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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

For the quarterly period ended September 30, 2008

OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

For the transition period from N/A to

Commission file number 1-10959

STANDARD PACIFIC CORP.

(Exact name of registrant as specified in its charter)



|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 33-0475989                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)



|                                         |  |           
|---------------------------------------- |  | ----------
|15326 Alton Parkway, Irvine, CA          |  | 92618-2338
|(Address of principal executive offices) |  | (Zip Code)

(Registrants telephone number, including area code) (949) 789-1600

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  x    No   ̈.

Indicate by check mark whether the registrant is
a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2
of the Exchange Act. (Check one):



|                           |  |                      |  |                                               |  |                             
|-------------------------- |  | -------------------- |  | --------------------------------------------- |  | ----------------------------
|Large accelerated filer  x |  | Accelerated filer   ̈ |  | Non-accelerated filer   ̈                      |  | Smaller reporting company   ̈
|                           |  |                      |  | (Do not check if a smaller reporting company) |  |                             

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act).    Yes   ̈    No  x.

Registrants shares of common stock outstanding at November 5, 2008: 100,526,035









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##### Table of Contents

STANDARD PACIFIC CORP.

FORM 10-Q

INDEX



|           |  |                       |  |                                                                                                                 |  |         
|---------- |  | --------------------- |  | --------------------------------------------------------------------------------------------------------------- |  | --------
|           |  |                       |  |                                                                                                                 |  | Page No.
|PART I.    |  | Financial Information |  |                                                                                                                
|           |  |                       | 
|           |  | ITEM 1.               |  | Financial Statements                                                                                            |  |         
|           |  |                       | 
|           |  |                       |  | Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2008 and 2007 |  | 2       
|           |  |                       | 
|           |  |                       |  | Condensed Consolidated Balance Sheets as of September 30, 2008 and December 31, 2007                            |  | 3       
|           |  |                       | 
|           |  |                       |  | Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2008 and
2007           |  | 4       
|           |  |                       | 
|           |  |                       |  | Notes to Unaudited Condensed Consolidated Financial Statements                                                  |  | 5       
|           |  |                       | 
|           |  | ITEM 2.               |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                           |  | 32      
|           |  |                       | 
|           |  | ITEM 3.               |  | Quantitative and Qualitative Disclosures About Market Risk                                                      |  | 58      
|           |  |                       | 
|           |  | ITEM 4.               |  | Controls and Procedures                                                                                         |  | 59      
|           |  |                      
|PART II.   |  | Other Information     |  |                                                                                                                
|           |  |                       | 
|           |  | ITEM 1.               |  | Legal Proceedings                                                                                               |  | 61      
|           |  |                       | 
|           |  | ITEM 1A.              |  | Risk Factors                                                                                                    |  | 62      
|           |  |                       | 
|           |  | ITEM 2.               |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                     |  | 63      
|           |  |                       | 
|           |  | ITEM 3.               |  | Defaults Upon Senior Securities                                                                                 |  | 63      
|           |  |                       | 
|           |  | ITEM 4.               |  | Submission of Matters to a Vote of Security Holders                                                             |  | 63      
|           |  |                       | 
|           |  | ITEM 5.               |  | Other Information                                                                                               |  | 64      
|           |  |                       | 
|           |  | ITEM 6.               |  | Exhibits                                                                                                        |  | 64      
|           | 
|SIGNATURES |  | 65                   



