UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2007

BROOKFIELD HOMES CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

Delaware (State or Other Jurisdiction of Incorporation or Organization)		37-1446709 (I.R.S. Employer Identification No.)
8500 Executive Park Avenue Suite 300 Fairfax, Virginia (Address of Principal Executive Offices)		22031 (Zip Code)

(703) 270-1700
(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

Yes þ      No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o      Accelerated filer þ      Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

Yes o     No þ

As of November 1, 2007, the registrant had outstanding 26,628,207 shares of its common stock, $0.01 par value per share.

 

 

INDEX

BROOKFIELD HOMES CORPORATION

				PAGE
PART I.		FINANCIAL INFORMATION			1
Item 1.		Financial Statements			1
		Consolidated Balance Sheets — September 30, 2007 and December 31, 2006			1
		Consolidated Statements of Income — Three Months and Nine Months Ended September 30, 2007 and 2006			2
		Consolidated Statements of Stockholders’ Equity — Nine Months Ended September 30, 2007 and 2006			3
		Consolidated Statements of Cash Flows — Three Months and Nine Months Ended September 30, 2007 and 2006			4
		Notes to the Consolidated Financial Statements			5
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			16
Item 3.		Quantitative and Qualitative Disclosures about Market Risk			23
Item 4.		Controls and Procedures			23
PART II.		OTHER INFORMATION
Item 1.		Legal Proceedings			23
Item 1A.		Risk Factors			23
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds			23
Item 3.		Defaults Upon Senior Securities			24
Item 4.		Submission of Matters to a Vote of Security Holders			24
Item 5.		Other Information			24
Item 6.		Exhibits			24
SIGNATURES					25
EXHIBITS
EX-31.1
EX-31.2
EX-32.1

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

BROOKFIELD HOMES CORPORATION

CONSOLIDATED BALANCE SHEETS

(all dollar amounts are in thousands of U.S. dollars)

						(Unaudited)
						September 30,				December 31,
		Note				2007				2006
Assets
Housing and land inventory			2			$	1,108,258			$	1,075,192
Investments in housing and land joint ventures			3				108,112				90,325
Consolidated land inventory not owned			2				71,090				59,381
Receivables and other assets							36,514				37,031
Cash and cash equivalents							1,164				86,809
Deferred income taxes			6				57,057				52,715
						$	1,382,195			$	1,401,453
Liabilities and Equity
Project specific and other financings						$	690,568			$	617,931
Accounts payable and other liabilities			4				178,988				320,061
Minority interest							104,101				92,055
Preferred stock — 10,000,000 shares authorized, no shares issued							—				—
Common stock — 65,000,000 shares authorized, 32,073,781 shares issued (December 31, 2006 — 32,073,781 shares issued)							321				321
Additional paid-in-capital							146,060				146,730
Treasury stock, at cost — 5,445,574 shares (December 31, 2006 — 5,519,275 shares)							(245,287	)			(248,606	)
Retained earnings							507,444				472,961
						$	1,382,195			$	1,401,453

See accompanying notes to financial statements

BROOKFIELD HOMES CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

(all dollar amounts are in thousands of U.S. dollars, except per share amounts)

						(Unaudited)								(Unaudited)
						Three Months Ended								Nine Months Ended
						September 30,								September 30,
Revenue		Note				2007				2006				2007				2006
Housing						$	117,405			$	160,025			$	376,077			$	475,530
Land							3,359				15,520				9,598				67,368
							120,764				175,545				385,675				542,898
Direct Cost of Sales			2				(133,911	)			(125,322	)			(349,554	)			(375,507	)
							(13,147	)			50,223				36,121				167,391
Equity in earnings / (loss) from housing and land joint ventures			3				(6,727	)			11,204				(6,347	)			12,874
Other (expense) / income							(5,519	)			(254	)			174				7,753
Selling, general and administrative expense							(16,007	)			(12,699	)			(50,037	)			(33,771	)
Minority interest							3,691				(3,737	)			2,763				(9,141	)
Net Income / (Loss) Before Taxes							(37,709	)			44,737				(17,326	)			145,106
Income tax recovery / (expense)			6				39,328				(17,134	)			57,135				(55,575	)
Net Income						$	1,619			$	27,603			$	39,809			$	89,531
Earnings Per Share
Basic			5			$	0.06			$	1.04			$	1.50			$	3.32
Diluted			5			$	0.06			$	1.03			$	1.48			$	3.27
Weighted Average Common Shares Outstanding
(in thousands)
Basic			5				26,628				26,572				26,623				26,981
Diluted			5				26,816				26,898				26,865				27,368

See accompanying notes to financial statements

BROOKFIELD HOMES CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(all dollar amounts are in thousands of U.S. dollars)

		(Unaudited)
		Nine Months Ended
		September 30,
		2007				2006
Common Stock		$	321			$	321
Additional Paid-in Capital
Opening balance			146,730				146,249
Stock option exercises			(670	)			481
Ending balance			146,060				146,730
Treasury Stock
Opening balance			(248,606	)			(217,182	)
Share repurchases			—				(37,922	)
Stock option exercises			3,319				6,498
Ending balance			(245,287	)			(248,606	)
Retained Earnings
Opening balance			472,961				335,261
Net income			39,809				89,531
Dividends			(5,326	)			(5,343	)
Ending balance			507,444				419,449
Total stockholders’ equity		$	408,538			$	317,894

See accompanying notes to financial statements

BROOKFIELD HOMES CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(all dollar amounts are in thousands of U.S. dollars)

