 

0.27

 

1.44

 

1.65

 

Q3 2016 INTERIM REPORT

 


 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

 

 

 

Three Months Ended

 

Nine Months Ended

(UNAUDITED)
FOR THE PERIODS ENDED SEP. 30
(MILLIONS)

 

2016

 

2015

 

2016

 

2015

Net income

 

 $

2,021

 

 $

845

 

 $

3,241

 

 $

3,482

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

Items that may be reclassified to net income

 

 

 

 

 

 

 

 

Financial contracts and power sale agreements

 

11

 

(158)

 

(253)

 

(82)

Available-for-sale securities

 

(136)

 

(327)

 

39

 

(428)

Equity accounted investments

 

(9)

 

23

 

(69)

 

112

Foreign currency translation

 

(151)

 

(2,106)

 

1,741

 

(3,627)

Income taxes

 

13

 

(18)

 

52

 

(44)

 

 

(272)

 

(2,586)

 

1,510

 

(4,069)

Items that will not be reclassified to net income

 

 

 

 

 

 

 

 

Revaluations of property, plant and equipment

 

37

 

(2)

 

59

 

49

Revaluation of pension obligations

 

(6)

 

15

 

(27)

 

19

Equity accounted investments

 

—

 

—

 

17

 

—

Income taxes

 

6

 

1

 

12

 

(3)

 

 

37

 

14

 

61

 

65

Other comprehensive (loss) income

 

(235)

 

(2,572)

 

1,571

 

(4,004)

Comprehensive income (loss)

 

 $

1,786

 

 $

(1,727)

 

 $

4,812

 

 $

(522)

Attributable to:

 

 

 

 

 

 

 

 

Shareholders

 

 

 

 

 

 

 

 

Net income

 

 $

1,036

 

 $

289

 

 $

1,478

 

 $

1,663

Other comprehensive (loss) income

 

(58)

 

(1,219)

 

544

 

(1,598)

Comprehensive income (loss)

 

 $

978

 

 $

(930)

 

 $

2,022

 

 $

65

 

 

 

 

 

 

 

 

 

Non-controlling interests

 

 

 

 

 

 

 

 

Net income

 

 $

985

 

 $

556

 

 $

1,763

 

 $

1,819

Other comprehensive (loss) income

 

(177)

 

(1,353)

 

1,027

 

(2,406)

Comprehensive income (loss)

 

 $

808

 

 $

(797)

 

 $

2,790

 

 $

(587)

 

BROOKFIELD ASSET MANAGEMENT

 


 

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

 

 

 

 

 

 

 

 

 

 

 

Accumulated Other
Comprehensive Income

 

 

 

 

 

 

 

 

(UNAUDITED)
FOR THE THREE MONTHS
ENDED SEP. 30, 2016
(MILLIONS)

 

Common
Share
Capital

 

Contributed
Surplus

 

Retained
Earnings

 

Ownership
Changes1

 

Revaluation
Surplus

 

Currency
Translation

 

Other
Reserves2

 

Common
Equity

 

Preferred
Equity

 

Non-
controlling
Interests

 

Total
Equity

Balance as at June 30, 2016

 

 $

4,384

 

 $

212

 

 $

10,617

 

 $

1,433

 

 $

6,639

 

 $

(1,090)

 

 $

(562)

 

 $

21,633

 

 $

3,734

 

 $

39,172

 

 $

64,539

Changes in period

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

—

 

—

 

1,036

 

—

 

—

 

—

 

—

 

1,036

 

—

 

985

 

2,021

Other comprehensive income

 

—

 

—

 

—

 

—

 

13

 

47

 

(118)

 

(58)

 

—

 

(177)

 

(235)

Comprehensive income

 

—

 

—

 

1,036

 

—

 

13

 

47

 

(118)

 

978

 

—

 

808

 

1,786

Shareholder distributions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common equity

 

—

 

—

 

(125)

 

—

 

—

 

—

 

—

 

(125)

 

—

 

—

 

(125)

Preferred equity

 

—

 

—

 

(33)

 

—

 

—

 

—

 

—

 

(33)

 

—

 

—

 

(33)

Non-controlling interests

 

—

 

—

 

—

 

—

 

—

 

—

 

—

 

—

 

—

 

(609)

 

(609)

Other items

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity issuances, net of redemptions

 

7

 

(3)

 

7

 

—

 

—

 

—

 

—

 

11

 

(2)

 

1,535

 

1,544

Share-based compensation

 

—

 

14

 

(1)

 

—

 

—

 

—

 

—

 

13

 

—

 

1

 

14

Ownership changes

 

—

 

—

 

—

 

(61)

 

(2)

 

12

 

6

 

(45)

 

—

 

48

 

3

Total change in period

 

7

 

11

 

884

 

(61)

 

11

 

59

 

(112)

 

799

 

(2)

 

1,783

 

2,580

Balance as at September 30, 2016

 

 $

4,391

 

 $

223

 

 $

11,501

 

 $

1,372

 

 $

6,650

 

 $

(1,031)

 

 $

(674)

 

 $

22,432

 

 $

3,732

 

 $

40,955

 

 $

67,119

 

1. Includes gains or losses on changes in ownership interests of consolidated subsidiaries

2. Includes available-for-sale securities, cash flow hedges, actuarial changes on pension plans and equity accounted other comprehensive income, net of associated income taxes

 

 

 

 

 

 

 

 

 

 

 

Accumulated Other
Comprehensive Income

 

 

 

 

 

 

 

 

 

(UNAUDITED)
FOR THE THREE MONTHS
ENDED SEP. 30, 2015
(MILLIONS)

 

Common
Share
Capital

 

Contributed
Surplus

 

Retained
Earnings

 

Ownership
Changes1

 

Revaluation
Surplus

 

Currency
Translation

 

Other
Reserves2

 

Common
Equity

 

Preferred
Equity

 

Non-
controlling
Interests

 

Total
Equity

 

Balance as at June 30, 2015

 

 $

4,278

 

 $

204

 

 $

10,590

 

 $

1,542

 

 $

6,173

 

 $

(943)

 

 $

(377)

 

 $

21,467

 

 $

3,549

 

 $

30,006

 

 $

55,022

 

Changes in period

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

—

 

—

 

289

 

—

 

—

 

—

 

—

 

289

 

—

 

556

 

845

 

Other comprehensive income

 

—

 

—

 

—

 

—

 

1

 

(936)

 

(284)

 

(1,219)

 

—

 

(1,353)

 

(2,572)

 

Comprehensive income

 

—

 

—

 

289

 

—

 

1

 

(936)

 

(284)

 

(930)

 

—

 

(797)

 

(1,727)

 

Shareholder distributions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common equity

 

—

 

—

 

(115)

 

—

 

—

 

—

 

—

 

(115)

 

—

 

—

 

(115)

 

Preferred equity

 

—

 

—

 

(32)

 

—

 

—

 

—

 

—

 

(32)

 

—

 

—

 

(32)

 

Non-controlling interests

 

—

 

—

 

—

 

—

 

—

 

—

 

—

 

—

 

—

 

(479)

 

(479)

 

Other items

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity issuances, net of redemptions

 

—

 

(4)

 

(115)

 

—

 

—

 

—

 

—

 

(119)

 

—

 

572

 

453

 

Share-based compensation

 

—

 

20

 

1

 

—

 

—

 

—

 

—

 

21

 

—

 

2

 

23

 

Ownership changes

 

—

 

—

 

10

 

17

 

(5)

 

(3)

 

(5)

 

14

 

—

 

97

 

111

 

Total change in period

 

—

 

16

 

38

 

17

 

(4)

 

(939)

 

(289)

 

(1,161)

 

—

 

(605)

 

(1,766)

 

Balance as at September 30, 2015

 

 $

4,278

 

 $

220

 

 $

10,628

 

 $

1,559

 

 $

6,169

 

 $

(1,882)

 

 $

(666)

 

 $

20,306

 

 $

3,549

 

 $

29,401

 

 $

53,256

 

 

1. Includes gains or losses on changes in ownership interests of consolidated subsidiaries

2. Includes available-for-sale securities, cash flow hedges, actuarial changes on pension plans and equity accounted other comprehensive income, net of associated income taxes

 

Q3 2016 INTERIM REPORT


 

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated Other
Comprehensive Income

 

 

 

 

 

 

 

 

 

(UNAUDITED)
FOR THE NINE MONTHS
ENDED SEP. 30, 2016
(MILLIONS)

 

Common
Share
Capital

 

Contributed
Surplus

 

Retained
Earnings

 

Ownership
Changes1 

 

Revaluation
Surplus

 

Currency
Translation

 

Other
Reserves2

 

Common
Equity

 

Preferred
Equity

 

Non-
controlling
Interests

 

Total
Equity

 

Balance as at December 31, 2015

 

 $

4,378

 

 $

192

 

 $

11,045

 

 $

1,500

 

 $

6,787

 

 $

(1,796)

 

 $

(538)

 

 $

21,568

 

 $

3,739

 