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##### Table of Contents

PART I. FINANCIAL INFORMATION



|ITEM 1. | FINANCIAL STATEMENTS
|------- | --------------------

STANDARD PACIFIC CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS



|                                                       |  |                                                  |             |   |                                 |   |            |      |  |   |            |   |  |   |            |  
|------------------------------------------------------ |  | ------------------------------------------------ | ----------- | - | ------------------------------- | - | ---------- | ---- |  | - | ---------- | - |  | - | ---------- | -
|                                                       |  | Three Months Ended September 30,                 |             |   | Nine Months Ended September 30, |  
|                                                       |  | 2008                                             |             |   | 2007                            |   |            | 2008 |  |   | 2007       |  
|                                                       |  | (Dollars in thousands, except per share amounts) |            
|                                                       |  | (Unaudited)                                      |            
|Homebuilding:                                          |  |                                                  |             |   |                                 |   |            |      |  |   |            |   |  |   |            |  
|Home sale revenues                                     |  | $                                                | 394,942     |   |                                 | $ | 594,266    |      |  | $ | 1,145,608  |   |  | $ | 1,782,673  |  
|Land sale revenues                                     |  |                                                  | 5,398       |   |                                 |   | 48,953     |      |  |   | 13,609     |   |  |   | 172,552    |  
|                                                       |  |                                                  |             |   |                                 |   |            |      |  |   |            |   |  |   |            |  
|Total revenues                                         |  |                                                  | 400,340     |   |                                 |   | 643,219    |      |  |   | 1,159,217  |   |  |   | 1,955,225  |  
|                                                       |  |                                                  |             |   |                                 |   |            |      |  |   |            |   |  |   |            |  
|Cost of home sales                                     |  |                                                  | (547,537    | ) |                                 |   | (589,219   | )    |  |   | (1,460,382 | ) |  |   | (1,715,486 | )
|Cost of land sales                                     |  |                                                  | (59,375     | ) |                                 |   | (102,520   | )    |  |   | (97,704    | ) |  |   | (280,742   | )
|                                                       |  |                                                  |             |   |                                 |   |            |      |  |   |            |   |  |   |            |  
|Total cost of sales                                    |  |                                                  | (606,912    | ) |                                 |   | (691,739   | )    |  |   | (1,558,086 | ) |  |   | (1,996,228 | )
|                                                       |  |                                                  |             |   |                                 |   |            |      |  |   |            |   |  |   |            |  
|Gross margin                                           |  |                                                  | (206,572    | ) |                                 |   | (48,520    | )    |  |   | (398,869   | ) |  |   | (41,003    | )
|                                                       |  |                                                  |             |   |                                 |   |            |      |  |   |            |   |  |   |            |  
|Selling, general and administrative expenses           |  |                                                  | (76,894     | ) |                                 |   | (93,621    | )    |  |   | (235,473   | ) |  |   | (278,770   | )
|Loss from unconsolidated joint ventures                |  |                                                  | (91,937     | ) |                                 |   | (38,459    | )    |  |   | (130,322   | ) |  |   | (119,049   | )
|Interest expense                                       |  |                                                  | (3,938      | ) |                                 |   |           |      |  |   | (3,938     | ) |  |   |           |  
|Other income (expense)                                 |  |                                                  | (8,941      | ) |                                 |   | (4,375     | )    |  |   | (21,484    | ) |  |   | (22,378    | )
|                                                       |  |                                                  |             |   |                                 |   |            |      |  |   |            |   |  |   |            |  
|Homebuilding pretax loss                               |  |                                                  | (388,282    | ) |                                 |   | (184,975   | )    |  |   | (790,086   | ) |  |   | (461,200   | )
|                                                       |  |                                                  |             |   |                                 |   |            |      |  |   |            |   |  |   |            |  
|Financial Services:                                    |  |                                                  |             |   |                                 |   |            |      |  |   |            |   |  |   |            |  
|Revenues                                               |  |                                                  | 2,492       |   |                                 |   | 2,336      |      |  |   | 10,897     |   |  |   | 12,015     |  
|Expenses                                               |  |                                                  | (3,106      | ) |                                 |   | (3,593     | )    |  |   | (11,063    | ) |  |   | (11,923    | )
|Income from unconsolidated joint ventures              |  |                                                  | 284         |   |                                 |   | 248        |      |  |   | 659        |   |  |   | 780        |  
|Other income                                           |  |                                                  | 17          |   |                                 |   | 155        |      |  |   | 128        |   |  |   | 501        |  
