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| BHS > SEC Filings for BHS > Form 10-Q on 10-Aug-2009 | All Recent SEC Filings |
10-Aug-2009
Quarterly Report
• strategies for shareholder value creation;
• ability to generate sufficient cash flow from our assets in 2009 and 2010 to repay maturing project specific financings;
• the visibility on our future cash flow;
• financing sources;
• expected backlog and closings;
• sufficiency of our access to capital resources;
• supply and demand equilibrium;
• the timing of 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.
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 and availability changes;
• availability of suitable undeveloped land at acceptable prices;
• adverse legislation or regulation;
• ability to obtain necessary permits and approvals for the development of our land;
• availability of labor or materials or increases in their costs;
• ability to develop and market our master-planned communities successfully;
• ability to obtain regulatory approvals;
• 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;
• ability to retain our executive officers;
• relationships with our affiliates;
• competitive conditions in the homebuilding industry, including product and pricing pressures; and
• additional risks and uncertainties, many of which are beyond our control, referred to in our Form 10-K for the year ended December 31, 2008 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.
Overview
Selling communities have seen an increased number of homebuyers take advantage
of improved affordability, low interest rates, declining home prices and
government stimulus programs. However, the North American homebuilding industry
continues to face a number of challenges with home foreclosures continuing to
have an effect on inventory and new home sales. Despite these challenging
conditions, the risk is mitigated by our assets, which are largely located in
geographic areas with a constrained supply of lots and which have demonstrated
strong economic characteristics over the long term.
We entitle and develop land for our communities and sell lots to third parties.
We also design, construct and market single and multi-family homes primarily to
move-up and luxury homebuyers.
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 in our financial statements under US GAAP are included in
"Corporate and Other."
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.
The 27,052 lots that we control, 16,031 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. We believe we add value to the lots we
control through entitlements, development and the construction of homes. In
allocating capital to our operations we generally limit our risk on unentitled
land by optioning such land positions in all our markets, thereby mitigating our
capital at risk. Option contracts for the purchase of land permit us to control
lots for an extended period of time.
Homebuilding is our primary source of revenue and has represented approximately
90% of our total revenue since 2002. Operating in markets with higher price
points and catering to move-up and luxury buyers, our average sales price for
the six months ended June 30, 2009 of $483,000 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 reduce our risk in
a market or redeploy capital to an asset providing higher returns.
Our housing and land inventory, investments in housing and land joint ventures,
and consolidated land inventory not owned, together comprised 92% of our total
assets as of June 30, 2009. In addition, we had $95 million in other assets as
of June 30, 2009. Other assets consist of homebuyer receivables of $5 million,
income taxes receivable of $4 million, deferred taxes of $66 million and other
receivables of $20 million. Homebuyer receivables consist primarily of proceeds
due from homebuyers on the closing of homes.
At June 30, 2009, our market capitalization of our common stock was
$107 million, compared to our book value of $249 million. Market capitalization
will vary depending on market sentiment and may not have a relationship to the
underlying value of a share of our company over the longer term.
Results of Operations
Three Months Ended Six Months Ended
Selected Financial Information (Unaudited) June 30, June 30,
($US millions) 2009 2008 2009 2008
Revenue:
Housing $ 82 $ 115 $ 117 $ 181
Land 13 5 15 8
Total revenues 95 120 132 189
Direct cost of sales (86 ) (105 ) (119 ) (164 )
Impairment of housing and land inventory
and write-offs of option deposits (4 ) (17 ) (8 ) (23 )
Gross margin / (loss) 5 (2 ) 5 2
Selling, general and administrative
expense (13 ) (15 ) (25 ) (31 )
Equity in earnings from housing and land
joint ventures (1 ) 2 2 2
Impairment from housing and land joint
ventures - (10 ) (12 ) (10 )
Other income 8 9 11 -
Loss before income taxes (1 ) (16 ) (19 ) (37 )
Income tax recovery - 5 6 13
Net loss (1 ) (11 ) (13 ) (24 )
Less net loss attributable to
noncontrolling interests 1 2 3 3
Net loss attributable to Brookfield Homes
Corporation $ - $ (9 ) $ (10 ) $ (21 )
Segment Information
Housing revenue ($US millions):
Northern California $ 28 $ 38 $ 36 $ 47
Southland / Los Angeles 15 31 26 56
San Diego / Riverside 14 19 22 32
Washington D.C. Area 23 24 30 43
Corporate and Other 2 3 3 3
Total $ 82 $ 115 $ 117 $ 181
Land revenues ($US millions):