 $

31,920

 

 $

57,227

 

Changes in period

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

—

 

—

 

1,478

 

—

 

—

 

—

 

—

 

1,478

 

—

 

1,763

 

3,241

 

Other comprehensive income

 

—

 

—

 

—

 

—

 

26

 

657

 

(139)

 

544

 

—

 

1,027

 

1,571

 

Comprehensive income

 

—

 

—

 

1,478

 

—

 

26

 

657

 

(139)

 

2,022

 

—

 

2,790

 

4,812

 

Shareholder distributions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common equity

 

—

 

—

 

(872)

 

—

 

—

 

54

 

2

 

(816)

 

—

 

441

 

(375)

 

Preferred equity

 

—

 

—

 

(100)

 

—

 

—

 

—

 

—

 

(100)

 

—

 

—

 

(100)

 

Non-controlling interests

 

—

 

—

 

—

 

—

 

—

 

—

 

—

 

—

 

—

 

(1,450)

 

(1,450)

 

Other items

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity issuances, net of redemptions

 

13

 

(9)

 

(74)

 

—

 

—

 

—

 

—

 

(70)

 

(7)

 

5,684

 

5,607

 

Share-based
compensation

 

—

 

40

 

(17)

 

—

 

—

 

—

 

—

 

23

 

—

 

6

 

29

 

Ownership changes

 

—

 

—

 

41

 

(128)

 

(163)

 

54

 

1

 

(195)

 

—

 

1,564

 

1,369

 

Total change in period

 

13

 

31

 

456

 

(128)

 

(137)

 

765

 

(136)

 

864

 

(7)

 

9,035

 

9,892

 

Balance as at September 30, 2016

 

 $

4,391

 

 $

223

 

 $

11,501

 

 $

1,372

 

 $

6,650

 

 $

(1,031)

 

 $

(674)

 

 $

22,432

 

 $

3,732

 

 $

40,955

 

 $

67,119

 

 

1. Includes gains or losses on changes in ownership interests of consolidated subsidiaries

2. Includes available-for-sale securities, cash flow hedges, actuarial changes on pension plans and equity accounted other comprehensive income, net of associated income taxes

 

 

 

 

 

 

 

 

 

 

 

Accumulated Other
Comprehensive Income

 

 

 

 

 

 

 

 

 

(UNAUDITED)
FOR THE NINE MONTHS
ENDED SEP. 30, 2015
(MILLIONS)

 

Common
Share
Capital

 

Contributed
Surplus

 

Retained
Earnings

 

Ownership
Changes1

 

Revaluation
Surplus

 

Currency
Translation

 

Other
Reserves2

 

Common
Equity

 

Preferred
Equity

 

Non-
controlling
Interests

 

Total
Equity

 

Balance as at December 31, 2014

 

 $

3,031

 

 $

185

 

 $

9,702

 

 $

1,979

 

 $

6,133

 

 $

(441)

 

 $

(436)

 

 $

20,153

 

 $

3,549

 

 $

29,545

 

 $

53,247

 

Changes in period

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

—

 

—

 

1,663

 

—

 

—

 

—

 

—

 

1,663

 

—

 

1,819

 

3,482

 

Other comprehensive income

 

—

 

—

 

—

 

—

 

30

 

(1,400)

 

(228)

 

(1,598)

 

—

 

(2,406)

 

(4,004)

 

Comprehensive income

 

—

 

—

 

1,663

 

—

 

30

 

(1,400)

 

(228)

 

65

 

—

 

(587)

 

(522)

 

Shareholder distributions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common equity

 

—

 

—

 

(336)

 

—

 

—

 

—

 

—

 

(336)

 

—

 

—

 

(336)

 

Preferred equity

 

—

 

—

 

(100)

 

—

 

—

 

—

 

—

 

(100)

 

—

 

—

 

(100)

 

Non-controlling interests

 

—

 

—

 

—

 

—

 

—

 

—

 

—

 

—

 

—

 

(1,178)

 

(1,178)

 

Other items

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity issuances, net of redemptions

 

1,247

 

(15)

 

(309)

 

—

 

—

 

—

 

—

 

923

 

—

 

1,431

 

2,354

 

Share-based compensation

 

—

 

50

 

(2)

 

—

 

—

 

—

 

—

 

48

 

—

 

32

 

80

 

Ownership changes

 

—

 

—

 

10

 

(420)

 

6

 

(41)

 

(2)

 

(447)

 

—

 

158

 

(289)

 

Total change in period

 

1,247

 

35

 

926

 

(420)

 

36

 

(1,441)

 

(230)

 

153

 

—

 

(144)

 

9

 

Balance as at September 30, 2015

 

 $

4,278

 

 $

220

 

 $

10,628

 

 $

1,559

 

 $

6,169

 

 $

(1,882)

 

 $

(666)

 

 $

20,306

 

 $

3,549

 

 $

29,401

 

 $

53,256

 

 

1. Includes gains or losses on changes in ownership interests of consolidated subsidiaries

2. Includes available-for-sale securities, cash flow hedges, actuarial changes on pension plans and equity accounted other comprehensive income, net of associated income taxes

 

BROOKFIELD ASSET MANAGEMENT


 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

(UNAUDITED)
FOR THE PERIODS ENDED SEP. 30
(MILLIONS)

 

 Note

 

2016

 

2015

 

2016

 

2015

Operating activities

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 $

2,021

 

 $

845

 

 $

3,241

 

 $

3,482

Share of undistributed equity accounted earnings

 

 

 

(318)

 

(98)

 

(677)

 

(739)

Fair value changes

 

11

 

59

 

(389)

 

(358)

 

(1,572)

Depreciation and amortization

 

 

 

541

 

436

 

1,538

 

1,265

Deferred income taxes

 

 

 

(1,030)

 

107

 

(698)

 

(131)

Investments in residential inventory

 

 

 

(342)

 

(73)

 

(497)

 

(130)

Net change in non-cash working capital balances

 

 

 

(296)

 

157

 

(830)

 

(74)

 

 

 

 

635

 

985

 

1,719

 

2,101

Financing activities

 

 

 

 

 

 

 

 

 

 

Corporate borrowings arranged

 

 

 

377

 

280

 

869

 

776

Corporate borrowings repaid

 

 

 

(232)

 

—

 

(232)

 

—

Commercial paper and bank borrowings, net

 

 

 

138

 

504

 

(71)

 

(11)

Non-recourse borrowings arranged

 

 

 

4,113

 

6,959

 

16,225

 

14,741

Non-recourse borrowings repaid

 

 

 

(4,301)

 

(2,185)

 

(13,457)

 

(9,024)

Non-recourse credit facilities, net

 

 

 

(981)

 

—

 

(981)

 

—

Subsidiary equity obligations issued

 

 

 

—

 

21

 

9

 

36

Subsidiary equity obligations redeemed

 

 

 

(2)

 

(19)

 

(177)

 

(80)

Capital provided from non-controlling interests

 

 

 

2,400

 

1,162

 

8,250

 

3,718

Capital repaid to non-controlling interests

 

 

 

(865)

 

(590)

 

(2,566)

 

(2,287)

Preferred equity redemption

 

 

 

(1)

 

—

 

(6)

 

—

Common shares issued

 

 

 

2

 

12

 

12

 

1,252

Common shares repurchased

 

 

 

—

 

(133)

 

(94)

 

(337)

Distributions to non-controlling interests

 

 

 

(609)

 

(479)

 

(1,450)

 

(1,178)

Distributions to shareholders

 

 

 

(158)

 

(147)

 

(475)

 

(436)

 

 

 

 

(119)

 

5,385

 

5,856

 

7,170

Investing activities

 

 

 

 

 

 

 

 

 

 

Acquisitions

 

 

 

 

 

 

 

 

 

 

Investment properties

 

 

 

(292)

 

(744)

 

(1,419)

 

(2,214)

Property, plant and equipment

 

 

 

(376)

 

(295)

 

(1,007)

 

(760)

Equity accounted investments

 

 

 

(239)

 

(281)

 

(1,065)

 

(3,649)

Financial assets and other

 

 

 

(419)

 

(619)

 

(2,796)

 

(2,405)

Acquisition of subsidiaries

 

 

 

(1,194)

 

(5,406)

 

(6,082)

 

(7,041)

Dispositions

 

 

 

 

 

 

 

 

 

 

Investment properties

 

 

 

766

 

303

 

2,550

 

1,690

Property, plant and equipment

 

 

 

21

 

60

 

33

 

147

Equity accounted investments

 

 

 

472

 

207

 

969

 

971

Financial assets and other

 

 

 

1,216

 

537

 

2,874

 

2,099

Disposition of subsidiaries

 

 

 

4

 

266

 

131

 

347

Restricted cash and deposits

 

 

 

(141)

 

(82)

 

(248)

 

1,696

 

 

 

 

(182)

 

(6,054)

 

(6,060)

 

(9,119)

Cash and cash equivalents

 

 

 

 

 

 

 

 

 

 

Change in cash and cash equivalents

 

 

 

334

 

316

 

1,515

 

152

Foreign exchange revaluation

 

 

 

18

 

(182)

 

83

 

(255)

Balance, beginning of period

 

 

 

4,020

 

2,923

 

2,774

 

3,160

Balance, end of period

 

 

 

 $

4,372

 

 $

3,057

 

 $

4,372

 

 $

3,057

 

Q3 2016 INTERIM REPORT

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

1.    CORPORATE INFORMATION

 

Brookfield Asset Management Inc. (the “Corporation”) is a global alternative asset management company. References in these interim financial statements to “Brookfield,” “us,” “we,” “our” or “the company” refer to the Corporation and its direct and indirect subsidiaries and consolidated entities. The company owns and operates assets with a focus on property, renewable power, infrastructure and private equity. The Corporation is listed on the New York, Toronto and Euronext stock exchanges under the symbols BAM, BAM.A and BAMA, respectively. The Corporation was formed by articles of amalgamation under the Business Corporations Act (Ontario) and is registered in Ontario, Canada. The registered office of the company is Brookfield Place, 181 Bay Street, Suite 300, Toronto, Ontario, M5J 2T3.