|                                                       |  |                                                  |             |   |                                 |   |            |      |  |   |            |   |  |   |            |  
|Financial services pretax income (loss)                |  |                                                  | (313        | ) |                                 |   | (854       | )    |  |   | 621        |   |  |   | 1,373      |  
|                                                       |  |                                                  |             |   |                                 |   |            |      |  |   |            |   |  |   |            |  
|Loss from continuing operations before income taxes    |  |                                                  | (388,595    | ) |                                 |   | (185,829   | )    |  |   | (789,465   | ) |  |   | (459,827   | )
|(Provision) benefit for income taxes                   |  |                                                  | 19,840      |   |                                 |   | 72,087     |      |  |   | (42,030    | ) |  |   | 179,025    |  
|                                                       |  |                                                  |             |   |                                 |   |            |      |  |   |            |   |  |   |            |  
|Loss from continuing operations                        |  |                                                  | (368,755    | ) |                                 |   | (113,742   | )    |  |   | (831,495   | ) |  |   | (280,802   | )
|Loss from discontinued operations, net of income taxes |  |                                                  | (69         | ) |                                 |   | (5,924     | )    |  |   | (2,005     | ) |  |   | (45,574    | )
|                                                       |  |                                                  |             |   |                                 |   |            |      |  |   |            |   |  |   |            |  
|Net loss                                               |  |                                                  | (368,824    | ) |                                 |   | (119,666   | )    |  |   | (833,500   | ) |  |   | (326,376   | )
|Less: Net loss allocated to preferred shareholders     |  |                                                  | 164,728     |   |                                 |   |           |      |  |   | 187,842    |   |  |   |           |  
|                                                       |  |                                                  |             |   |                                 |   |            |      |  |   |            |   |  |   |            |  
|Net loss available to common stockholders              |  | $                                                | (204,096    | ) |                                 | $ | (119,666   | )    |  | $ | (645,658   | ) |  | $ | (326,376   | )
|                                                       |  |                                                  |             |   |                                 |   |            |      |  |   |            |   |  |   |            |  
|Basic Loss Per Share:                                  |  |                                                  |             |   |                                 |   |            |      |  |   |            |   |  |   |            |  
|Continuing operations                                  |  | $                                                | (2.53       | ) |                                 | $ | (1.58      | )    |  | $ | (8.57      | ) |  | $ | (3.90      | )
|Discontinued operations                                |  |                                                  |            |   |                                 |   | (0.08      | )    |  |   | (0.02      | ) |  |   | (0.63      | )
|                                                       |  |                                                  |             |   |                                 |   |            |      |  |   |            |   |  |   |            |  
|Basic loss per share                                   |  | $                                                | (2.53       | ) |                                 | $ | (1.66      | )    |  | $ | (8.59      | ) |  | $ | (4.53      | )
|                                                       |  |                                                  |             |   |                                 |   |            |      |  |   |            |   |  |   |            |  
|Diluted Loss Per Share:                                |  |                                                  |             |   |                                 |   |            |      |  |   |            |   |  |   |            |  
|Continuing operations                                  |  | $                                                | (2.53       | ) |                                 | $ | (1.58      | )    |  | $ | (8.57      | ) |  | $ | (3.90      | )
|Discontinued operations                                |  |                                                  |            |   |                                 |   | (0.08      | )    |  |   | (0.02      | ) |  |   | (0.63      | )
|                                                       |  |                                                  |             |   |                                 |   |            |      |  |   |            |   |  |   |            |  
|Diluted loss per share                                 |  | $                                                | (2.53       | ) |                                 | $ | (1.66      | )    |  | $ | (8.59      | ) |  | $ | (4.53      | )
|                                                       |  |                                                  |             |   |                                 |   |            |      |  |   |            |   |  |   |            |  
|Weighted Average Common Shares Outstanding:            |  |                                                  |             |   |                                 |   |            |      |  |   |            |   |  |   |            |  
|Basic                                                  |  |                                                  | 80,681,394  |   |                                 |   | 72,267,863 |      |  |   | 75,155,044 |   |  |   | 72,120,101 |  
|Diluted                                                |  |                                                  | 145,800,364 |   |                                 |   | 72,267,863 |      |  |   | 97,019,962 |   |  |   | 72,120,101 |  
|Cash dividends per share                               |  | $                                                |            |   |                                 | $ | 0.04       |      |  | $ |           |   |  | $ | 0.12       |  