		(Unaudited)								(Unaudited)
		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2007				2006				2007				2006
Cash Flows From / (used in) Operating Activities
Net income		$	1,619			$	27,603			$	39,809			$	89,531
Adjustments to reconcile net income to net cash used in operating activities:
Distributed / (undistributed) income from housing and land joint ventures			11				(10,977	)			277				(9,987	)
Minority interest			(3,691	)			3,737				(2,763	)			9,141
Deferred income taxes			(10,798	)			898				(4,342	)			4,676
Impairments and write-offs of option deposits			34,413				—				34,413				—
Impairments from housing and land joint ventures			7,135				—				7,135				—
Other changes in operating assets and liabilities:
Decrease in receivables and other assets			1,529				5,130				517				57,904
Increase in housing and land inventory			(22,685	)			(46,852	)			(73,232	)			(138,478	)
(Decrease)/increase in accounts payable and other			(38,909	)			1,339				(132,408	)			(79,808	)
Net cash used in operating activities			(31,376	)			(19,122	)			(130,594	)			(67,021	)
Cash Flows From / (used in) Investing Activities
Investments in housing and land joint ventures			(12,006	)			(30,424	)			(33,063	)			(49,515	)
Recovery from housing and land joint ventures			4,185				3,088				7,864				9,718
Net cash used in investing activities			(7,821	)			(27,336	)			(25,199	)			(39,797	)
Cash Flows From / (used in) Financing Activities
Net (repayments)/borrowings under revolving project specific and other financings			35,106				(15,486	)			72,637				(25,692	)
Distributions to minority interest			—				(510	)			(1,750	)			(14,627	)
Contributions from minority interest			1,537				1,359				4,503				4,248
Repurchase of common shares			—				(1,251	)			—				(37,922	)
Exercise of stock options			11				—				84				164
Dividends paid in cash			—				—				(5,326	)			(5,343	)
Net cash provided by / (used in) financing activities			36,654				(15,888	)			70,148				(79,172	)
Decrease in cash and cash equivalents			(2,543	)			(62,346	)			(85,645	)			(185,990	)
Cash and cash equivalents at beginning of period			3,707				74,767				86,809				198,411
Cash and cash equivalents at end of period		$	1,164			$	12,421			$	1,164			$	12,421
Supplemental Cash Flow Information
Interest paid		$	16,386			$	15,531			$	48,531			$	40,628
Income taxes paid		$	—			$	13,375			$	22,154			$	52,185
Non-cash increase / (decrease) in consolidated land inventory not owned		$	139			$	531			$	5,956			$	(6,726	)

See accompanying notes to financial statements

BROOKFIELD HOMES CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in thousands of U.S. dollars except per share amounts)

Note 1. Significant Accounting Policies

(a) Basis of Presentation

Brookfield Homes Corporation (the “Company” or “Brookfield Homes”) was incorporated on August 28, 2002 as a wholly-owned subsidiary of Brookfield Properties Corporation (“Brookfield Properties”) to acquire as of October 1, 2002 all of the California and Washington D.C. Area homebuilding and land development operations (the “Land and Housing Operations”) of Brookfield Properties pursuant to a reorganization of its business (the “Spin-off”). On January 6, 2003, Brookfield Properties completed the Spin-off by distributing all of the issued and outstanding common stock it owned in the Company to its common stockholders. Brookfield Homes began trading as a separate company on the New York Stock Exchange on January 7, 2003.

The consolidated financial statements include the accounts of Brookfield Homes and its subsidiaries and investments in joint ventures and variable interests in which the Company is the primary beneficiary.

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information. Since they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements, they should be read in conjunction with the Company’s consolidated financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2006. In the opinion of management, all adjustments necessary for fair presentation of the accompanying consolidated financial statements have been made.

The Company historically has experienced, and expects to continue to experience, variability in quarterly results. The consolidated statements of income for the three months and nine months ended September 30, 2007 are not necessarily indicative of the results to be expected for the full year.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

(b) Recent Accounting Pronouncements

In February 2007, the United States Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) 159, “The Fair Value Option for Financial Assets and Financial Liabilities.” SFAS 159 allows companies to choose to measure certain financial instruments and other items at fair value. Companies electing the fair value option are required to report subsequent changes in fair value in earnings. This Statement is effective for fiscal years beginning after November 15, 2007 (the Company’s fiscal year beginning January 1, 2008). The Company is currently reviewing the impact of SFAS 159 on its consolidated financial statements.

In September 2006, the FASB issued SFAS 157, “Fair Value Measurements.” SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. This Statement is effective for fiscal years beginning after November 15, 2007 (the Company’s fiscal year beginning January 1, 2008), and interim periods within those fiscal years. The Company is currently reviewing the impact of SFAS 157 on its consolidated financial statements.

In July 2006, the FASB issued FASB Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109,” which clarifies the accounting for uncertainty in income taxes recognized in financial statements in accordance with FASB Statement No. 109, “Accounting for Income Taxes.” This Interpretation provides guidance on the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. In addition, FIN 48 provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. Under FIN 48, the impact of an uncertain tax position on the income tax return must be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of

BROOKFIELD HOMES CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in thousands of U.S. dollars except per share amounts)

being sustained. The Company adopted the provisions of FIN 48 on January 1, 2007. See Note 6 “Income Taxes,” for further discussions.

(c) Reclassification

Certain prior period amounts in the consolidated balance sheet and consolidated statements of income have been reclassified to conform with the September 30, 2007 presentation. Specifically, Accounts payable and other liabilities now includes deferred compensation which had previously been shown as a component of project specific and other financings, and Other (expense) / income is shown separately which had previously been shown as a component of Land and other revenues.

Note 2. Housing and Land Inventory

Housing and land inventory includes homes completed and under construction and lots ready for construction, model homes and land under and held for development which will be used in the Company’s homebuilding operations or sold as building lots to other homebuilders. The following summarizes the components of housing and land inventory:

		September 30,				December 31,
		2007				2006
Housing inventory		$	540,624			$	571,352
Model homes			51,111				42,706
Land and land under development			516,523				461,134
		$	1,108,258			$	1,075,192

The Company capitalizes interest which is expensed as housing units and building lots are sold. For the three months ended September 30, 2007 and 2006, and for the nine months ended September 30, 2007 and 2006, interest incurred and capitalized by the Company was $16.4 million and $15.5 million, $48.5 million and $40.6 million, respectively. Capitalized interest expensed for the same periods was $6.0 million and $4.5 million, $20.9 million and $10.8 million, respectively.