 

2.    SIGNIFICANT ACCOUNTING POLICIES

 

a)    Statement of Compliance

 

The interim financial statements have been prepared in accordance with International Accounting Standard (“IAS”) 34, Interim Financial Reporting on a basis consistent with the accounting policies disclosed in the audited consolidated financial statements for the fiscal year ended December 31, 2015, except as noted below in Note 2(b).

 

The interim financial statements should be read in conjunction with the most recently issued Annual Report of the company which includes information necessary or useful to understanding the company’s businesses and financial statement presentation. In particular, the company’s significant accounting policies were presented as Note 2 to the Consolidated Financial Statements for the fiscal year ended December 31, 2015 included in that report.

 

The interim financial statements are unaudited and reflect any adjustments (consisting of normal recurring adjustments) that are, in the opinion of management, necessary for fair statement of results for the interim periods in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).

 

The results reported in these interim financial statements should not be regarded as necessarily indicative of results that may be expected for the entire year. The interim financial statements were authorized for issuance by the Board of Directors of the company on November 10, 2016.

 

b)    Adoption of Accounting Standards

 

The company has applied new and revised standards issued by the IASB that are effective for the period beginning on or after January 1, 2016 as follows:

 

Property, Plant, and Equipment and Intangible Assets

 

IAS 16 Property, Plant, and Equipment (“IAS 16”) and IAS 38 Intangible Assets (“IAS 38”) were amended to clarify the appropriate method of amortization for intangible assets. Amendments to IAS 16 prohibit entities from using a revenue-based depreciation method for items of property, plant, and equipment; the amendments to IAS 38 introduces a rebuttable presumption that revenue is not an appropriate basis for amortization of an intangible asset, with only limited circumstances where the presumption can be rebutted. The company adopted the amendments to IAS 16 and IAS 38 on January 1, 2016, on a prospective basis, the adoption did not have a significant impact on the company’s consolidated financial statements.

 

Investments in Associates and Joint Ventures

 

The amendments to IFRS 10 Consolidated Financial Statements (“IFRS 10”), and IAS 28 Investments in Associates and Joint Ventures (2011) (“IAS 28”) address an acknowledged inconsistency between the requirements in IFRS 10 and those in IAS 28, in dealing with the sale or contribution of assets between an investor and its associate or joint venture. The amendments are effective for transactions occurring in annual periods beginning on or after January 1, 2016 with earlier application permitted. The impacts of the amendments to IFRS 10 and IAS 28 on the consolidated financial statements are not significant.

 

c)    Future Changes in Accounting Standards

 

Revenue from Contracts with Customers

 

IFRS 15, Revenue from Contracts with Customers (“IFRS 15”) specifies how and when revenue should be recognized as well as requiring more informative and relevant disclosures. This standard supersedes IAS 18 Revenue, IAS 11 Construction Contracts and a number of revenue-related interpretations. Application of the Standard is mandatory and it applies to nearly all contracts with customers: the main exceptions are leases, financial instruments and insurance contracts. The IASB has tentatively deferred mandatory adoption of IFRS 15 until periods beginning on or after January 1, 2018 with early application permitted. The company has not yet determined the impact of IFRS 15 on its consolidated financial statements.

 

BROOKFIELD ASSET MANAGEMENT

 


 

Financial Instruments

 

In July 2014, the IASB issued the final publication of IFRS 9, Financial Instruments (“IFRS 9”), superseding IAS 39, Financial Instruments. IFRS 9 establishes principles for the financial reporting of financial assets and financial liabilities that will present relevant and useful information to users of financial statements for their assessment of the amounts, timing and uncertainty of an entity’s future cash flows. This new standard also includes a new general hedge accounting standard which will align hedge accounting more closely with risk management. It does not fully change the types of hedging relationships or the requirement to measure and recognize ineffectiveness, however, it will allow more hedging strategies that are used for risk management to qualify for hedge accounting and introduce more judgment to assess the effectiveness of a hedging relationship. The standard has a mandatory effective date for annual periods beginning on or after January 1, 2018 with early adoption permitted. The company has not yet determined the impact of IFRS 9 on its consolidated financial statements.

 

Leases

 

In January 2016, the IASB published a new standard – IFRS 16 Leases (“IFRS 16”). The new standard brings most leases on balance sheets, eliminating the distinction between operating and finance leases. Lessor accounting however remains largely unchanged and the distinction between operating and finance leases is retained. IFRS 16 supersedes IAS 17 Leases and related interpretations and is effective for periods beginning on or after January 1, 2019, with earlier adoption permitted if IFRS 15 has also been applied. The company has not yet determined the impact of IFRS 16 on its consolidated financial statements.

 

3.    SEGMENTED INFORMATION

 

a)    Operating Segments

 

Our operations are organized into five operating business groups in addition to our corporate and asset management activities, which collectively represent seven operating segments for internal and external reporting purposes. We measure performance primarily using funds from operations generated by each operating segment and the amount of capital invested by the Corporation in each segment using common equity by segment.

 

Our operating segments are as follows:

 

 

i.                  Asset management operations consist of managing our listed partnerships, private funds and public securities on behalf of our clients and ourselves. We generate contractual base management fees for these activities as well as performance income, including incentive distributions, performance fees and carried interests. We also provide transaction and advisory services.

 

 

ii.               Property operations include the ownership, operation and development of office, retail, industrial, multifamily, hospitality and other properties.

 

 

iii.            Renewable power operations include the ownership, operation and development of hydroelectric, wind power and other generating facilities.

 

 

iv.           Infrastructure operations include the ownership, operation and development of utilities, transport, energy, communications and agricultural assets.

 

 

v.              Private equity operations include a broad range of industries, and are mostly focused on energy, industrial, construction and other business services.

 

 

vi.           Residential development operations consist predominantly of homebuilding, condominium development and land development.

 

 

vii.        Corporate activities include the investment of cash and financial assets, as well as the management of our corporate capitalization, including corporate borrowings and preferred equity which fund a portion of the capital invested in our other operations. Certain corporate costs such as technology and operations are incurred on behalf of all of our operating segments and allocated to each operating segment based on an internal pricing framework.

 

On June 20, 2016 we formed a listed issuer called Brookfield Business Partners L.P. (“BBU”) by way of a special dividend to shareholders. BBU is the primary vehicle through which we own and operate businesses within our private equity business group. In connection with the formation of BBU, we have realigned the organizational and governance structure of these businesses and changed how the company presents information for financial reporting and management decision making which has resulted in a change in the private equity and service activities segments. Specifically, our private equity reportable segment includes our investments included in BBU, Norbord Inc. and certain other directly held investments. Accordingly, effective the first quarter 2016, we changed our private equity and service activities operating segments into a single operating segment, and a single reportable segment, called Private Equity. The company has retrospectively applied this segment change for all periods presented.

 

Q3 2016 INTERIM REPORT

 


 

b)    Segment Financial Measures

 

Funds from Operations (“FFO”) is a key measure of our financial performance and we use FFO to assess operating results and the performance of our businesses on a segmented basis. We define FFO as net income prior to fair value changes, depreciation and amortization and deferred income taxes. When determining FFO, we include our proportionate share of the FFO of equity accounted investments on a fully diluted basis.

 

We use FFO to assess our performance both as an asset manager and an investor and operator of our assets; we use FFO to understand the financial impact of our operating decisions. FFO includes the fees that we earn from managing capital as well as our share of revenues earned and costs incurred within our operations, which include interest expense and other costs. Specifically, FFO includes the in period impact of contracts that we enter into to generate revenue, including asset management agreements, leases, power sales agreements, take or pay contracts, and sales of inventory, and also the impact of changes in leverage or the cost of that leverage as well as other costs incurred to operate our business.

