Consolidated Financial Statements and Notes - Brookfield Asset ...

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Cash taxes paid were $172 million (2004 – $93 million) and are included in current income taxes. Cash interest paid totalled$867 million (2004 – $613 million). Capital expenditures in the company’s power generating operations were $35 million(2004 – $35 million), and in property operations, were $40 million (2004 – $40 million).23. SHAREHOLDER DISTRIBUTIONSMILLIONS 2005 2004Preferred equity $ 35 $ 24Common equityCommon share dividends 155 135Convertible note interest — 1155 136Total $ 190 $ 16024. DIFFERENCE FROM UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLESCanadian generally accepted accounting principles (“Canadian GAAP”) differ in some respects from the principles that the companywould follow if its consolidated fi nancial statements were prepared in accordance with accounting principles generally acceptedin the United States (“U.S. GAAP”).The effects of the signifi cant accounting differences between Canadian GAAP and U.S. GAAP on the company’s balance sheet andstatement of income, retained earnings and cash fl ow for the years then ended are quantifi ed and described in this note.(a) Income Statement DifferencesThe signifi cant differences in accounting principles between the company’s income statement and those prepared under U.S. GAAPare summarized in the following table:MILLIONS, EXCEPT PER SHARE AMOUNTS Note 2005 2004(restated - Note x)Net income as reported under Canadian GAAP $ 1,662 $ 555AdjustmentsIncrease (reduction) of equity accounted income (i) 4 (13)Change in deferred income taxes (ii) (37) 10Convertible note distributions (iii) — (1)Conversion of convertible notes (iv) 4 —Market value adjustments (v) 18 1Increase (decrease) in commercial property income (vi) (17) 24Decrease in commercial property depreciation (vii) 8 5Decrease in residential property income (viii) (26) —Falconbridge equity accounted income and gains (ix) 41 —Foreign exchange and dividends on convertible preferred shares (x) 88 128Start-up costs and other (xi) (2) (73)Net income under U.S. GAAP $ 1,743 $ 636Preferred share dividends (35) (23)Convertible preferred share dividends (x) (24) (23)Net income to shareholders under U.S. GAAP $ 1,684 $ 590Per share amounts under U.S. GAAPBasic earnings per share $ 6.49 $ 2.29Diluted earnings per share $ 6.33 $ 2.2388Brookfield Asset Management | 2005 Annual Report
(i) Equity accounted incomeUnder U.S. GAAP, the company’s equity accounted income has been adjusted for differences in the accounting treatment by theunderlying company as follows:Accounting Treatment Canadian GAAP U.S. GAAPStart-up costs Defer and amortize Expense as incurredPension accounting Valuation allowance No valuation allowance /additional minimum liabilityDerivative instruments and hedging See Note 1 and Note 15 See Note 24(a)(v)Canadian GAAP requires recognition of a pension valuation allowance for an excess of the prepaid benefi t expense over theexpected future benefi t. Changes in the pension valuation allowance are recognized in the consolidated statement of income. U.S.GAAP does not specifi cally address pension valuation allowances. In 2002, U.S. regulators determined that such allowances wouldnot be permitted under U.S. GAAP. In light of these developments, Falconbridge, Norbord and Fraser Papers eliminate the effects ofrecognizing pension valuation allowances.(ii) Deferred income taxesThe change in deferred income taxes includes the tax effect of the income statement adjustments under U.S. GAAP. Also, underCanadian GAAP the tax rates applied to temporary differences and losses carried forward are those which are substantivelyenacted. Under U.S. GAAP, tax rates are applied to temporary differences and losses carried forward only when they are enacted.In 2005 and 2004, there were no differences between the substantively enacted rates used under Canadian GAAP and the enactedrates used under U.S. GAAP.(iii) Convertible note distributionsUnder Canadian GAAP, the company’s subordinated convertible notes are treated as equity with interest paid thereon recorded asa distribution from retained earnings. This results from the company’s ability to repay these notes and meet interest obligations bydelivering its common shares to the holders. Under U.S. GAAP, the subordinated convertible notes would be recorded as indebtednesswith the corresponding interest paid recorded as a charge to income. There is no effect on basic or diluted net income per share.The company redeemed all of its remaining subordinated convertible note obligations during 2005.(iv) Conversion of convertible notesUnder Canadian GAAP, the company’s subordinated convertible notes are treated as equity and converted into the company’sfunctional currency at historic rates. Under U.S. GAAP, the subordinated convertible notes are recorded as indebtedness andconverted into the company’s functional currency at current rates with the corresponding foreign exchange recorded as a chargeto income.(v) Market value adjustmentsUnder Canadian GAAP, the company generally records short-term investments at the lower of cost and net realizable value, withany unrealized losses in value included in the determination of net income. However, the company has identifi ed certain distinctportfolios of securities which it has designated to be carried at fair value under Canadian GAAP. Under U.S. GAAP, all tradingsecurities are carried at market, with unrealized gains losses included in the determination of net income.Under Canadian GAAP, derivatives that qualify for hedge accounting are generally off balance sheet. Under U.S. GAAP,all derivative fi nancial instruments are recognized in the fi nancial statements and measured at fair value. Changes inthe fair value of derivative fi nancial instruments are recognized periodically in either income or shareholders’ equity (asa component of other comprehensive income), depending on whether the derivative is being used to hedge fair value or cash fl ows.For derivatives designated as cash fl ow hedges, the effective portions of the changes in fair value of the derivative are reported inother comprehensive income and are subsequently reclassifi ed into net income when the hedged item affects net income. Changesin the fair value of derivative fi nancial instruments that are not designated in a hedging relationship, as well as the portions ofhedges that are ineffective, are recognized in income.Brookfield Asset Management | 2005 Annual Report 89
Page 3 and 4: Consolidated Statement of IncomeYEA
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Page 22 and 23: During 2005, the company redeemed a
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Page 36 and 37: (v) Common equityMILLIONS 2005 2004
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