Capitalized costs are expensed as costs of sales on a specific identification basis or on a relative value basis in proportion to anticipated revenue depending on the nature of the cost. Included in direct cost of sales is $96.1 million and $306.5 million of costs related to housing revenue for the three months and nine months ended September 30, 2007 (September 30, 2006 — $118.2 million and $343.5 million, respectively) and $3.4 million and $8.6 million of costs related to land revenues (September 30, 2006 — $7.1 million and $32.0 million, respectively).

In accordance with SFAS 144 “Accounting for the Impairment or Disposal of Long-Lived Assets,” the Company has reviewed its housing and land assets for recoverability. Recoverability is measured by comparing the carrying amount of an asset to future undiscounted cash flows expected to be generated by the asset. To arrive at this amount, the Company estimates the cash flow for the life of each project. These projections take into account the specific business plans for each project and management’s best estimate of the most probable set of economic conditions anticipated to prevail in the market area. Such projections assume current home selling prices, cost estimates and sales rates for short term projects are consistent with recent sales activity. For longer term projects, sales rates for 2007 and 2008 assume recent sales activity and normalized sales rates beyond 2008. If these assets are considered to be impaired, they are then written down to fair value less estimated selling costs. The ultimate fair values for the Company’s housing and land inventory are dependent upon future market and economic conditions. For the three months and nine months ended September 30, 2007, the Company recognized $31.4 million of impairment charges related to 555 finished lots in the Inland Empire of California the Company directly owns and this amount is included in direct cost of sales (September 30, 2006 — nil). In addition, the Company wrote-off $3.0 million primarily related to 875 unentitled optioned lots in the Central Valley of California the Company is no longer pursuing and this amount is included in direct cost of sales (September 30, 2006 — nil). Should the ongoing challenges of the housing market not stabilize in the near future, it is possible further impairment charges will be recognized in future results.

BROOKFIELD HOMES CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in thousands of U.S. dollars except per share amounts)

In the ordinary course of business, the Company has entered into a number of option contracts to acquire lots in the future in accordance with specific terms and conditions of such agreements. Under these option agreements, the Company will fund deposits to secure the right to purchase land or lots at a future point in time. The Company has evaluated its option contracts and determined that for those entities considered to be variable interest entities (“VIEs”), it is the primary beneficiary of options for 1,089 lots with an aggregate exercise price of $71.1 million (December 31, 2006 — 1,083 lots with an aggregate exercise price of $59.4 million), which are required to be consolidated. In these cases, the only asset recorded is the Company’s exercise price for the option to purchase, with an increase in minority interest of $46.5 million (December 31, 2006 — $40.5 million) for the assumed third party investment in the VIE. Where the land sellers are not required to provide the Company financial information related to the VIE, certain assumptions by the Company were required in its assessment as to whether or not it is the primary beneficiary.

Housing and land inventory includes non-refundable deposits and other entitlement costs totaling $86.7 million (December 31, 2006 — $76.6 million) in connection with options that are not required to be consolidated under the provisions of FASB Interpretation No. 46R (“FIN 46R”), “Consolidation of Variable Interest Entities”. The total exercise price of these options is $584.2 million (December 31, 2006 — $670.3 million) including the non-refundable deposits identified above. The number of lots for which the Company has obtained an option to purchase, excluding those already consolidated, and their respective dates of expiry and their exercise price are as follows:

		Number				Total
		of				Exercise
Year of Expiry		Lots				Price
2007			2,069			$	134,400
2008			3,502				98,943
2009			634				69,158
Thereafter			6,468				281,742
			12,673			$	584,243

The Company holds agreements for a further 3,862 acres of longer term land, with non-refundable deposits and other entitlement costs of $11.0 million which is included in housing and land inventory that may provide additional lots upon obtaining entitlements with an aggregate exercise price of $249.2 million. However, given that the Company is in the initial stage of land entitlement, the Company has concluded at this time that the level of uncertainty in entitling these properties does not warrant including them in the above totals.

Note 3. Investments in Housing and Land Joint Ventures

The Company participates in a number of joint ventures in which it has less than a controlling interest. Summarized condensed financial information on a combined 100% basis of the joint ventures is as follows:

		September 30,				December 31,
		2007				2006
Assets
Housing and land inventory		$	530,674			$	452,359
Other assets			34,415				38,063
		$	565,089			$	490,422
Liabilities and Equity
Project specific financings		$	316,527			$	253,529
Accounts payable and other liabilities			29,967				32,319
Investment and advances
Brookfield Homes			108,112				90,325
Others			110,483				114,249
		$	565,089			$	490,422

BROOKFIELD HOMES CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in thousands of U.S. dollars except per share amounts)

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2007				2006				2007				2006
Revenue and Expenses
Revenue		$	8,186			$	86,326			$	47,994			$	116,549
Expenses			(6,906	)			(46,973	)			(87,628	)			(73,496	)
Net income / (loss)		$	1,280			$	39,353			$	(39,634	)		$	43,053
Company’s share of net income / (loss)		$	(6,727	)		$	11,204			$	(6,347	)		$	12,874

In reporting the Company’s share of net income, all inter-company profits or losses from housing and land joint ventures are eliminated on lots purchased by the Company.

The net loss for the nine months ended September 30, 2007, results from an impairment charge of $41.7 million recognized in one of the Company’s joint ventures during the second quarter of 2007. In calculating the Company’s share of the joint venture net loss at the end of the second quarter of 2007, the Company did not require an impairment charge as its carrying value in this joint venture was below its proportionate share of the underlying assets in that period. During the third quarter of 2007, in accordance with Accounting Principles Board Opinion No. 18 (“APB 18”), “The Equity Method of Accounting for Investments in Common Stock”, the Company recognized an impairment charge of $7.1 million related to this joint venture as a result of continued deterioration in this project which resulted in the carrying value of the Company’s investment in the joint venture exceeding its estimated fair value.