 

FFO includes gains or losses arising from transactions during the reporting period adjusted to include fair value changes and revaluation surplus recorded in prior periods adjusted to include taxes payable or receivable, as well as amounts that are recorded directly in equity, such as ownership changes (“realized disposition gains”). We include realized disposition gains in FFO because we consider the purchase and sale of assets to be a normal part of the company’s business and the ultimate gain or loss on disposition of an asset is an important indicator of our performance as an allocator of capital. As noted above, unrealized fair value changes are excluded from FFO; however, gains or losses recorded over the life of an asset are included in the determination of realized disposition gains or losses.

 

We exclude depreciation and amortization from FFO, as we believe that the value of most of our assets typically increase over time, provided we make the necessary maintenance expenditures. In addition, the depreciated cost base of our assets is reflected in the ultimate realized disposition gain or loss on disposal. We also exclude deferred income taxes from FFO. The vast majority of the company’s deferred income tax assets and liabilities are a result of the revaluation of our assets under IFRS, and as a result, these unrealized balances are eliminated. Cash taxes are included within FFO.

 

Our definition of funds from operations may differ from the definition used by other organizations, as well as the definition of funds from operations used by the Real Property Association of Canada (“REALPAC”) and the National Association of Real Estate Investment Trusts, Inc. (“NAREIT”), in part because the NAREIT definition is based on U.S. GAAP, as opposed to IFRS. The key differences between our definition of funds from operations and the determination of funds from operations by REALPAC and/or NAREIT are that we include the following: realized disposition gains or losses and cash taxes payable or receivable on those gains or losses, if any; foreign exchange gains or losses on monetary items not forming part of our net investment in foreign operations; and foreign exchange gains or losses on the sale of an investment in a foreign operation.

 

We illustrate how we derive funds from operations for each operating segment and reconcile total reportable segment FFO to net income in Note 3 of the consolidated financial statements and on page 25. We do not use FFO as a measure of cash generated from our operations.

 

We measure segment assets based on Common Equity by Segment, which we consider to be the amount of common equity allocated to each segment. We utilize Common Equity by Segment to review our deconsolidated balance sheet and to assist in capital allocation decisions.

 

 

i.                                         Segment Balance Sheet Information

 

The company uses common equity by operating segment as its measure of segment assets, because it is utilized by the company’s Chief Operating Decision Maker for capital allocation decisions.

 

 

ii.                                     Segment Allocation and Measurement

 

Segment measures include amounts earned from consolidated entities that are eliminated on consolidation. The principal adjustment is to include asset management revenues charged to consolidated entities as revenues within the company’s asset management segment with the corresponding expense recorded as corporate costs within the relevant segment. These amounts are based on the in-place terms of the asset management contracts amongst the consolidated entities. Inter-segment revenues are determined under terms that approximate market value.

 

The company allocates the costs of shared functions, which would otherwise be included within its corporate activities segment such as information technology and internal audit, pursuant to formal policies.

 

BROOKFIELD ASSET MANAGEMENT

 


 

c)    Reportable Segment Measures

 

 

AS AT AND FOR THE
THREE MONTHS ENDED SEP. 30,
2016
(MILLIONS)

 

Asset
Management

 

Property

 

Renewable
Power

 

Infrastructure

 

Private
Equity

 

Residential
Development

 

Corporate
Activities

 

Total
Segments

 

Notes

External revenues

 

$

46

 

$

1,654

 

$

627

 

$

593

 

$

2,500

 

$

832

 

$

33

 

$

6,285

 

 

Inter-segment revenues

 

237

 

4

 

—

 

—

 

83

 

—

 

—

 

324

 

i

Segmented revenues

 

283

 

1,658

 

627

 

593

 

2,583

 

832

 

33

 

6,609

 

 

Segmented equity accounted income

 

—

 

201

 

4

 

184

 

39

 

5

 

3

 

436

 

ii

Interest expense

 

—

 

(440)

 

(162)

 

(102)

 

(37)

 

(20)

 

(64)

 

(825)

 

iii

Current income taxes

 

—

 

(10)

 

(7)

 

(9)

 

(8)

 

(9)

 

5

 

(38)

 

iv

Funds from operations

 

178

 

545

 

49

 

89

 

97

 

10

 

(85)

 

883

 

v

Common equity

 

337

 

17,121

 

4,862

 

2,343

 

2,505

 

2,699

 

(7,435)

 

22,432

 

 

Equity accounted investments

 

—

 

16,678

 

202

 

6,697

 

386

 

385

 

105

 

24,453

 

 

Additions to non-current assets1

 

—

 

3,238

 

100

 

2,678

 

66

 

5

 

10

 

6,097

 

 

 

 

1. Includes equity accounted investments, investment properties, property, plant and equipment, sustainable resources, intangible assets and goodwill

 

 

AS AT DEC. 31, 2015 AND FOR THE
THREE MONTHS ENDED SEP. 30,
2015
(MILLIONS)

 

Asset
Management

 

Property

 

Renewable
Power

 

Infrastructure

 

Private
Equity

 

Residential
Development

 

Corporate
Activities

 

Total
Segments

 

Notes

External revenues

 

$

69

 

$

1,403

 

$

342

 

$

532

 

$

2,180

 

$

539

 

$

(9)

 

$

5,056

 

 

Inter-segment revenues

 

182

 

—

 

—

 

—

 

93

 

—

 

9

 

284

 

i

Segmented revenues

 

251

 

1,403

 

342

 

532

 

2,273

 

539

 

—

 

5,340

 

 

Segmented equity accounted income

 

—

 

193

 

5

 

146

 

35

 

4

 

(2)

 

381

 

ii

Interest expense

 

—

 

(386)

 

(107)

 

(96)

 

(34)

 

(19)

 

(58)

 

(700)

 

iii

Current income taxes

 

—

 

(9)

 

(10)

 

(5)

 

(6)

 

(5)

 

(3)

 

(38)

 

iv

Funds from operations

 

141

 

214

 

48

 

71

 

84

 

41

 

(98)

 

501

 

v

Common equity

 

328

 

16,265

 

4,424

 

2,203

 

2,178

 

2,221

 

(6,051)

 

21,568

 

 

Equity accounted investments

 

—

 

17,494

 

197

 

4,690

 

412

 

358

 

65

 

23,216

 

 

Additions to non-current assets1

 

—

 

8,675

 

79

 

293

 

1,238

 

67

 

24

 

10,376

 

 

 

 

1. Includes equity accounted investments, investment properties, property, plant and equipment, sustainable resources, intangible assets and goodwill

 

 

FOR THE NINE MONTHS
ENDED SEP. 30, 2016
(MILLIONS)

 

Asset
Management

 

Property

 

Renewable
Power

 

Infrastructure

 

Private
Equity

 

Residential
Development

 

Corporate
Activities

 

Total
Segments

 

Notes

External revenues

 

$

179

 

$

4,759

 

$

1,898

 

$

1,690

 

$

6,999

 

$

1,808

 

$

143

 

$

17,476

 

 

Inter-segment revenues

 

702

 

10

 

—

 

—

 

241

 

—

 

6

 

959

 

i

Segmented revenues

 

881

 

4,769

 

1,898

 

1,690

 

7,240

 

1,808

 

149

 

18,435

 

 

Segmented equity accounted income

 

—

 

647

 

8

 

487

 

135

 

26

 

(2)

 

1,301

 

ii

Interest expense

 

—

 

(1,288)

 

(455)

 

(308)

 

(113)

 

(69)

 

(180)

 

(2,413)

 

iii

Current income taxes

 

—

 

(20)

 

(23)

 

(22)

 

(23)

 

(15)

 

(39)

 

(142)

 

iv

Funds from operations

 

554

 

1,193

 

154

 

271

 

277

 

(12)

 

(214)

 

2,223

 

v

Additions to non-current assets1

 

—

 

7,670

 

6,766

 

4,723

 

270

 

68

 

46

 

19,543

 

 

 

 

1. Includes equity accounted investments, investment properties, property, plant and equipment, sustainable resources, intangible assets and goodwill

 

 

FOR THE NINE MONTHS
ENDED SEP. 30, 2015
(MILLIONS)

 

Asset
Management

 

Property

 

Renewable
Power

 

Infrastructure

 

Private
Equity

 

Residential
Development

 

Corporate
Activities

 

Total
Segments

 

Notes

External revenues

 

$

202

 

$

4,020

 

$

1,243

 

$

1,606

 

$

5,693

 

$

1,540

 

$

71

 

$

14,375

 

 

Inter-segment revenues

 

512

 

—

 

—

 

—

 

285

 

—

 

22

 

819

 

i

Segmented revenues

 

714

 

4,020

 

1,243

 

1,606

 

5,978

 

1,540

 

93

 

15,194

 

 

Segmented equity accounted income

 

—

 

534

 

18

 

402

 

54

 

8

 

(3

)

1,013

 

ii

Interest expense

 

—

 

(1,153

)

(326

)

(288

)

(100

)

(102

)

(170

)

(2,139

)

iii

Current income taxes

 

—

 

(32

)

(20

)

(19

)

(9

)

(19

)

(10

)

(109

)

iv

Funds from operations

 

393

 

821

 

195

 

189

 

179

 

20

 

(219

)

1,578

 

v

Additions to non-current assets1

 

—

 

14,824

 

1,349

 

1,824

 

3,004

 

98

 

92

 

21,191

 

 

 

 

1. Includes equity accounted investments, investment properties, property, plant and equipment, sustainable resources, intangible assets and goodwill

 

Q3 2016 INTERIM REPORT

 


 

i.                                         Inter-Segment Revenues

 

For the three months ended September 30, 2016, the adjustment to external revenues, when determining segmented revenues, consists of management fees and leasing revenues earned from consolidated entities totalling $241 million (2015 – $182 million), revenues earned on construction projects between consolidated entities totalling $83 million (2015 – $93 million) and interest income on loans between consolidated entities totalling $nil (2015 – $9 million), which were eliminated on consolidation to arrive at the company’s consolidated revenues.