The accompanying notes are an integral part of these condensed consolidated statements.



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##### Table of Contents

STANDARD PACIFIC CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS



|                                                                                                                                                                                 |  |                                                  |           |   |                  |   |           |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------ | --------- | - | ---------------- | - | --------- | -
|                                                                                                                                                                                 |  | September 30,2008                                |           |   | December 31,2007 |  
|                                                                                                                                                                                 |  | (Dollars in thousands, except per share amounts) |          
|                                                                                                                                                                                 |  | (Unaudited)                                      |           |   |                  |  
|ASSETS                                                                                                                                                                           |  |                                                  |           |   |                  |   |           |  
|Homebuilding:                                                                                                                                                                    |  |                                                  |           |   |                  |   |           |  
|Cash and equivalents                                                                                                                                                             |  | $                                                | 711,953   |   |                  | $ | 219,141   |  
|Trade and other receivables                                                                                                                                                      |  |                                                  | 35,728    |   |                  |   | 28,599    |  
|Inventories:                                                                                                                                                                     |  |                                                  |           |   |                  |   |           |  
|Owned                                                                                                                                                                            |  |                                                  | 1,626,398 |   |                  |   | 2,059,235 |  
|Not owned                                                                                                                                                                        |  |                                                  | 78,523    |   |                  |   | 109,757   |  
|Investments in and advances to unconsolidated joint ventures                                                                                                                     |  |                                                  | 59,518    |   |                  |   | 293,967   |  
|Deferred income taxes                                                                                                                                                            |  |                                                  | 7,183     |   |                  |   | 143,995   |  
|Goodwill and other intangibles                                                                                                                                                   |  |                                                  | 35,522    |   |                  |   | 35,597    |  
|Other assets                                                                                                                                                                     |  |                                                  | 124,305   |   |                  |   | 300,135   |  
|                                                                                                                                                                                 |  |                                                  |           |   |                  |   |           |  
|                                                                                                                                                                                 |  |                                                  | 2,679,130 |   |                  |   | 3,190,426 |  
|                                                                                                                                                                                 |  |                                                  |           |   |                  |   |           |  
|Financial Services:                                                                                                                                                              |  |                                                  |           |   |                  |   |           |  
|Cash and equivalents                                                                                                                                                             |  |                                                  | 9,197     |   |                  |   | 12,413    |  
|Mortgage loans held for sale                                                                                                                                                     |  |                                                  | 60,983    |   |                  |   | 155,340   |  
|Mortgage loans held for investment                                                                                                                                               |  |                                                  | 12,341    |   |                  |   | 10,973    |  
|Other assets                                                                                                                                                                     |  |                                                  | 7,185     |   |                  |   | 11,847    |  
|                                                                                                                                                                                 |  |                                                  |           |   |                  |   |           |  
|                                                                                                                                                                                 |  |                                                  | 89,706    |   |                  |   | 190,573   |  
|                                                                                                                                                                                 |  |                                                  |           |   |                  |   |           |  
|Assets of discontinued operations                                                                                                                                                |  |                                                  | 1,651     |   |                  |   | 19,727    |  
|                                                                                                                                                                                 |  |                                                  |           |   |                  |   |           |  
|Total Assets                                                                                                                                                                     |  | $                                                | 2,770,487 |   |                  | $ | 3,400,726 |  
|                                                                                                                                                                                 |  |                                                  |           |   |                  |   |           |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                             |  |                                                  |           |   |                  |   |           |  
|Homebuilding:                                                                                                                                                                    |  |                                                  |           |   |                  |   |           |  