Joint ventures in which the Company has a non-controlling interest are accounted for using the equity method. In addition, the Company has performed an evaluation of its existing joint venture relationships by applying the provisions of FIN 46R. The Company has determined that for those entities for which this interpretation applies, none of these joint ventures were considered to be a VIE requiring consolidation pursuant to the requirements of FIN 46R.

The Company and/or its joint venture partners have provided varying levels of guarantees of debt in its joint ventures. At September 30, 2007, the Company had recourse guarantees of $19.2 million (December 31, 2006 — $12.7 million) and limited maintenance guarantees of $114.2 million (December 31, 2006 — $89.4 million) with respect to debt in its joint ventures. As of September 30, 2007, the fair market value of the recourse guarantees was insignificant.

Note 4. Accounts Payable and Other Liabilities

The components of accounts payable and other liabilities included in the Company’s balance sheet are summarized as follows:

		September 30,				December 31,
		2007				2006
Trade payables and cost to complete accruals		$	57,490			$	70,187
Warranty costs			19,046				19,569
Customer deposits			4,007				4,030
Stock-based compensation			16,058				33,824
Due to minority interest			25,763				31,863
Accrued and deferred compensation			48,540				89,636
Income tax liabilities and other			8,084				70,952
		$	178,988			$	320,061

BROOKFIELD HOMES CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in thousands of U.S. dollars except per share amounts)

Note 5. Earnings Per Share

Basic and diluted earnings per share for the three months and nine months ended September 30, 2007 and 2006 were calculated as follows (in thousands except per share amounts):

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2007				2006				2007				2006
Numerator:
Net income		$	1,619			$	27,603			$	39,809			$	89,531
Denominator:
Basic average shares outstanding			26,628				26,572				26,623				26,981
Net effect of stock options assumed to be exercised			188				326				242				387
Diluted average shares outstanding			26,816				26,898				26,865				27,368
Basic earnings per share		$	0.06			$	1.04			$	1.50			$	3.32
Diluted earnings per share		$	0.06			$	1.03			$	1.48			$	3.27

For the three months and nine months ended September 30, 2007 and 2006, outstanding options to purchase 0.6 million shares and 0.3 million shares, respectively, were considered anti-dilutive and were excluded from the computation of diluted earnings per share.

Note 6. Income Taxes

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of the assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The differences that give rise to the net deferred tax asset are as follows:

		September 30,				December 31,
		2007				2006
Compensation deductible for tax purposes when paid		$	22,462			$	39,047
Differences relating to properties			25,770				14,013
Other			8,825				(345	)
		$	57,057			$	52,715

Included in income tax liabilities and other is $nil (December 31, 2006 — $51.1 million) related to uncertainties in tax attributes which were recorded at the time of the Spin-off discussed in Note 1(a). On the Spin-off, the Company left the Brookfield Properties consolidated tax group with $115.0 million of net operating losses and other uncertain tax positions.

Effective January 1, 2007, the Company adopted the provisions of FIN 48. There was no impact to the Company’s financial statements as a result of adopting FIN 48.

A reconciliation of unrecognized tax benefits / (liabilities) is as follows:

Balance, January 1, 2007		$	(51,480	)
Additions based on tax positions related to the current year			—
Additions for tax positions of prior years			—
Reductions for tax positions of prior years			—
Position settled during the period			51,480
Balance, September 30, 2007		$	—

BROOKFIELD HOMES CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in thousands of U.S. dollars except per share amounts)

During the first quarter of 2007, the Company received an assessment as a result of a review by the taxation authorities of a previously filed tax return. As a result of the assessment, the Company paid additional taxes of $3.0 million, including interest and penalties of $0.9 million and the Company also released $26.5 million of accrued liabilities related primarily to the tax cost of properties in excess of fair value deducted against taxable income in previous years. During the third quarter of 2007, the company released a further $25.0 million of accrued tax liabilities related to uncertain tax positions that became statute-barred in September 2007. The Company’s 2004 federal income tax return is currently being examined by the taxation authorities and federal taxation years 2005 and 2006 remain open for examination.

The Company recognizes interest and penalties accrued related to unrecognized tax benefits in income tax recovery / expense.

Note 7. Stock Based Compensation

Option Plan

Pursuant to the Company’s stock option plan, Brookfield Homes grants options to purchase shares of the Company’s common stock at the market price of the shares on the day the options are granted. A maximum of two million shares is authorized for issuance under the plan.

Total compensation costs recognized in income related to the Company’s stock options during the three months and nine months ended September 30, 2007 was income of $2.9 million and $5.3 million, respectively (2006 — income of $1.4 million and $4.8 million, respectively).

The fair value of each of the Company’s stock option awards is estimated at each reporting date using a Black-Scholes option-pricing model that uses the assumptions noted in the table below. The fair value of the Company’s stock option awards, which are subject to graded vesting, is expensed over the vesting period of the stock options. Expected volatility is based on historical volatility of the Company’s stock. The risk-free rate for periods within the contractual life of the stock option award is based on the yield curve of a zero-coupon U.S. Treasury bond with a maturity equal to the expected term of the stock option award granted. The Company uses historical data to estimate stock option exercises and forfeitures within its valuation model. The expected term of stock option awards granted for some participants is derived from historical exercise experience under the Company’s share-based payment plan and represents the period of time that stock option awards granted are expected to be outstanding. The expected term of stock options granted for the remaining participants is derived by using the simplified method.