 

For the nine months ended September 30, 2016, the adjustment to external revenues, when determining segmented revenues, consists of management fees and leasing revenues earned from consolidated entities totalling $712 million (2015 – $512 million) revenues earned on construction projects between consolidated entities totalling $241 million (2015 – $285 million) and interest income on loans between consolidated entities totalling $6 million (2015 – $22 million), which were eliminated on consolidation to arrive at the company’s consolidated revenues.

 

 

ii.                                     Equity Accounted Income

 

The company defines equity accounted profit or loss to be the company’s share of FFO from its investments in associates (equity accounted investments), determined by applying the same methodology utilized in adjusting net income of consolidated entities. The following table reconciles equity accounted income on a segmented basis to the company’s Consolidated Statements of Operations:

 

 

 

 

Three Months Ended

 

Nine Months Ended

FOR THE PERIODS ENDED SEP. 30
(MILLIONS)

 

2016

 

2015

 

2016

 

2015

Segmented equity accounted income

 

$

436

 

$

381

 

$

1,301

 

$

1,013

Fair value changes and other non-FFO items

 

18

 

(77)

 

(260)

 

161

Equity accounted income

 

$

454

 

$

304

 

$

1,041

 

$

1,174

 

iii.                                 Interest Expense

 

For the three months ended September 30, 2016, the adjustment to interest expense consists of interest on loans between consolidated entities totalling $nil (2015 – $9 million) that is eliminated on consolidation, along with the associated revenue.

 

For the nine months ended September 30, 2016, the adjustment to interest expense consists of interest on loans between consolidated entities totalling $6 million (2015 – $22 million) that is eliminated on consolidation, along with the associated revenue.

 

 

iv.                                   Current Income Taxes

 

Current income taxes are included in segmented FFO, but are aggregated with deferred income taxes in income tax expense on the company’s Consolidated Statements of Operations. The following table reconciles segment current tax expense to consolidated income taxes:

 

 

 

 

Three Months Ended

 

Nine Months Ended

FOR THE PERIODS ENDED SEP. 30
(MILLIONS)

 

2016

 

2015

 

2016

 

2015

Segment current tax expense

 

$

(38)

 

$

(38)

 

$

(142)

 

$

(109)

Deferred income tax recovery (expense)

 

1,030

 

(107)

 

698

 

131

Income tax recovery (expense)

 

$

992

 

$

(145)

 

$

556

 

$

22

 

 

v.                                       Reconciliation of FFO to Net Income

 

The following table reconciles total reportable segment FFO to net income:

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

FOR THE PERIODS ENDED SEP. 30
(MILLIONS)

 

Note

 

2016

 

2015

 

2016

 

2015

Total reportable segment FFO

 

 

 

$

883

 

$

501

 

$

2,223

 

$

1,578

Realized disposition gains in fair value changes or prior periods

 

vi

 

(235)

 

(68)

 

(570)

 

(421)

Non-controlling interests in FFO

 

 

 

925

 

643

 

2,330

 

1,726

Financial statement components not included in FFO

 

 

 

 

 

 

 

 

 

 

Equity accounted fair value changes and other non-FFO items

 

 

 

18

 

(77)

 

(260)

 

161

Fair value changes

 

 

 

(59)

 

389

 

358

 

1,572

Depreciation and amortization

 

 

 

(541)

 

(436)

 

(1,538)

 

(1,265)

Deferred income taxes

 

 

 

1,030

 

(107)

 

698

 

131

Net income

 

 

 

$

2,021

 

$

845

 

$

3,241

 

$

3,482

 

BROOKFIELD ASSET MANAGEMENT

 


 

vi.                                   Realized Disposition Gains

 

Realized disposition gains include gains and losses recorded in net income arising from transactions during the current period adjusted to include fair value changes and revaluation surplus recorded in prior periods. Realized disposition gains also include amounts that are recorded directly in equity as changes in ownership as opposed to net income because they result from a change in ownership of a consolidated entity.

 

The realized disposition gains recorded in fair value changes or prior periods for the three and nine months ended September 30, 2016, were $235 million (2015 – $68 million) and $570 million (2015 – $421 million), respectively. There were no realized disposition gains recorded directly in equity as changes in ownership.

 

d)    Geographic Allocation

 

The company’s revenues by location of operations are as follows:

 

 

 

 

Three Months Ended

 

Nine Months Ended

FOR THE PERIODS ENDED SEP. 30
(MILLIONS)

 

2016

 

2015

 

2016

 

2015

United States

 

$

2,040

 

$

1,544

 

$

5,710

 

$

4,791

Canada

 

1,152

 

1,004

 

3,222

 

2,731

Europe

 

805

 

795

 

2,422

 

1,860

Australia

 

995

 

951

 

2,801

 

2,675

Brazil

 

583

 

273

 

1,220

 

896

Colombia

 

243

 

36

 

710

 

118

Other

 

467

 

453

 

1,391

 

1,304

 

 

$

6,285

 

$

5,056

 

$

17,476

 

$

14,375

 

The company’s consolidated assets by location of assets are as follows:

 

 

(MILLIONS)

 

Sep. 30,
2016

 

Dec. 31,
2015

United States

 

$

76,867

 

$

68,438

Canada

 

19,671

 

18,805

Europe

 

20,034

 

20,762

Australia

 

14,019

 

13,549

Brazil

 

12,508

 

9,968

Colombia

 

7,563

 

676

Other

 

9,175

 

7,316

 

 

$

159,837

 

$

139,514

 

Q3 2016 INTERIM REPORT

 

 

e)    Revenues Allocation

 

Total external revenues by product or service are as follows:

 

 

 

Three Months Ended

 

Nine Months Ended

FOR THE PERIODS ENDED SEP. 30
(MILLIONS)

 

2016

 

2015

 

2016

 

2015

Asset management

 

 $

46

 

 $

69

 

 $

179

 

 $

202

Property

 

 

 

 

 

 

 

 

Core office

 

555

 

554

 

1,639

 

1,735

Opportunistic and other

 

1,099

 

849

 

3,120

 

2,285

Renewable power

 

 

 

 

 

 

 

 

Hydroelectric

 

518

 

262

 

1,583

 

941

Wind energy

 

83

 

70

 

279

 

272

Co-generation and other

 

26

 

10

 

36

 

30

Infrastructure

 

 

 

 

 

 

 

 

Utilities

 

208

 

218

 

625

 

647

Transport

 

212

 

164

 

531

 

491

Energy

 

102

 

89

 

283

 

274

Sustainable resources and other

 

71

 

61

 

251

 

194

Private equity

 

 

 

 

 

 

 

 

Construction services

 

1,037

 

929

 

2,886

 

2,337

Other business services

 

509

 

476

 

1,442

 

1,236

Energy

 

68

 

80

 

197

 

256

Other industrial operations

 

886

 

695

 

2,474

 

1,864

Residential development

 

832

 

539

 

1,808

 

1,540

Corporate activities

 

33

 

(9)

 

143

 

71

 

 

 $

6,285

 

 $

5,056

 

 $

17,476

 

 $

14,375

 

BROOKFIELD ASSET MANAGEMENT

 


 

4.    ACQUISITIONS OF CONSOLIDATED ENTITIES

 

The company accounts for business combinations using the acquisition method of accounting, pursuant to which the cost of acquiring a business is allocated to its identifiable tangible and intangible assets and liabilities on the basis of the estimated fair values at the date of acquisition.

