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| BHS > SEC Filings for BHS > Form 10-Q on 5-Nov-2009 | All Recent SEC Filings |
5-Nov-2009
Quarterly Report
• business goals and strategy;
• strategies for shareholder value creation;
• the stability of the homebuilding industry;
• effect of challenging conditions on us;
• 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
During the period ended September 30, 2009, selling communities have seen an
increased number of homebuyers take advantage of improved affordability, low
interest rates, declining home prices and government stimulus programs. While
the North American homebuilding industry continues to face a number of
challenges with home foreclosures and tight credit standards continuing to have
an effect on inventory and new home sale rates and prices, homebuyer confidence
has improved as homebuyers appear to have recognized the homebuilding market has
begun to stabilize. Despite the challenging conditions still faced by the
homebuilding market, we believe 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 26,823 lots that we control, 15,804 of which we own directly or through
joint ventures, provide a strong foundation for our future lot development and
homebuilding business as well as 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 nine months ended September 30, 2009 of $475,000 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 90% of our total
assets as of September 30, 2009. In addition, we had $110 million in other
assets as of September 30, 2009. Other assets consist of restricted cash of
$7 million, homebuyer receivables of $7 million, income taxes receivable of $6
million, deferred taxes of $69 million and other receivables of $21 million.
Homebuyer receivables consist primarily of proceeds due from homebuyers on the
closing of homes.
At September 30, 2009, our market capitalization of our common stock was
$179 million, compared to our book value of $246 million. Market capitalization
will vary depending on market sentiment and may not have a relationship to the
underlying value of a share of our company over the longer term.
Results of Operations
Three Months Ended Nine Months Ended
Selected Financial Information (Unaudited) September 30, September 30,
($US millions) 2009 2008 2009 2008
Revenue:
Housing $ 89 $ 107 $ 206 $ 288
Land 10 3 25 11
Total revenues 99 110 231 299
Direct cost of sales (84 ) (98 ) (203 ) (262 )
Impairment of housing and land inventory
and write-offs of option deposits (10 ) (32 ) (18 ) (55 )
Gross margin / (loss) 5 (20 ) 10 (18 )
Selling, general and administrative
expense (12 ) (16 ) (37 ) (47 )
Equity in earnings from housing and land
joint ventures - - 2 2
Impairment from housing and land joint
ventures (1 ) (8 ) (13 ) (18 )
Other (expense) / income (1 ) (1 ) 10 (1 )
Loss before income taxes (9 ) (45 ) (28 ) (82 )
Income tax recovery 6 16 12 29
Net loss (3 ) (29 ) (16 ) (53 )
Less net loss attributable to
noncontrolling interests 2 4 5 7
Net loss attributable to Brookfield Homes
Corporation $ (1 ) $ (25 ) $ (11 ) $ (46 )
Segment Information
Housing revenue ($US millions):
Northern California $ 23 $ 35 $ 59 $ 82
Southland / Los Angeles 17 12 43 68
San Diego / Riverside 18 18 40 50
Washington D.C. Area 30 41 60 84
Corporate and Other 1 1 4 4
Total $ 89 $ 107 $ 206 $ 288
Land revenues ($US millions):
Northern California $ - $ - $ - $ -
Southland / Los Angeles - - - -
San Diego / Riverside 7 - 11 -
Washington D.C. Area 3 3 6 11
Corporate and Other - - 8 -
Total $ 10 $ 3 $ 25 $ 11
Impairment of housing and land inventory
and write-offs of option deposits ($US
millions):
Northern California $ - $ 5 $ - $ 5
Southland / Los Angeles - - 2 -
San Diego / Riverside - 20 - 20
Washington D.C. Area 7 7 9 30
Corporate and Other 3 - 7 -
Total $ 10 $ 32 $ 18 $ 55
Gross margin / (loss) ($US millions):
Northern California $ 3 $ (2 ) $ 5 $ 1
Southland / Los Angeles 2 1 - 9
San Diego / Riverside 4 (17 ) 8 (9 )
Washington D.C. Area (2 ) (1 ) 3 (17 )
Corporate and Other (2 ) (1 ) (6 ) (2 )
Total $ 5 $ (20 ) $ 10 $ (18 )
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Three Months Ended Nine Months Ended
September 30, September 30,
2009 2008 2009 2008
Home closings (units):
Northern California 31 38 73 88
Southland / Los Angeles 44 31 115 162
San Diego / Riverside 34 33 80 94
Washington D.C. Area 80 81 159 166
Corporate and Other 1 1 6 5
Consolidated total 190 184 433 515
Joint ventures 2 - 2 5
Total 192 184 435 520
Average selling price ($US):
Northern California $ 746,000 $ 925,000 $ 811,000 $ 931,000
Southland / Los Angeles 388,000 377,000 377,000 420,000
San Diego / Riverside 522,000 549,000 498,000 536,000
Washington D.C. Area 373,000 502,000 376,000 508,000
Corporate and Other 645,000 732,000 635,000 689,000
Consolidated average 465,000 578,000 475,000 559,000
Joint ventures 891,000 - 891,000 1,236,000
Average $ 468,000 $ 578,000 $ 477,000 $ 565,000
Lots controlled (units at September 30, 2009): Lots Owned Lots Controlled(1)
Northern California 937 1,237 7,119 7,419
Southland / Los Angeles 1,319 1,434 3,351 3,399
San Diego / Riverside 9,618 7,997 11,118 9,497
Washington D.C. Area 3,665 3,764 4,970 5,089
Corporate and Other 265 274 265 274
Total 15,804 14,706 26,823 25,678
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(1) Includes proportionate share of lots under option related to joint ventures.