The significant weighted average assumptions relating to the valuation of the Company’s stock options for the three months and nine months ended September 30, 2007 were as follows:

		2007
Dividend yield			0.00% — 5.18	%
Volatility rate			47	%
Risk-free interest rate			3.8% — 4.4	%
Expected option life (years)			1.0 — 7.0

BROOKFIELD HOMES CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in thousands of U.S. dollars except per share amounts)

The following table sets out the number of common shares that employees of the Company may acquire under options granted under the Company’s stock option plan:

		September 30, 2007
						Weighted
						Average per
						Share Exercise
		Shares				Price
Outstanding, January 1, 2007			678,051			$	21.02
Granted			260,000			$	36.41
Exercised			(120,526	)		$	1.00
Cancelled			—				—
Outstanding, September 30, 2007			817,525			$	28.86
Options exercisable at September 30, 2007			183,600			$	25.00

The weighted average grant date fair value of options granted during the nine months ended September 30, 2007 was $12.17 per option compared to $15.17 per option during the nine months ended September 30, 2006. The intrinsic value of options exercised during the nine months ended September 30, 2007 and 2006 was $3.9 million and $6.8 million, respectively. Shares were issued out of treasury stock for options exercised during the period except those where the cash feature was utilized. At September 30, 2007, the aggregate intrinsic value of options currently exercisable is $0.8 million and the aggregate intrinsic value of options outstanding is $3.3 million.

Deferred Share Unit Plan

The Company has adopted a Deferred Share Unit Plan (“DSUP”) under which certain of its executive officers, and directors may, at their option, receive all or a portion of their annual bonus awards or retainers, respectively, in the form of deferred share units. As of September 30, 2007, the Company had granted 615,631 units under the DSUP, all of which were outstanding at September 30, 2007, and of which 442,853 units are currently vested and 172,778 vest over the next five years.

In addition, the Company has adopted a Senior Operating Management Deferred Share Unit Plan, (“MDSUP”) under which certain senior operating management employees receive a portion of their annual compensation in the form of deferred share units. As of September 30, 2007, the Company had granted 70,021 units under the MDSUP, all of which were outstanding at September 30, 2007.

Total compensation costs recognized in income in connection with the DSUP and MDSUP for the three months and nine months ended September 30, 2007 were income of $6.7 million and $11.1 million, respectively (2006 — $2.2 million and $9.5 million).

Note 8. Commitments, Contingent Liabilities and Other

(a) The Company is party to various legal actions arising in the ordinary course of business. Management believes that none of these actions, either individually or in the aggregate, will have a material adverse effect on the financial condition or results of operations of the Company.

(b) During 2006, the Company entered into an unsecured revolving credit facility that was amended in March, 2007 and October 2007 with a subsidiary of Brookfield Asset Management Inc., the Company’s largest stockholder. The facility was originally for an aggregate principal amount of $50 million and has been increased to an amount not to exceed $150 million. Included in project specific and other financings is $70.0 million related to this facility. The interest rate on this facility is LIBOR plus 2.50% per annum and the facility matures in March 2009. During the nine months ended September 30, 2007, interest of $3.2 million was incurred related to this facility (2006 — $0.2 million).

BROOKFIELD HOMES CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in thousands of U.S. dollars except per share amounts)

(c) When selling a home, the Company’s subsidiaries provide customers with a limited warranty. The Company estimates the costs that may be incurred under each limited warranty and records a liability in the amount of such costs at the time the revenue associated with the sale of each home is recognized. In addition, the Company has insurance in place where its subsidiaries are subject to the respective warranty statutes in the State where the Company conducts business which range up to ten years for latent construction defects. Factors that affect the Company’s warranty liability include the number of homes sold, historical and anticipated rates of warranty claims, and cost per claim. The Company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary. The following table reflects the changes in the Company’s warranty liability for the nine months ended September 30, 2007 and 2006:

		2007				2006
Balance, January 1		$	19,569			$	17,743
Payments and other adjustments made during the period			(4,148	)			(2,450	)
Warranties issued during the period			3,625				3,606
Balance, September 30		$	19,046			$	18,899

(d) From time to time, the Company enters into interest rate swap contracts. As at September 30, 2007, the Company had six interest rate swap contracts outstanding which effectively fixed $235.0 million of the Company’s variable rate debt at an average rate of 6.63% per annum. The contracts expire between 2009 and 2017. At September 30, 2007, the fair market value of the contracts was $0.3 million (December 31, 2006 — $2.2 million) and was included in Receivables and other assets. Expense of $5.7 million and $1.9 million was recognized during the three months ended and nine months ended September 30, 2007, respectively (2006 — expense of $2.1 million and income of $0.2 million, respectively) and was included in other (expense) / income. All interest rate swaps are recorded at fair market value because hedge accounting has not been applied.

(e) During the third quarter of 2006, the Company entered into an equity swap transaction maturing in July 2007 at an average cost per share of $26.72, which effectively fixed the stock compensation liability on 620,000 shares. During the second quarter of 2007, the Company amended the equity swap transaction. The revised equity swap matures July 2008 at an average cost of $28.41 per share, and effectively fixes the stock compensation liability on 1,003,302 shares which is included in Accounts payable and other Liabilities. During the third quarter of 2007, the notional amount of the equity swap was amended to an average cost of $21.16 per share on 1,010,200 shares. At September 30, 2007, the fair market value of the equity swap was a liability of $3.3 million (December 31, 2006 — asset of $6.5 million) and was included in Accounts payable and other liabilities. An expense of $10.4 million and $16.9 million was recognized during the three months and nine months ended September 30, 2007, respectively (2006 — income of $0.9 million and $0.9 million, respectively) and was included in selling, general and administrative expense. The equity swap is recorded at fair market value because hedge accounting has not been applied.

(f) During the second quarter of 2007, the Company formed a joint venture with California State Teachers’ Retirement System (“CalSTRS”) to entitle and develop land for residential uses, primarily in California. Both the Company and CalSTRS will contribute up to $200.0 million, in total $400.0 million of equity to finance the acquisition, entitlement and development of land for sale to residential homebuilders and developers.