|Accounts payable                                                                                                                                                                 |  | $                                                | 65,346    |   |                  | $ | 95,190    |  
|Accrued liabilities                                                                                                                                                              |  |                                                  | 201,820   |   |                  |   | 280,513   |  
|Liabilities from inventories not owned                                                                                                                                           |  |                                                  | 37,707    |   |                  |   | 43,007    |  
|Revolving credit facility                                                                                                                                                        |  |                                                  | 52,500    |   |                  |   | 90,000    |  
|Trust deed and other notes payable                                                                                                                                               |  |                                                  | 71,542    |   |                  |   | 34,714    |  
|Senior notes payable                                                                                                                                                             |  |                                                  | 1,312,973 |   |                  |   | 1,400,344 |  
|Senior subordinated notes payable                                                                                                                                                |  |                                                  | 148,693   |   |                  |   | 249,350   |  
|                                                                                                                                                                                 |  |                                                  |           |   |                  |   |           |  
|                                                                                                                                                                                 |  |                                                  | 1,890,581 |   |                  |   | 2,193,118 |  
|                                                                                                                                                                                 |  |                                                  |           |   |                  |   |           |  
|Financial Services:                                                                                                                                                              |  |                                                  |           |   |                  |   |           |  
|Accounts payable and other liabilities                                                                                                                                           |  |                                                  | 3,291     |   |                  |   | 5,023     |  
|Mortgage credit facilities                                                                                                                                                       |  |                                                  | 65,110    |   |                  |   | 164,172   |  
|                                                                                                                                                                                 |  |                                                  |           |   |                  |   |           |  
|                                                                                                                                                                                 |  |                                                  | 68,401    |   |                  |   | 169,195   |  
|                                                                                                                                                                                 |  |                                                  |           |   |                  |   |           |  
|Liabilities of discontinued operations                                                                                                                                           |  |                                                  | 1,470     |   |                  |   | 5,221     |  
|                                                                                                                                                                                 |  |                                                  |           |   |                  |   |           |  
|Total Liabilities                                                                                                                                                                |  |                                                  | 1,960,452 |   |                  |   | 2,367,534 |  
|                                                                                                                                                                                 |  |                                                  |           |   |                  |   |           |  
|Minority Interests                                                                                                                                                               |  |                                                  | 21,909    |   |                  |   | 38,201    |  
|Stockholders' Equity:                                                                                                                                                            |  |                                                  |           |   |                  |   |           |  
|Preferred stock, $0.01 par value; 10,000,000 shares authorized; 450,829 and 0 issued and outstanding at September 30, 2008 and
December 31, 2007, respectively                   |  |                                                  | 5         |   |                  |   |          |  
|Common stock, $0.01 par value; 600,000,000 shares authorized; 100,526,035 and 72,689,595 shares issued and outstanding at September 30,
2008 and December 31, 2007, respectively |  |                                                  | 1,005     |   |                  |   | 727       |  
|Additional paid-in capital                                                                                                                                                       |  |                                                  | 964,404   |   |                  |   | 340,067   |  
|Retained earnings (deficit)                                                                                                                                                      |  |                                                  | (166,620  | ) |                  |   | 666,880   |  
|Accumulated other comprehensive loss, net of tax                                                                                                                                 |  |                                                  | (10,668   | ) |                  |   | (12,683   | )
|                                                                                                                                                                                 |  |                                                  |           |   |                  |   |           |  
|Total Stockholders Equity                                                                                                                                                       |  |                                                  | 788,126   |   |                  |   | 994,991   |  
|                                                                                                                                                                                 |  |                                                  |           |   |                  |   |           |  
|Total Liabilities and Stockholders Equity                                                                                                                                       |  | $                                                | 2,770,487 |   |                  | $ | 3,400,726 |  
|                                                                                                                                                                                 |  |                                                  |           |   |                  |   |           |  