 

The following table summarizes the balance sheet impact as a result of business combinations that occurred in the nine months ended September 30, 2016. Purchase price allocations for the business combinations completed in the period have been completed on a preliminary basis:

 

(MILLIONS)

 

Property

 

Renewable
Power

 

Infrastructure and
Other

 

Total

Cash and cash equivalents

 

 $

88

 

 $

116

 

 $

149

 

 $

353

Accounts receivable and other

 

147

 

177

 

656

 

980

Inventory

 

9

 

34

 

39

 

82

Equity accounted investments

 

—

 

—

 

40

 

40

Investment properties

 

6,081

 

—

 

—

 

6,081

Property, plant and equipment

 

198

 

5,722

 

1,094

 

7,014

Intangible assets

 

1

 

—

 

1,186

 

1,187

Goodwill

 

5

 

808

 

486

 

1,299

Deferred income tax assets

 

—

 

—

 

14

 

14

Total assets

 

6,529

 

6,857

 

3,664

 

17,050

Less:

 

 

 

 

 

 

 

 

Accounts payable and other

 

(299)

 

(386)

 

(263)

 

(948)

Non-recourse borrowings

 

(2,803)

 

(1,143)

 

(1,165)

 

(5,111)

Deferred income tax liabilities

 

—

 

(1,016)

 

(255)

 

(1,271)

Non-controlling interests1

 

(33)

 

(1,417)

 

(1,403)

 

(2,853)

 

 

(3,135)

 

(3,962)

 

(3,086)

 

(10,183)

Net assets acquired

 

 $

3,394

 

 $

2,895

 

 $

578

 

 $

6,867

Consideration2

 

 $

3,368

 

 $

2,895

 

 $

578

 

 $

6,841

 

1. Includes non-controlling interests recognized on business combinations measured as the proportionate share of fair value of the assets and liabilities on the date of acquisition

2. Total consideration, including amounts paid by non-controlling interests that participated in the acquisition

 

Significant acquisitions completed in the first nine months of 2016 are as follows:

 

In January 2016, a subsidiary of the company acquired an initial 57.6% interest in Isagen S.A. E.S.P. (“Isagen”) from the Colombian government for total consideration of $1.9 billion. Isagen is Colombia’s third-largest power generation company which owns and operates a 3,032 MW portfolio, consisting predominantly of six, largely reservoir-based, hydroelectric facilities.

 

Following the acquisition, the subsidiary of the company was required to conduct two mandatory tender offers (the “MTOs”) for the remaining publicly held shares at the same price per share paid for the 57.6% controlling interest. The first MTO closed in May 2016, in which the subsidiary acquired an additional 26% of economic interest for $929 million. The second MTO closed in September 2016 with total consideration of $605 million, and the subsidiary effectively owns 99.64% of Isagen as of September 30, 2016 after giving effect to the initial acquisition and the two MTOs. The company is accounting for the initial acquisition of the 57.6% controlling interest and MTOs as separate transactions. Total revenue and net income that would have been recorded if the transaction had occurred at the beginning of the year would have been $674 million and $46 million, respectively.

 

In March 2016, a subsidiary of the company completed the acquisition of a self-storage operation for total consideration of $471 million. Total revenue and net income that would have been recorded if the transaction had occurred at the beginning of the year would have been $82 million and $55 million, respectively.

 

In April 2016, a subsidiary of the company completed the acquisition of a portfolio of student housing assets for total consideration of $397 million. Total revenue and net income that would have been recorded if the transaction had occurred at the beginning of the year would have been $33 million and $3 million, respectively.

 

In April 2016, a subsidiary of the company completed the acquisition of hydroelectric facilities in Pennsylvania for total consideration of $859 million. Total revenue and net loss that would have been recorded if the transaction had occurred at the beginning of the year would have been $37 million and $0.4 million, respectively.

 

In June 2016, a subsidiary of the company completed the acquisition of a portfolio of toll roads in Peru for total consideration of $128 million. Total revenue and net income that would have been recorded if the transaction had occurred at the beginning of the year would have been $39 million and $7 million, respectively.

 

Q3 2016 INTERIM REPORT

 


 

In July 2016, a subsidiary of the company completed the acquisition of a North American gas storage business for total consideration of $227 million. Total revenue and net income that would have been recorded if the transaction had occurred at the beginning of the year would have been $94 million and $23 million, respectively.

 

In July 2016, a subsidiary of the company completed the acquisition of a retail mall business for total consideration of $1.1 billion. Total revenue and net loss that would have been recorded if the transaction had occurred at the beginning of the year would have been $250 million and $44 million, respectively.

 

In August 2016, a subsidiary of the company completed the acquisition of an Australia port business for total consideration of $150 million. Total revenue and net income that would have been recorded if the transaction had occurred at the beginning of the year would have been $382 million and $8 million, respectively.

 

5.    FAIR VALUE OF FINANCIAL INSTRUMENTS

 

The following table provides the carrying values and fair values of financial instruments as at September 30, 2016 and December 31, 2015:

 

 

 

 

Sep. 30, 2016

 

Dec. 31, 2015

(MILLIONS)

 

Carrying
Value

 

Fair Value

 

Carrying
Value

 

Fair Value

Financial assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 $

4,372

 

 $

4,372

 

 $

2,774

 

 $

2,774

Other financial assets

 

 

 

 

 

 

 

 

Government bonds

 

51

 

51

 

122

 

122

Corporate bonds

 

1,355

 

1,355

 

1,274

 

1,274

Fixed income securities and other

 

334

 

334

 

396

 

396

Common shares and warrants

 

2,098

 

2,098

 

2,985

 

2,985

Loans and notes receivable

 

1,258

 

1,258

 

1,379

 

1,379

 

 

5,096

 

5,096

 

6,156

 

6,156

Accounts receivable and other

 

6,725

 

6,725

 

5,568

 

5,568

 

 

 $

16,193

 

 $

16,193

 

 $

14,498

 

 $

14,498

Financial liabilities

 

 

 

 

 

 

 

 

Corporate borrowings

 

 $

4,674

 

 $

5,108

 

 $

3,936

 

 $

4,229

Property-specific mortgages

 

50,910

 

53,282

 

46,044

 

47,081

Subsidiary borrowings

 

9,663

 

9,874

 

8,303

 

8,376

Accounts payable and other

 

12,478

 

12,478

 

11,366

 

11,366

Subsidiary equity obligations

 

3,543

 

3,543

 

3,331

 

3,331

 

 

 $

81,268

 

 $

84,285

 

 $

72,980

 

 $

74,383

 

BROOKFIELD ASSET MANAGEMENT

 


 

Fair Value Hierarchy Levels

 

Assets and liabilities measured at fair value on a recurring basis include $1.7 billion (2015 – $1.7 billion) of financial assets and $1.4 billion (2015 – $1.3 billion) of financial liabilities which are measured at fair value using unobservable valuation inputs or based on management’s best estimates. The following table categorizes financial assets and liabilities, which are carried at fair value, based upon the fair value hierarchy levels:

 

 

 

 

Sep. 30, 2016

 

Dec. 31, 2015

(MILLIONS)

 

Level 1

 

Level 2

 

Level 3

 

Level 1

 

Level 2

 

Level 3

Financial assets

 

 

 

 

 

 

 

 

 

 

 

 

Other financial assets

 

 

 

 

 

 

 

 

 

 

 

 

Government bonds

 

 $

—

 

 $

51

 

 $

—

 

 $

74

 

 $

48

 

 $

—

Corporate bonds and debt instruments

 

182

 

1,168

 

5

 

9

 

1,263

 

2

Fixed income securities

 

40

 

125

 

169

 

67

 

152

 

177

Common shares and warrants

 

682

 

—

 

1,416

 

1,613

 

—

 

1,372

Loans and notes receivables

 

—

 

62

 

12

 

—

 

70

 

12

Accounts receivable and other

 

—

 

1,164

 

107

 

4

 

1,109

 

128

 

 

 $

904

 

 $

2,570

 

 $

1,709

 

 $

1,767

 

 $

2,642

 

 $

1,691

Financial liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable and other

 

 $

65

 

 $

2,693

 

 $

68

 

 $

103

 

 $

2,138

 

 $

38

Subsidiary equity obligations

 

—

 

54

 

1,363

 

—

 

51

 

1,223

 

 

 $

65

 

 $

2,747

 

 $

1,431

 

 $

103

 

 $

2,189

 

 $

1,261

 

 

During the three months and nine months ended September 30, 2016, there were no transfers between level 1, 2 or 3. During the nine months ended September 30, 2015, $769 million of financial assets were transferred from level 1 to level 2 due to the elimination of an active market for those financial assets. There were no transfers during the three months ended September 30, 2015.

 

Fair values for financial instruments are determined by reference to quoted bid or ask prices, as appropriate. Where bid and ask prices are unavailable, the closing price of the most recent transaction of that instrument is used. In the absence of an active market, fair values are determined based on prevailing market rates for instruments with similar characteristics and risk profiles or internal or external valuation models, such as option pricing models and discounted cash flow analysis, using observable market inputs.

 

Level 2 financial assets and financial liabilities include foreign currency forward contracts, interest rate swap agreements, energy derivatives and subsidiary equity obligations.