Note 9. Segment Information

As defined in SFAS 131, “Disclosures About Segments of an Enterprise and Related Information,” the Company has five operating segments. The Company has four reportable segments: Northern California, Southland / Los Angeles, San Diego / Riverside, and the Washington D.C. Area. The fifth operating segment is quantitatively immaterial.

The Company is a residential homebuilder and land developer. The Company is organized and manages its business based on the geographical areas in which it operates. Each of the Company’s segments specialize in lot entitlement and development and the construction of single-family and multi-family homes. The Company evaluates performance and allocates capital based primarily on return on assets together with a number of other risk factors. Earnings performance is measured using segment operating income. The accounting policies of the segments are the same as those described in Note 1, “Significant Accounting Policies”.

BROOKFIELD HOMES CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in thousands of U.S. dollars except per share amounts)

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2007				2006				2007				2006
Revenues
Northern California		$	24,023			$	38,142			$	64,043			$	73,404
Southland / Los Angeles			27,536				53,977				132,407				159,425
San Diego / Riverside			20,224				26,963				70,064				121,117
Washington, D.C. Area			48,231				46,964				107,526				164,149
Corporate and Other			750				9,499				11,635				24,803
Total Revenues		$	120,764			$	175,545			$	385,675			$	542,898
Segment Operating Income / (Loss)(1)
Northern California		$	(1,532	)		$	18,092			$	566			$	22,229
Southland / Los Angeles			(5,410	)			7,925				6,611				33,719
San Diego / Riverside			(27,980	)			10,346				(21,362	)			42,113
Washington, D.C. Area			2,380				8,400				3,566				35,321
Corporate and Other			(8,858	)			3,711				(9,470	)			20,865
Total Operating Income / (Loss)			(41,400	)			48,474				(20,089	)			154,247
Minority Interest			3,691				(3,737	)			2,763				(9,141	)
Net Income / (Loss) before Taxes		$	(37,709	)		$	44,737			$	(17,326	)		$	145,106

		September 30,				December 31,
		2007				2006
Housing and Land Assets (1)
Northern California		$	328,405			$	302,424
Southland / Los Angeles			195,773				203,829
San Diego / Riverside			386,111				376,717
Washington, D.C. Area			329,482				293,117
Corporate and Other			47,689				48,811
		$	1,287,460			$	1,224,898

BROOKFIELD HOMES CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in thousands of U.S. dollars except per share amounts)

The following tables set forth additional financial information relating to the Company’s reportable operating segments:

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2007				2006				2007				2006
Equity in earnings/(loss) from Housing and Land Joint Ventures:
Northern California		$	—			$	10,500			$	—			$	10,500
Southland / Los Angeles			(7,135	)			—				(7,135	)			(52	)
San Diego / Riverside			—				—				—				—
Washington, D.C. Area			419				704				410				2,426
Corporate and Other			(11	)			—				378				—
Total		$	(6,727	)		$	11,204			$	(6,347	)		$	12,874

		September				December
		30, 2007				31, 2006
Investments in Housing and Land Joint Ventures
Northern California		$	7,717			$	6,791
Southland / Los Angeles			413				6,872
San Diego / Riverside			42,863				32,536
Washington, D.C. Area			50,176				36,256
Corporate and Other			6,943				7,870
Total		$	108,112			$	90,325

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This discussion includes forward-looking statements that reflect our current views with respect to future events and financial performance and that involve risks and uncertainties. Our actual results, performance or achievements could differ materially from those anticipated in the forward-looking statements as a result of certain factors including risks discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Forward-Looking Statements” and Item 1A — “Risk Factors” elsewhere in this report and in our Annual Report on Form 10-K for the year ended December 31, 2006.

Outlook

During the first nine months of 2007, we continued to experience challenging housing market conditions. These conditions continued into the month of October 2007 as a result of historically high levels of inventory for resale and new homes and housing demand that has been negatively impacted in recent months as a result of tightening lending standards arising from issues in the sub-prime mortgage market. As a result, homebuyer confidence remains weak and it is expected this weakness will continue until a balance of supply and demand is achieved in the market.

Overview

We design, construct and market single-family and multi-family homes primarily to move-up and luxury homebuyers and develop land for sale to other homebuilders.

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 segment disclosure 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. Since going public in 2003, we have limited the capital placed at risk, and have returned, through share buybacks and dividends, $573 million to shareholders, or in excess of $20 per share. At current share prices, this equates to a compounded annual return on stockholders’ equity of approximately 37%.

The 26,498 lots that we control, 12,736 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. We have controlled our 26,498 lots since the following specified years:

														Total
Year		% of Lots				Owned				Optioned				Controlled Lots
Pre-2003			32	%			4,380				4,153				8,533
2003			34	%			3,705				5,237				8,942
2004			20	%			2,788				2,492				5,280
2005			11	%			1,071				1,807				2,878
2006			2	%			542				73				615
2007			1	%			250				—				250
			100	%			12,736				13,762				26,498

Homebuilding is our primary source of revenue and has represented approximately 90% of our total revenue since 2002. Our operations are generally positioned to allow us to close up to 2,000 homes annually. 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, 2007 of $670,000 was well in excess of the national average sales price. We also sell serviced and unserviced lots to other homebuilders generally on an opportunistic basis where we can redeploy capital to an asset providing higher returns or reduce risk, in a market. The number of lots we sell may vary significantly period to period due to the timing and nature of such sales and additionally such sales are also affected by local market conditions.

In addition to our housing and land inventory and investments in housing and land joint ventures, which together comprised 93% of our total assets as of September 30, 2007, we had $1 million in cash and cash equivalents and $94 million in other assets. Other assets consist of homebuyer receivables of $10 million, deferred income taxes of $57 million, and mortgages and other receivables of $30 million. Homebuyer receivables consist primarily of proceeds due from homebuyers on the closing of homes.