Northern California $ - $ - $ - $ -
Southland / Los Angeles - - - -
San Diego / Riverside 3 - 4 -
Washington D.C. Area 2 5 3 8
Corporate and Other 8 - 8 -
Total $ 13 $ 5 $ 15 $ 8
Impairments and write-offs of option
deposits ($US millions):
Northern California $ - $ - $ - $ -
Southland / Los Angeles 2 - 2 1
San Diego / Riverside - - - -
Washington D.C. Area 2 17 2 22
Corporate and Other - - 4 -
Total $ 4 $ 17 $ 8 $ 23
Gross margin / (loss) ($US millions):
Northern California $ 1 $ 2 $ 2 $ 3
Southland / Los Angeles (3 ) 5 (2 ) 8
San Diego / Riverside 3 4 4 8
Washington D.C. Area 3 (12 ) 5 (16 )
Corporate and Other 1 (1 ) (4 ) (1 )
Total $ 5 $ (2 ) $ 5 $ 2
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Three Months Ended Six Months Ended
Selected Financial Information (Unaudited) June 30, June 30,
($US millions) 2009 2008 2009 2008
Home closings (units):
Northern California 33 40 42 50
Southland / Los Angeles 40 77 71 131
San Diego / Riverside 29 39 46 61
Washington D.C. Area 63 54 79 85
Corporate and Other 4 4 5 4
Consolidated total 169 214 243 331
Joint ventures - 2 - 5
Total 169 216 243 336
Average selling price ($US):
Northern California $ 838,000 $ 939,000 $ 859,000 $ 935,000
Southland / Los Angeles 373,000 410,000 369,000 430,000
San Diego / Riverside 481,000 497,000 480,000 528,000
Washington D.C. Area 364,000 445,000 378,000 513,000
Corporate and Other 641,000 679,000 633,000 679,000
Consolidated average 486,000 538,000 483,000 549,000
Joint ventures - 1,378,000 750,000 1,236,000
Average $ 486,000 $ 548,000 $ 485,000 $ 558,000
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Lots Owned Lots Controlled(1) Lots controlled (units at June 30, 2009):
Northern California 968 1,275 7,150 8,063 Southland / Los Angeles 1,356 1,465 3,395 2,975 San Diego / Riverside 9,684 8,030 11,184 9,530 Washington D.C. Area 3,755 3,781 5,055 5,114 Corporate and Other 268 275 268 275 Total 16,031 14,826 27,052 25,957 |
(1) Includes proportionate share of lots under option related to joint ventures.
Three Months and Six Months Ended June 30, 2009 Compared with Three Months and
Six Months Ended June 30, 2008
Net Loss
Net loss was $1 million and $13 million for the three and six months ended
June 30, 2009, a decline in net loss of $10 million and $11 million,
respectively, when compared to the same periods in 2008. The decrease for the
six months ended June 30, 2009 primarily relates to an increase in income from
our interest rate swap mark to markets and a decrease of $15 million in
impairments on our housing and land assets, partially offset by a reduction in
closings of 93 units for the six months ended June 30, 2009 compared to the same
period last year.
Results of Operations
Company-wide: Housing revenue was $82 million and $117 million for the three
months and six months ended June 30, 2009, a decrease of $33 million and
$64 million, respectively, when compared to the same periods in 2008. The
decrease in housing revenue was primarily due to fewer home closings and a
decrease of 10% and 12% in the average selling price during the three months and
six months ended June 30, 2009 when compared to the same periods in 2008.
Housing revenues were net of incentives of $14 million and $20 million for the
three and six months ended June 30, 2009, compared to $17 million and
$29 million, respectively, for the same periods in 2008. Our incentives on homes
closed by reportable segment are as follows:
Three Months Ended June 30,
2009 2008
Incentives % of Gross Incentives % of Gross
($ millions) Recognized Revenues Recognized Revenues
Northern California $ 9 24 % $ 9 20 %
Southland / Los Angeles 1 7 3 8
San Diego / Riverside 1 6 1 5
Washington D.C. Area 3 12 4 15
Corporate and Other - - - -
$ 14 14 % $ 17 13 %
Six Months Ended June 30,
2009 2008
Incentives % of Gross Incentives % of Gross
($ millions) Recognized Revenues Recognized Revenues
Northern California $ 12 25 % $ 12 20 %
Southland / Los Angeles 2 7 5 8
San Diego / Riverside 1 6 2 5
Washington D.C. Area 5 14 10 19
Corporate and Other - - - -
$ 20 15 % $ 29 14 %
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Land revenue totaled $13 million and $15 million for the three and six months
ended June 30, 2009, an increase of $8 million and $7 million, respectively,
when compared with the same periods in 2008. Our land revenues may vary
significantly from period to period due to the timing and nature of land sales
as they generally occur on an opportunistic basis and such revenues are also
affected by local market conditions, which during the quarter continued to be
weak.
Gross margin was $5 million and $5 million for the three and six months ended
June 30, 2009, compared with $(2) million and $2 million, respectively, for the
same periods in 2008. The increase in gross margins were primarily a result of a
decrease in impairment charges, partially offset by fewer closings and reduced
selling prices.
During the three months and six months ended June 30, 2009, we recognized
$4 million and $8 million of impairment charges and option write-offs compared
to $17 million and $23 million, respectively, for the same periods in 2008. The
impairment charges for the three months ended June 30, 2009 related to owned
lots in our Southland / Los Angeles and our Washington D.C. Area reportable
segments.