 

The following table summarizes the valuation techniques and key inputs used in the fair value measurement of level 2 financial instruments:

 

 

(MILLIONS)
Type of asset/liability

 

Carrying
value
Sep. 30, 2016

 

Valuation technique(s) and key input(s)

Derivative assets/Derivative liabilities (accounts receivable/ accounts payable)

 

 $

1,164/

(2,693)

 

Foreign currency forward contracts – discounted cash flow model – forward exchange rates (from observable forward exchange rates at the end of the reporting period) and discounted at credit adjusted rate

Interest rate contracts – discounted cash flow model – forward interest rates (from observable yield curves) and applicable credit spreads discounted at a credit adjusted rate

Energy derivatives – quoted market prices, or in their absence internal valuation models corroborated with observable market data

Redeemable fund units (subsidiary equity obligations)

 

54

 

Aggregated market prices of underlying investments

Other financial assets

 

1,406

 

Valuation models based on observable market data

 

Q3 2016 INTERIM REPORT

 


 

Fair values determined using valuation models (Level 3 financial assets and liabilities) require the use of unobservable inputs, including assumptions concerning the amount and timing of estimated future cash flows and discount rates. In determining those unobservable inputs, the company uses observable external market inputs such as interest rate yield curves, currency rates, and price and rate volatilities, as applicable, to develop assumptions regarding those unobservable inputs.

 

The following table summarizes the valuation techniques and significant unobservable inputs used in the fair value measurement level 3 financial instruments:

 

 

(MILLIONS)
Type of asset/liability

 

Carrying
value
Sep. 30,
2016

 

Valuation
technique(s)

 

Significant
unobservable input(s)

 

Relationship of  unobservable
input(s) to fair value

Fixed income securities

 

 $

169

 

Discounted cash flows

 

·  Future cash flows



·  Discount rate

 

·  Increases (decreases) in future cash flows increase (decrease) fair value

 

·  Increases (decreases) in discount rate decrease (increase) fair value

Warrants (common shares and warrants)

 

1,416

 

Black-Scholes model

 

•  Volatility

 

·  Increases (decreases) in volatility increase (decrease) fair value

Limited-life funds (subsidiary equity obligations)

 

1,363

 

Discounted cash flows

 

·  Future cash flows



·  Discount rate



·  Terminal capitalization rate



·  Investment horizon

 

·  Increases (decreases) in future cash flows increase (decrease) fair value

 

·  Increases (decreases) in discount rate decrease (increase) fair value

 

·  Increases (decreases) in terminal capitalization rate decrease (increase) fair value

 

·  Increases (decreases) in the investment horizon increase (decrease) fair value

Derivative assets/Derivative liabilities (accounts receivable/payable)

 

 $

107/

(68)

 

Discounted cash flows

 

·  Future cash flows



·  Forward exchange rates (from observable forward exchange rates at the end of the reporting period)

·  Discount rate

 

·  Increases (decreases) in future cash flows increase (decrease) fair value

 

·  Increases (decreases) in the forward exchange rate increase (decrease) fair value

 

·  Increases (decreases) in discount rate decrease (increase) fair value

 

 

The following table presents the change in the balance of financial assets and liabilities classified as Level 3 as at September 30, 2016:

 

 

 

 

Three Months Ended

 

Nine Months Ended

FOR THE PERIODS ENDED SEP. 30
(MILLIONS)

 

Financial
Assets

 

Financial
Liabilities

 

Financial
Assets

 

Financial
Liabilities

Balance at beginning of period

 

 $

1,855

 

 $

1,405

 

 $

1,691

 

 $

1,261

Fair value changes in net income

 

(154)

 

(4)

 

5

 

39

Fair value changes in other comprehensive income1

 

(13)

 

3

 

(14)

 

55

Additions, net of disposals

 

21

 

27

 

27

 

76

Balance at end of period

 

 $

1,709

 

 $

1,431

 

 $

1,709

 

 $

1,431

 

1. Includes foreign currency translation

 

BROOKFIELD ASSET MANAGEMENT

 

 

6.            CURRENT AND NON-CURRENT PORTION OF ACCOUNT BALANCES

 

a)            Assets

 

 

 

 

Other Financial Assets

 

Accounts Receivable
and Other

 

Inventory

(MILLIONS)

 

Sep. 30,
2016

 

Dec. 31,
2015

 

Sep. 30,
2016

 

Dec. 31,
2015

 

Sep. 30,
2016

 

Dec. 31,
2015

Current portion

 

$

2,010

 

$

1,194

 

$

6,185

 

$

4,746

 

$

3,291

 

$

3,198

Non-current portion

 

3,086

 

4,962

 

2,697

 

2,298

 

2,578

 

2,083

 

 

$

5,096

 

$

6,156

 

$

8,882

 

$

7,044

 

$

5,869

 

$

5,281

 

b)            Liabilities

 

 

 

 

Accounts Payable
and Other

 

Property-Specific
Mortgages

 

Subsidiary
Borrowings

(MILLIONS)

 

Sep. 30,
2016

 

Dec. 31,
2015

 

Sep. 30,
2016

 

Dec. 31,
2015

 

Sep. 30,
2016

 

Dec. 31,
2015

Current portion

 

$

7,876

 

$

7,560

 

$

7,243

 

$

9,426

 

$

630

 

$

1,839

Non-current portion

 

4,602

 

3,806

 

43,667

 

36,618

 

9,033

 

6,464

 

 

$

12,478

 

$

11,366

 

$

50,910

 

$

46,044

 

$

9,663

 

$

8,303

 

7.    HELD FOR SALE

 

The following is a summary of the assets and liabilities that were classified as held for sale as at September 30, 2016:

 

 

(MILLIONS)

 

Property 

 

Other 

 

Total 

Assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

—

 

$

5

 

$

5

Accounts receivables and other

 

56

 

137

 

193

Investment properties

 

3,125

 

20

 

3,145

Property, plant and equipment

 

—

 

302

 

302

Equity accounted investments

 

—

 

115

 

115

Assets classified as held for sale

 

$

3,181

 

$

579

 

$

3,760

Liabilities

 

 

 

 

 

 

Accounts payable and other

 

$

59

 

$

33

 

$

92

Property-specific mortgages

 

1,723

 

170

 

1,893

Liabilities associated with assets classified as held for sale

 

$

1,782

 

$

203

 

$

1,985

 

As at September 30, 2016, a subsidiary of the company classified three office properties in New York, Washington, D.C., and London, as well a portfolio of industrial assets and a portfolio of multifamily assets in the United States as held for sale in the next 12 months. The Core Office assets to be disposed of represent total assets and liabilities of $1.9 billion and $1.0 billion, respectively. In addition, the industrial and multifamily assets classified to held for sale represent assets of $428 million.

 

8.    PROPERTY, PLANT AND EQUIPMENT

 

 

(MILLIONS)

 

Sep. 30,
2016

 

Dec. 31,
2015

Renewable power

 

$

26,804

 

$

19,738

Infrastructure

 

 

 

 

Utilities

 

3,518

 

3,600

Transport and energy

 

5,159

 

4,032

Sustainable resources

 

839

 

706

Property

 

5,182

 

5,316

Private equity and other

 

3,701

 

3,881

 

 

$

45,203

 

$

37,273

 

Q3 2016 INTERIM REPORT

 


 

9.    SUBSIDIARY PUBLIC ISSUERS

 

Brookfield Finance Inc. (“BFI”) may offer and sell debt securities in one or more issuances in the aggregate of up to $2.5 billion. Any debt securities issued by BFI will be fully and unconditionally guaranteed by the company. On May 25, 2016, BFI issued a $500 million 4.25% note due in 2026.

 

The company provided a full and unconditional guarantee of the Class 1 Senior Preferred Shares, Series A issued by its wholly owned subsidiary, Brookfield Investments Corporation (“BIC”). As at September 30, 2016, C$42 million of these senior preferred shares were held by third-party shareholders, and are retractable at the option of the holder.

 

The following tables contain summarized financial information of the Corporation, BFI, BIC and non-guarantor subsidiaries:

 

 

AS AT AND FOR THE
THREE MONTHS ENDED SEP. 30, 2016
(MILLIONS)

 

The  Corporation1 

 

BFI 

 

BIC

 

Subsidiaries of
the
Corporation
other than BFI
and BIC2

 

Consolidating
Adjustments3

 

The
Company
Consolidated

Revenues

 

$

36

 

$

5

 

$

—

 

$

6,265

 

$

(21)

 

$

6,285

Net income attributable to shareholders

 

1,036

 

—

 

19

 

1,073

 

(1,092)

 

1,036

Total assets

 

34,621

 

512

 

2,703

 

157,700

 

(35,699)

 

159,837

Total liabilities

 

8,457

 

(503)

 

1,123

 

87,054

 

(3,413)

 

92,718

 

 

 

 

 

 

 

 

 

 

 

 

 

AS AT DEC. 31, 2015 AND FOR THE
THREE MONTHS ENDED SEP. 30, 2015
(MILLIONS)

 

The  Corporation1 

 

BFI

 

BIC

 

Subsidiaries of
the
Corporation
other than BFI
and BIC2

 

Consolidating
Adjustments3

 

The
Company
Consolidated

Revenues

 

$

45

 

$

—

 

$

2

 

$

5,078

 

$

(69)

 

$

5,056

Net income attributable to shareholders

 

289

 

—

 

18

 

297

 

(315)

 

289

Total assets

 

33,325

 

—

 

2,625

 

143,552

 