Critical Accounting Policies and Estimates

There have been no significant changes to our critical accounting policies and estimates during the three months and nine months ended September 30, 2007 compared to those disclosed in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our annual report on Form 10-K for the year ended December 31, 2006.

Results of Operations

		Three Months Ended								Nine Months Ended
Selected Financial Information (Unaudited)		September 30,								September 30,
($US millions)		2007				2006				2007				2006
Revenue:
Housing		$	117			$	160			$	376			$	475
Land and other revenues			4				15				10				67
Total revenues			121				175				386				542
Direct cost of sales			(134	)			(125	)			(350	)			(375	)
Gross margin / (loss)			(13	)			50				36				167
Equity in earnings from housing and land joint ventures			(6	)			11				(6	)			13
Other (expense) / income			(6	)			1				—				9
Selling, general and administrative expense			(16	)			(14	)			(50	)			(35	)
Operating income			(41	)			48				(20	)			154
Minority interest			4				(3	)			3				(9	)
Net income before taxes			(37	)			45				(17	)			145
Income tax expense			39				(17	)			57				(55	)
Net income		$	2			$	28			$	40			$	90
Segment Information
Housing revenue ($US millions):
Northern California		$	24			$	29			$	64			$	64
Southland / Los Angeles			27				54				132				132
San Diego / Riverside			20				24				70				100
Washington D.C. Area			45				44				98				154
Corporate and Other			1				9				12				25
Total		$	117			$	160			$	376			$	475
Land and Other revenues ($US millions):
Northern California		$	—			$	9			$	—			$	9
Southland / Los Angeles			—				—				—				27
San Diego / Riverside			—				3				—				21
Washington D.C. Area			4				3				10				10
Corporate and Other			—				—				—				—
Total		$	4			$	15			$	10			$	67
Gross Margin / (Loss) ($US millions):
Northern California		$	1			$	10			$	8			$	18
Southland / Los Angeles			5				11				25				44
San Diego / Riverside			(25	)			13				(14	)			50
Washington D.C. Area			6				12				15				46
Corporate and Other			—				4				2				9
Total		$	(13	)		$	50			$	36			$	167
Home closings (units):
Northern California			26				29				69				59
Southland / Los Angeles			35				71				177				168
San Diego / Riverside			34				43				118				162
Washington D.C. Area			81				72				183				258
Corporate and Other			1				13				14				35
Total			177				228				561				682

		Three Months Ended								Nine Months Ended
Selected Financial Information (Unaudited)		September 30,								September 30,
($US millions)		2007				2006				2007				2006
Average selling price ($US):
Northern California		$	924,000			$	999,000			$	928,000			$	1,089,000
Southland / Los Angeles			787,000				760,000				748,000				787,000
San Diego / Riverside			595,000				555,000				594,000				618,000
Washington D.C. Area			554,000				607,000				535,000				597,000
Corporate and Other			750,000				731,000				831,000				709,000
Average		$	663,000			$	702,000			$	670,000			$	697,000
Net new orders (units): (1)
Northern California			39				36				102				81
Southland / Los Angeles			25				84				159				268
San Diego / Riverside			18				77				107				171
Washington D.C. Area			33				48				220				193
Corporate and Other			4				16				14				30
Total			119				261				602				743
Backlog (units at end of period): (2)
Northern California			50				34
Southland / Los Angeles			82				205
San Diego / Riverside			24				91
Washington D.C. Area			112				131
Corporate and other			20				55
Total			288				516
Lots controlled (units at end of period):
Lots owned:
Northern California			1,326				1,290
Southland / Los Angeles			1,358				946
San Diego / Riverside			6,096				6,603
Washington D.C. Area			3,814				3,433
Corporate and Other			142				151
			12,736				12,423
Lots under option			13,762				16,825
Total			26,498				29,248

Three Months and Nine Months Ended September 30, 2007 Compared with Three Months and Nine Months Ended September 30, 2006

Net Income

Net income was $2 million and $40 million for the three months and nine months ended September 30, 2007, a decrease of $26 million and $50 million, respectively, when compared to the same periods in 2006. The decrease in net income for the three months ended September 30, 2007 was primarily due to impairments charges and write-downs on our housing and land assets after minority interest and taxes of $23 million compared to nil for the same period in 2006 and lower home and lot sales and reduced margins as a result of continued housing market challenges. These decreases were partially offset by a reversal of an uncertain tax position provision in the amount of $25 million.

Results of Operations

Company-wide: Housing revenue was $117 million and $376 million for the three months and nine months ended September 30, 2007, a decrease of $43 million and $99 million, respectively, when compared to the same periods in 2006. The decrease in housing revenue was a result of 51 and 121 fewer homes closed during the three months and nine months ended September 30, 2007 when compared to the same periods in 2006. Excluding impairments of $31 million for the three months ended September 30, 2007, the gross margin on housing revenue was $21 million or 18% compared with $42 million or 26% for the same period in 2006. Excluding impairments of $31 million for the nine months ended September 30, 2007, the gross margin on housing revenue for the nine months ended September 30, 2007 was $70 million or 19% compared with $132 million or 28% for the same period in 2006. The decrease in the gross margin percentage was a result of either reduced prices or an increase in homebuyer incentives and product mix.

Land revenue totaled $4 million and $10 million for the three months and nine months ended September 30, 2007, compared with $15 million and $67 million for the three months and nine months ended September 30, 2006. The decrease was primarily the result of fewer lots sold during the three months ended September 30, 2007 when compared to the same period in 2006. Excluding impairments of $3 million for the three months and nine months ended September 30, 2007, the gross margin on land revenue totaled nil, compared with $8 million and $35 million, respectively for the same periods in 2006. Our land revenues and margins 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 additionally such revenues are also affected by local market conditions.