Three Months and Nine Months Ended September 30, 2009 Compared with Three Months
and Nine Months Ended
September 30, 2008
Net Loss
Net loss was $3 million and $16 million for the three and nine months ended
September 30, 2009, a decline in net loss of $26 million and $37 million,
respectively, when compared to the same periods in 2008. The decrease in net
loss for the nine months ended September 30, 2009 primarily relates to a
decrease of $37 million in impairments on our housing and land assets an
increase in the number of land sales and an increase in income from our interest
rate swap contracts, partially offset by a reduction in total closings of 85
units compared to the same period last year.
Results of Operations
Company-wide: Housing revenue was $89 million and $206 million for the three and
nine months ended September 30, 2009, a decrease of $18 million and $82 million,
respectively, when compared to the same periods in 2008. The decrease in housing
revenue was primarily due to fewer home closings in the nine months ended
September 30, 2009 and a decrease of 19% and 16% in the average selling price
during the three and nine months ended September 30, 2009, respectively, when
compared to the same periods in 2008.
Housing revenues were net of incentives of $12 million and $32 million for the
three and nine months ended September 30, 2009, compared to $17 million and
$46 million, respectively, for the same periods in 2008. Our incentives on homes
closed by reportable segment are as follows:
Three Months Ended September 30,
2009 2008
Incentives % of Gross Incentives % of Gross
($ millions) Recognized Revenues Recognized Revenues
Northern California $ 6 20 % $ 9 21 %
Southland / Los Angeles 1 7 1 9
San Diego / Riverside 1 6 - 2
Washington D.C. Area 4 11 7 14
Corporate and Other - 27 - 25
$ 12 12 % $ 17 14 %
Nine Months Ended September 30,
2009 2008
Incentives % of Gross Incentives % of Gross
($ millions) Recognized Revenues Recognized Revenues
Northern California $ 18 23 % $ 21 20 %
Southland / Los Angeles 3 7 6 8
San Diego / Riverside 2 6 2 4
Washington D.C. Area 9 12 17 17
Corporate and Other - 9 - 12
$ 32 13 % $ 46 14 %
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Land revenue totaled $10 million and $25 million for the three and nine months
ended September 30, 2009, an increase of $7 million and $14 million,
respectively, when compared to 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.
Gross margin was $5 million and $10 million for the three and nine months ended
September 30, 2009, compared with $(20) million and $(18) million, respectively,
for the same periods in 2008. The increases in gross margins were primarily a
result of a decrease in impairment charges, partially offset by fewer closings
during the nine month period ending September 30, 2009 as well as reduced
average selling prices.
During the three and nine months ended September 30, 2009, we recognized
$10 million and $18 million of impairment charges and option write-offs compared
to $32 million and $55 million, respectively, for the same periods in 2008. The
impairment charges and option write-offs for the three months ended
September 30, 2009 related to a commercial site in our Washington D.C. Area
reportable segment and $8 million of option write-offs.