The accompanying notes are an integral part of these condensed consolidated balance sheets.



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##### Table of Contents

STANDARD PACIFIC CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS



|                                                                                                   |  |                                 |          |   |      |   |          |  
|-------------------------------------------------------------------------------------------------- |  | ------------------------------- | -------- | - | ---- | - | -------- | -
|                                                                                                   |  | Nine Months Ended September 30, |         
|                                                                                                   |  | 2008                            |          |   | 2007 |  
|                                                                                                   |  | (Dollars in thousands)          |         
|                                                                                                   |  | (Unaudited)                     |         
|Cash Flows From Operating Activities:                                                              |  |                                 |          |   |      |   |          |  
|Income (loss) from continuing operations                                                           |  | $                               | (831,495 | ) |      | $ | (280,802 | )
|Income (loss) from discontinued operations, net of income taxes                                    |  |                                 | (2,005   | ) |      |   | (45,574  | )
|Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |  |                                 |          |   |      |   |          |  
|(Income) loss from unconsolidated joint ventures                                                   |  |                                 | 129,663  |   |      |   | 118,634  |  
|Cash distributions of income from unconsolidated joint ventures                                    |  |                                 | 771      |   |      |   | 16,085   |  
|Depreciation and amortization                                                                      |  |                                 | 5,300    |   |      |   | 5,930    |  
|(Gain) loss on disposal of property and equipment                                                  |  |                                 | 901      |   |      |   |         |  
|(Gain) loss on early extinguishment of debt                                                        |  |                                 | 8,019    |   |      |   |         |  
|Amortization of stock-based compensation                                                           |  |                                 | 10,332   |   |      |   | 9,811    |  
|Excess tax benefits from share-based payment arrangements                                          |  |                                 |         |   |      |   | (1,498   | )
|Deferred income taxes                                                                              |  |                                 | (211,893 | ) |      |   | (141,498 | )
|Inventory impairment charges and write-offs of deposits and capitalized preacquisition costs       |  |                                 | 583,279  |   |      |   | 495,811  |  
|Goodwill impairment charges                                                                        |  |                                 |         |   |      |   | 29,380   |  
|Deferred tax asset valuation allowance                                                             |  |                                 | 348,705  |   |      |   |         |  
|Changes in cash and equivalents due to:                                                            |  |                                 |          |   |      |   |          |  
|Trade and other receivables                                                                        |  |                                 | (5,415   | ) |      |   | (647     | )
|Mortgage loans held for sale                                                                       |  |                                 | 94,357   |   |      |   | 171,006  |  
|Inventories - owned                                                                                |  |                                 | (27,489  | ) |      |   | 40,959   |  
|Inventories - not owned                                                                            |  |                                 | (8,400   | ) |      |   | 9,665    |  
|Other assets                                                                                       |  |                                 | 168,412  |   |      |   | (81,935  | )
|Accounts payable                                                                                   |  |                                 | (32,661  | ) |      |   | 4,769    |  
|Accrued liabilities                                                                                |  |                                 | (32,418  | ) |      |   | (42,521  | )
|                                                                                                   |  |                                 |          |   |      |   |          |  
|Net cash provided by (used in) operating activities                                                |  |                                 | 197,963  |   |      |   | 307,575  |  
|                                                                                                   |  |                                 |          |   |      |   |          |  
|Cash Flows From Investing Activities:                                                              |  |                                 |          |   |      |   |          |  
|Investments in and advances to unconsolidated homebuilding joint ventures                          |  |                                 | (77,702  | ) |      |   | (210,640 | )
|Capital distributions and repayments of advances from unconsolidated homebuilding joint ventures   |  |                                 | 96,845   |   |      |   | 65,501   |  
|Other investing activities                                                                         |  |                                 | (2,723   | ) |      |   | (12,964  | )
|                                                                                                   |  |                                 |          |   |      |   |          |  
|Net cash provided by (used in) investing activities                                                |  |                                 | 16,420   |   |      |   | (158,103 | )
|                                                                                                   |  |                                 |          |   |      |   |          |  
|Cash Flows From Financing Activities:                                                              |  |                                 |          |   |      |   |          |  
|Net proceeds from (payments on) revolving credit facility                                          |  |                                 | (37,500  | ) |      |   | (36,000  | )
|Principal payments on trust deed and other notes payable                                           |  |                                 | (12,146  | ) |      |   | (8,602   | )
|Principal payments on senior notes payable                                                         |  |                                 | (58,875  | ) |      |   | (25,000  | )
|Net proceeds from the issuance of senior subordinated convertible notes                            |  |                                 |         |   |      |   | 97,000   |  
|Purchase of senior subordinated convertible note hedge                                             |  |                                 |         |   |      |   | (9,120   | )
|Net proceeds from (payments on) mortgage credit facilities                                         |  |                                 | (99,062  | ) |      |   | (167,744 | )
|Excess tax benefits from share-based payment arrangements                                          |  |                                 |         |   |      |   | 1,555    |  
|Dividends paid                                                                                     |  |                                 |         |   |      |   | (7,778   | )
|Repurchases of common stock                                                                        |  |                                 | (726     | ) |      |   | (2,901   | )
|Net proceeds from the issuance of Senior Preferred Stock and the issuance of Warrant               |  |                                 | 339,171  |   |      |   |         |  
|Net proceeds from the issuance of Junior Preferred Stock                                           |  |                                 | 65,422   |   |      |   |         |  
|Net proceeds from the issuance of common stock and common stock under share lending agreement      |  |                                 | 78,930   |   |      |   | 60       |  
|Proceeds from the exercise of stock options                                                        |  |                                 |         |   |      |   | 3,862    |  
|                                                                                                   |  |                                 |          |   |      |   |          |  
|Net cash provided by (used in) financing activities                                                |  |                                 | 275,214  |   |      |   | (154,668 | )
|                                                                                                   |  |                                 |          |   |      |   |          |  
|Net increase (decrease) in cash and equivalents                                                    |  |                                 | 489,597  |   |      |   | (5,196   | )
|Cash and equivalents at beginning of period                                                        |  |                                 | 231,561  |   |      |   | 32,103   |  
|                                                                                                   |  |                                 |          |   |      |   |          |  
|Cash and equivalents at end of period (including discontinued operations)                          |  | $                               | 721,158  |   |      | $ | 26,907   |  
|                                                                                                   |  |                                 |          |   |      |   |          |  