During the three months and nine months ended September 30, 2007 we recognized impairment charges and write-downs on our housing and land inventory of $34 million compared to nil for the same period in 2006. The impairment charges and write-downs recognized on our housing and land inventory related to 555 finished lots located in the Inland Empire of California and 875 optioned lots in the Central Valley of California. The Inland Empire and Central Valley of California are two markets that have experienced difficult market conditions in 2007, in particular, as a result of recent tightening of lending standards in the mortgage market.

Northern California: Housing revenue was $24 million and $64 million for the three months and nine months ended September 30, 2007, respectively, a decrease of $5 million and nil when compared to the same periods in 2006. The decrease in revenue when comparing the three months ended September 30, 2007 and 2006 was primarily attributable to a decrease in homes closed. The gross margin on housing revenue for the three months ended September 30, 2007 was $4 million or 17% compared with $4 million or 13% for the same period in 2006. The gross margin on housing revenue for the nine months ended September 30, 2007 was $11 million or 18% compared with $12 million or 20% for the same period in 2006. The decrease in the gross margin percentage was a result of either reduced selling prices or increases in homebuyer incentives and product mix. During the three months and nine months ended September 30, 2007, there were $3 million of option write-offs compared to nil in the same periods in 2006.

Southland / Los Angeles: Housing revenue was $27 million and $132 million for the three months and nine months ended September 30, 2007, respectively, a decrease of $27 million and nil when compared to the three months and nine months ended September 30, 2006. The decrease when comparing the three months ended September 30, 2007 and 2006 was primarily due to a decrease in homes closed. The gross margin on housing revenue for the three months ended September 30, 2007 was $5 million or 18% compared with $11 million or 21% for the same period in 2006. The gross margin on housing revenue for the nine months ended September 30, 2007 was $25 million or 19% compared with $28 million or 21% for the same period in 2006.

San Diego / Riverside: Housing revenue was $20 million and $70 million for the three months and nine months ended September 30, 2007, respectively, a decrease of $4 million and $30 million when compared to the three months and nine months ended September 30, 2006. The decrease was primarily due to a decrease in homes closed. Excluding impairments of $31 million for the three months ended September 30, 2007, the gross margin on housing revenue was $6 million or 29% compared with $11 million or 45% for the same period in 2006. Excluding impairments of $31 million for the nine months ended September 30, 2007, the gross margin on housing revenue for the nine months ended September 30, 2007 was $17 million or 25% compared with $37 million or 36% for the same period in 2006. The decrease in the gross margin percentage was a result of either reduced selling prices or increases in homebuyer incentives and product mix.

Washington D.C. Area: Housing revenue was $45 million and $98 million for the three months and nine months ended September 30, 2007, respectively, an increase of $1 million and a decrease of $56 million when compared to the three months and nine months ended September 30, 2006. The increase when comparing the three months ended September 30, 2007 and 2006 was primarily attributable to an increase in homes closed. The gross margin on housing revenue for the three months ended September 30, 2007 was $6 million or 14 % compared with $12 million or 27% for the same period in 2006. The gross margin on housing revenue for the nine months ended September 30, 2007 was $13 million or 14% compared with $47 million or 30% for the same period in 2006. The decrease in the gross margin percentage was a result of either reduced selling prices or increases in homebuyer incentives and product mix.

Other Income and Expenses:

Equity in earnings / (loss) from housing and land joint ventures was a loss of $6 million for the three months and nine months ended September 30, 2007, a decrease of $17 million and $19 million when compared to the same periods in 2006. The decrease in the contribution from our joint ventures during the three months and nine months ended September 30, 2007 was primarily a result of an impairment charge of $7 million in one of our joint ventures. The impairment charge was related to 271 improved lots in the Inland Empire of California, a market which has experienced difficult market conditions in 2007.

Selling, general and administrative expenses were $16 million and $50 million for the three months and nine months ended September 30, 2007, respectively, compared with $14 million and $35 million for the same periods in 2006. Included in selling, general and administrative expense was net stock compensation expense of $1 million and income of $4 million for the three months ended September 30, 2007 and 2006, respectively.

Sales Activity:

Net new home orders for the three months ended September 30, 2007 totaled 130 units compared to 264 units for the same period in 2006. As at September 30, 2007, we have closed or in backlog 890 homes. We had lower than anticipated net new orders in the third quarter, and now anticipate approximately 1,000 home closings in 2007. The decline in the third quarter net new orders arose primarily in the Southland and San Diego / Riverside markets where we have fewer active selling communities and the demand was impacted by tighter lending standards.

Liquidity and Capital Resources

Financial Position:

Our total assets as of September 30, 2007 were $1,382 million, a decrease of $19 million compared to December 31, 2006. The decrease is due primarily to a decrease in cash and cash equivalents partially offset by increases in housing and land inventory and deferred taxes.

Our total debt as of September 30, 2007 was $691 million, an increase of $73 million compared to December 31, 2006. Total debt as of September 30, 2007 consisted mainly of project specific financings, which represent construction and development loans that are repaid from home and lot sales proceeds. As new homes are constructed, further loan facilities are arranged on a rolling basis. Our major project specific lenders are Bank of America, Housing Capital Corporation, Wells Fargo and Union Bank of California. Other debt includes a promissory note due to a subsidiary of our largest stockholder, Brookfield Asset Management Inc., project specific financings related to our other operations and loans outstanding relating to mortgages we originated that are repaid when the underlying mortgages are sold to permanent lenders. As of September 30, 2007, the average interest rate on our debt was 7.5% per year, with maturities as follows:

		Maturities
($ millions)		2007				2008				2009				Post 2009				Total
Northern California		$	—			$	100			$	62			$	—			$	162
Southland / Los Angeles			5				35				9				26				75
San Diego / Riverside			19				82				120				—				221
Washington D.C. Area			74				38				40				—				152
Other			3				—				70				8				81
Total		$	101			$	255			$	301			$	34			$	691