The number of projects where impairment charges and option write-offs were
recognized and the fair value of the projects impaired for the three and six
months ended June 30, 2009 and 2008 are as follows:
Three Months Ended June 30,
2009 2008
Fair Value Fair Value
Projects Tested Projects of Projects Projects Tested Projects of Projects
(Number of Projects / $ millions) for Impairment Impaired Impaired for Impairment Impaired Impaired
Northern California 6 - $ - 8 1 $ -
Southland / Los Angeles 4 1 14 6 - -
San Diego / Riverside 14 - - 14 - -
Washington D.C. Area 16 1 2 22 3 46
Corporate and Other 2 - - 2 - -
42 2 $ 16 52 4 $ 46
Six Months Ended June 30,
2009 2008
Fair Value of Fair Value of
Projects Tested Projects Projects Projects Tested Projects Projects
(Number of Projects / $ millions) for Impairment Impaired Impaired for Impairment Impaired Impaired
Northern California 6 - $ - 8 1 $ -
Southland / Los Angeles 4 1 14 6 1 5
San Diego / Riverside 14 - - 14 - -
Washington D.C. Area 17 1 2 22 8 68
Corporate and Other 2 1 9 2 - -
43 3 $ 25 52 10 $ 73
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Northern California: Housing revenue was $28 million and $36 million for the
three and six months ended June 30, 2009, a decrease of $10 million and
$11 million, respectively, when compared to the same periods in 2008. The gross
margin for the three months and six months ended June 30, 2009 was $1 million
and $2 million, compared with $2 million and $3 million, respectively, for the
same periods in 2008. The decreases in the gross margins were primarily a result
of reduced selling prices and /or an increase in homebuyer incentives.
Southland / Los Angeles: Housing revenue was $15 million and $26 million for the
three and six months ended June 30, 2009, a decrease of $16 million and
$30 million, respectively, when compared to the same periods in 2008. The
decrease in revenue was primarily attributable to a decrease in closings. The
gross margin for the three and six months ended June 30, 2009 was $(3) million
and $(2) million compared with $5 million and $8 million, respectively, for the
same periods in 2008. The decreases in the gross margins were primarily a result
of reduced selling prices and increases in impairment charges. Impairment
charges for the three and six months ending June 30, 2009 were $2 million and
$2 million compared to nil and $1 million for the same periods in 2008.
San Diego / Riverside: Housing revenue was $14 million and $22 million for the
three and six months ended June 30, 2009, a decrease of $5 million and
$10 million, respectively when compared to the same periods in 2008. Land
revenue was $3 million and $4 million for the three and six months ended
June 30, 2009, compared with nil for the same period in 2008. The gross margin
for the three and six months ended June 30, 2009 was $3 million and $4 million
compared with $4 million and $8 million, respectively, for the same periods in
2008. The decreases in the gross margins were primarily a result of reduced
selling prices.
Washington D.C. Area: Housing revenue was $23 million and $30 million for the
three and six months ended June 30, 2009, a decrease of $1 million and
$13 million, respectively when compared to the same periods in 2008. Land
revenue was $2 million and $3 million for the three and six months ended
June 30, 2009, compared with $5 million and $8 million, respectively, for the
same periods in 2008. The gross margin for the three and six months ended
June 30, 2009 was $3 million and $5 million compared with $(12) million and
$(16) million, respectively, for the same periods in 2008. The increases in
gross margins were primarily a result of decreases in impairment charges,
partially offset by reduced selling prices. Impairment charges for the three and
six months ended June 30,2009 were $2 million and $2 million, compared with
$17 million and $22 million, respectively, for the same periods in 2008.
Other Income and Expenses
Equity in earnings from housing and land joint ventures for the three months and
six months ended June 30, 2009 was a loss of $1 million and earnings of
$2 million, a decrease of $3 million and nil, respectively, when compared to the
same periods in 2008. The impairment of our investments in housing and land
joint ventures of $12 million for the six months ended June 30, 2009 primarily
relates to 907 lots in the Inland Empire of California in one project.
Other income / (expense) for the three and six months ended June 30, 2009
totaled income of $8 million and $11 million, a decrease of $1 million and an
increase of $11 million when compared to the same periods in 2008. The
components of other income / (expense) for the six months ended June 30, 2009
and 2008 are summarized as follows:
Three Months Ended Six Months Ended
June 30, June 30,
($ millions) 2009 2008 2009 2008
Change in fair value of interest rate
swap contracts $ 7 $ 8 $ 9 $ (1 )
Other 1 1 2 1
$ 8 $ 9 $ 11 $ -
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Selling, general and administrative expense was $13 million and $25 million for the three and six months ended June 30, 2009, a decrease of $2 million and $7 million, respectively, when compared to the same periods in 2008. The components of the expense for the three and six months ended June 30, 2009 and 2008 are summarized as follows:
Three Months Ended Six Months Ended
June 30, June 30,
. . .
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