(39,988)

 

139,514

Total liabilities

 

8,017

 

—

 

1,095

 

80,236

 

(7,061)

 

82,287

 

 

 

 

 

 

 

 

 

 

 

 

 

FOR THE NINE MONTHS ENDED SEP. 30, 2016
(MILLIONS)

 

The  Corporation1 

 

BFI 

 

BIC

 

Subsidiaries of
the
Corporation
other than BFI
and BIC2

 

Consolidating
Adjustments3

 

The
Company
Consolidated

Revenues

 

$

209

 

$

7

 

$

2

 

$

17,406

 

$

(148)

 

$

17,476

Net income attributable to shareholders

 

1,478

 

—

 

22

 

1,556

 

(1,578)

 

1,478

 

 

 

 

 

 

 

 

 

 

 

 

 

FOR THE NINE MONTHS ENDED SEP. 30, 2015
(MILLIONS)

 

The  Corporation1 

 

BFI 

 

BIC

 

Subsidiaries of
the
Corporation
other than BFI
and BIC2

 

Consolidating
Adjustments3

 

The
Company
Consolidated

Revenues

 

$

228

 

$

—

 

$

193

 

$

14,176

 

$

(222)

 

$

14,375

Net income attributable to shareholders

 

1,663

 

—

 

201

 

1,701

 

(1,902)

 

1,663

 

 

1. This column accounts for investments in all subsidiaries of the corporation under the equity method

2. This column accounts for investments in all subsidiaries of the corporation other than BFI and BIC on a combined basis

3. This column includes the necessary amounts to present the company on a consolidated basis

 

BROOKFIELD ASSET MANAGEMENT

 


 

10.     COMMON EQUITY

 

The company’s common equity is comprised of the following:

 

 

(MILLIONS)

 

Sep. 30,
2016

 

Dec. 31,
2015

Common shares

 

$

4,391

 

$

4,378

Contributed surplus

 

223

 

192

Retained earnings

 

11,501

 

11,045

Ownership changes

 

1,372

 

1,500

Accumulated other comprehensive income

 

4,945

 

4,453

Common equity

 

$

22,432

 

$

21,568

 

The company is authorized to issue an unlimited number of Class A shares and 85,120 Class B shares, together referred to as common shares. The company’s common shares have no stated par value. The holders of Class A shares and Class B shares rank on parity with each other with respect to the payment of dividends and the return of capital on the liquidation, dissolution or winding up of the company or any other distribution of the assets of the company among its shareholders for the purpose of winding up its affairs. Holders of the Class A shares are entitled to elect one-half of the Board of Directors of the company and holders of the Class B shares are entitled to elect the other one-half of the Board of Directors. With respect to the Class A and Class B shares, there are no dilutive factors, material or otherwise, that would result in different diluted earnings per share between the classes. This relationship holds true irrespective of the number of dilutive instruments issued in either one of the respective classes of common stock, as both classes of shares participate equally, on a pro rata basis, in the dividends, earnings and net assets of the company, whether taken before or after dilutive instruments, regardless of which class of shares are diluted.

 

The holders of the company’s common shares received cash dividends during the third quarter of 2016 of $0.13 per share (2015 – $0.12 per share).

 

On June 20, 2016, the company paid a special dividend of approximately 19 million limited partnership units of a newly created subsidiary, Brookfield Business Partners L.P. (“BBU”), to the holders of the company’s Class A Limited Voting Shares and Class B Limited Voting Shares. This was a common control transaction and as such the special dividend of $441 million reflected in equity was based on the IFRS carrying value of the 21% interest in BBU distributed to shareholders on June 20, 2016.

 

The number of issued and outstanding common shares and unexercised options are as follows:

 

 

 

 

Sep. 30, 2016

 

Dec. 31, 2015

Class A shares1

 

959,175,279

 

961,205,719

Class B shares

 

85,120

 

85,120

Shares outstanding1

 

959,260,399

 

961,290,839

Unexercised options and other share-based plans2

 

45,289,259

 

41,978,628

Total diluted shares

 

1,004,549,658

 

1,003,269,467

 

1. Net of 27,846,452 (2015 – 26,260,617) Class A shares held by the company in respect of long-term compensation agreements

2. Includes management share option plan and escrowed stock plan

 

The authorized common share capital consists of an unlimited number of shares. Shares issued and outstanding changed as follows:

 

 

 

 

Three Months Ended

 

Nine Months Ended

FOR THE PERIODS ENDED SEP. 30

 

2016

 

2015

 

2016

 

2015

Outstanding at beginning of period1

 

958,993,493

 

960,335,048

 

961,290,839

 

928,227,520

Issued (repurchased)

 

 

 

 

 

 

 

 

Issuances

 

—

 

—

 

—

 

32,901,133

Repurchases

 

(62,916)

 

(4,052,703)

 

(3,326,875)

 

(9,011,617)

Long-term share ownership plans2

 

276,666

 

764,428

 

1,094,592

 

4,807,553

Dividend reinvestment plan and others

 

53,156

 

60,413

 

201,843

 

182,597

Outstanding at end of period1

 

959,260,399

 

957,107,186

 

959,260,399

 

957,107,186

 

1. Net of 27,846,452 (2015 – 23,807,487) Class A shares held by the company in respect of long-term compensation agreements

2. Includes management share option plan and restricted stock plan

 

Q3 2016 INTERIM REPORT

 


 

a)    Earnings Per Share

 

The components of basic and diluted earnings per share are summarized in the following table:

 

 

 

 

Three Months Ended

 

Nine Months Ended

FOR THE PERIODS ENDED SEP. 30
(MILLIONS)

 

2016

 

2015

 

2016

 

2015

Net income attributable to shareholders

 

$

1,036

 

$

289

 

$

1,478

 

$

1,663

Preferred share dividends

 

(33)

 

(32)

 

(100)

 

(100)

Net income available to shareholders

 

$

1,003

 

$

257

 

$

1,378

 

$

1,563

 

 

 

 

 

 

 

 

 

Weighted average – common shares

 

959.1

 

958.7

 

959.0

 

946.7

Dilutive effect of the conversion of options and escrowed shares using treasury stock method

 

18.8

 

25.0

 

17.4

 

28.0

Common shares and common share equivalents

 

977.9

 

983.7

 

976.4

 

974.7

 

b)    Stock-Based Compensation

 

The company and its consolidated subsidiaries account for stock options using the fair value method. Under the fair value method, compensation expense for stock options that are direct awards of stock is measured at fair value at the grant date using an option pricing model and recognized over the vesting period. Options issued under the company’s Management Share Option Plan (“MSOP”) vest proportionately over five years and expire ten years after the grant date. The exercise price is equal to the market price at the close of business on the day prior to the grant date, or under certain conditions, the volume-weighted average price for the five business days prior to the grant date. During the nine months ended September 30, 2016, the company granted 4.4 million stock options at a weighted average exercise price of $30.59 per share. The compensation expense was calculated using the Black-Scholes method of valuation, assuming an average 7.5 year term, 28.0% volatility, a weighted average expected dividend yield of 1.6% annually, a risk free rate of 1.6% and a liquidity discount of 25%.

 

The company previously established an Escrowed Stock Plan whereby a private company is capitalized with preferred shares issued to Brookfield for cash proceeds and common shares (the “escrowed shares”) that are granted to executives. The proceeds are used to purchase Brookfield Class A shares and therefore the escrowed shares represent an interest in the underlying Brookfield Shares. The escrowed shares vest on and must be held until the fifth anniversary of the grant date. At a date at least five years from and no more than ten years from the grant date, all escrowed shares held will be exchanged for a number of Class A shares issued from treasury of the company, based on the market value of Class A shares at the time of exchange. During the nine months ended September 30, 2016, the company granted 3.25 million escrowed shares at a weighted average exercise price of $30.59 per share. The compensation expense was calculated using the Black-Scholes method of valuation, assuming an average 7.5 year term, 28.0% volatility, a weighted average expected dividend yield of 1.6% annually, a risk free rate of 1.6% and a liquidity discount of 25%.

 

11.    FAIR VALUE CHANGES

 

Fair value changes recorded in net income represent gains or losses arising from changes in the fair value of assets and liabilities, including derivative financial instruments, accounted for using the fair value method and are comprised of the following:

 

 

 

 

Three Months Ended

 

Nine Months Ended

FOR THE PERIODS ENDED SEP. 30
(MILLIONS)

 

2016

 

2015

 

2016

 

2015

Investment property

 

$

99

 

$

410

 

$

590

 

$

1,521

General Growth Properties warrants

 

(151)

 

33

 

33

 

(118)

Redeemable fund units

 

12

 

18

 

(33)

 

31

Transaction related gains

 

—

 

—

 

—

 

232

Investment in Canary Wharf

 

—

 

—

 

—

 

150

Impairments and other

 

(19)

 

(72)

 

(232)

 

(244)

 

 

$

(59)

 

$

389

 

$

358

 

$

1,572

 

BROOKFIELD ASSET MANAGEMENT