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 nine
months ended September 30, 2009 and 2008 are as follows:
Three Months Ended September 30,
2009 2008
Projects Fair Value Projects Fair Value
Tested for Projects of Projects Tested for Projects of Projects
(Number of Projects / $ millions) Impairment Impaired Impaired Impairment Impaired Impaired
Northern California 6 - $ - 8 1 $ -
Southland / Los Angeles 4 - - 5 - -
San Diego / Riverside 14 - - 14 1 40
Washington D.C. Area 17 2 3 19 2 16
Corporate and Other 3 1 - 2 - -
44 3 $ 3 48 4 $ 56
Nine Months Ended September 30,
2009 2008
Projects Fair Value Projects Fair Value
Tested for Projects of Projects Tested for Projects of Projects
(Number of Projects / $ millions) Impairment Impaired Impaired Impairment Impaired Impaired
Northern California 6 - $ - 9 2 $ -
Southland / Los Angeles 4 1 14 6 1 5
San Diego / Riverside 14 - - 14 1 40
Washington D.C. Area 18 3 5 22 10 84
Corporate and Other 3 2 9 2 - -
45 6 $ 28 53 14 $ 129
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Northern California: Housing revenue was $23 million and $59 million for the
three and nine months ended September 30, 2009, a decrease of $12 million and
$23 million, respectively, when compared to the same periods in 2008. The gross
margin for the three and nine months ended September 30, 2009 was $3 million and
$5 million, compared with $(2) million and $1 million, respectively, for the
same periods in 2008. The increases in the gross margins were primarily a result
of fewer option contract write-offs, partially offset by reduced selling prices
and /or an increase in homebuyer incentives. Option contract write-offs for the
three and nine months ended September 30, 2009 were nil compared with $5 million
and $5 million for the same periods in 2008.
Southland / Los Angeles: Housing revenue was $17 million and $43 million for the
three and nine months ended September 30, 2009, an increase of $5 million and a
decrease of $25 million, respectively, when compared to the same periods in
2008. The increase in revenue for the three month period ended September 30,
2009 compared to the same period in 2008 was primarily attributable to an
increase in closings, while the decrease for the nine month period ended
September 30, 2009 compared to the same period in 2008 was primarily
attributable to a decrease in closings. The gross margin for the three and nine
months ended September 30, 2009 was $2 million and nil compared with $1 million
and $9 million, respectively, for the same periods in 2008. The decrease in the
gross margin for the nine months ended September 30, 2009 compared to the same
period in 2008 was primarily a result of reduced selling prices and increases in
impairment charges. Impairment charges for the three and nine months ended
September 30, 2009 were nil and $2 million compared to nil for each of the same
periods in 2008.
San Diego / Riverside: Housing revenue was $18 million and $40 million for the
three and nine months ended September 30, 2009, a decrease of nil and
$10 million, respectively, when compared to the same periods in 2008. Land
revenue was $7 million and $11 million for the three and nine months ended
September 30, 2009, compared with nil for each of the same periods in 2008.
During the nine months ended September 30, 2009, 32 lots located in the Carlsbad
region and 150 lots located in the Imperial Valley region were sold. The gross
margin for the three and nine months ended September 30, 2009 was $4 million and
$8 million compared with $(17) million and $(9) million, respectively, for the
same periods in 2008. The increases in the gross margins were primarily a result
of fewer impairment charges, partially offset by reduced selling prices.
Impairment charges for the three and nine months ended September 30, 2009 were
nil compared with $20 million and $20 million, respectively, for the same
periods in 2008.
Washington D.C. Area: Housing revenue was $30 million and $60 million for the
three and nine months ended September 30, 2009, a decrease of $11 million and
$24 million, respectively, when compared to the same periods in 2008. Land
revenue was $3 million and $6 million for the three and nine months ended
September 30, 2009, compared with $3 million and $11 million, respectively, for
the same periods in 2008. The gross margin for the three and nine months ended
September 30, 2009 was $(2) million and $3 million compared with $(1) million
and $(17) million, respectively, for the same periods in 2008. The increase in
gross margin for the nine months ended September 30, 2009 compared to the same
period in 2008 was primarily a result of a decrease in impairment charges,
partially offset by reduced selling prices and / or an increase in homebuyer
incentives. Impairment charges for the three and nine months ended September 30,
2009 were $7 million and $9 million, compared with $7 million and $30 million,
respectively, for the same periods in 2008.
Other Income and Expenses
Equity in earnings from housing and land joint ventures for the three and nine
months ended September 30, 2009 was earnings of nil and $2 million consistent
with the same periods in 2008. The impairment of our investments in housing and
land joint ventures of $13 million for the nine months ended September 30, 2009
primarily relates to 907 lots in the Inland Empire of California in one project,
and the write-off of costs related to a commercial site in the Washington D.C.
Area reportable segment.
Other (expense) / income for the three and nine months ended September 30, 2009
totaled income of $(1) million and $10 million, a decrease of nil and an
increase of $11 million when compared to the same periods in 2008. The
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