The accompanying notes are an integral part of these condensed consolidated statements.



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##### Table of Contents

STANDARD PACIFIC CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2008



|1. | Basis of Presentation
|-- | ---------------------

The condensed consolidated
financial statements included herein have been prepared by Standard Pacific Corp., without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) for Form 10-Q. Certain information normally included
in the annual financial statements prepared in accordance with U.S. generally accepted accounting principles has been omitted pursuant to applicable rules and regulations. In the opinion of management, the unaudited condensed consolidated financial
statements included herein reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly our financial position as of September 30, 2008 and the results of operations and cash flows for the periods
presented.

Certain items in the prior period condensed consolidated financial statements have been reclassified to conform with the
current period presentation.

The condensed consolidated financial statements included herein should be read in conjunction with the
consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2007. Unless the context otherwise requires, the terms we, us, our and the
Company refer to Standard Pacific Corp. and its subsidiaries. The results of operations for interim periods are not necessarily indicative of results to be expected for the full year.



|2. | Equity Transaction
|-- | ------------------

On May 26, 2008, we
entered into an Investment Agreement (the Investment Agreement) with MP CA Homes (MatlinPatterson), an affiliate of MatlinPatterson Global Advisers LLC, whereby MatlinPatterson committed to, among other things, invest in the
aggregate over $530 million in equity in the Company. We consummated the following transactions pursuant to the Investment Agreement:



| |  |  | On June 27, 2008, we issued 381,250 shares of a new series of senior convertible preferred stock (Senior Preferred Stock) to MatlinPatterson for
$381.3 million in cash. Upon obtaining stockholder approval on August 18, 2008, the shares of Senior Preferred Stock automatically converted into shares of Series B junior participating convertible preferred stock (the Series B
Preferred Stock), which are convertible into 125 million shares of our common stock;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | On June 27, 2008, MatlinPatterson exchanged $128.5 million of our senior and senior subordinated notes for a warrant to purchase 272,670 shares of Senior
Preferred Stock at a common stock equivalent exercise price of $4.10 per share (the Warrant), which became excercisable for Series B Preferred Stock following the receipt of stockholder approval on August 18, 2008. The shares of
Series B Preferred Stock issuable upon exercise of the Warrant (assuming MatlinPatterson does not make a cashless exercise) will initially be convertible into 89.4 million shares of our common stock; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We commenced a rights offering (Rights Offering) pursuant to which each holder of our common stock as of the record date of July 28, 2008 was
offered a right (Right) to purchase up to such holders pro rata share of approximately 50 million shares of our common stock at a per share price of $3.05 (equivalent to 0.68523554 shares of common stock for each Right). The
offer expired August 22, 2008 and rights to purchase approximately 27.2 million shares of common stock were exercised for a total subscription price of $82.9 million. As contemplated by the Investment Agreement, MatlinPatterson purchased
from us (in the form of Series B Preferred Stock), the 22.8 million equivalent
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

| | shares of common stock not purchased by our existing common stockholders in the Rights Offering for a total subscription price of $69.6 million. In addition,
we received approximately $562,000 for subscription rights associated with borrowed shares related to our share lending facility.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|3. | Segment Reporting
|-- | -----------------

We operate two principal
businesses: homebuilding and financial services (consisting of our mortgage financing and title operations). In accordance with Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related
Information (SFAS 131), we have determined that each of our homebuilding operating divisions and our financial services operations are our operating segments. Corporate is a non-operating segment.

Our homebuilding operations construct and sell single-family attached and detached homes. In accordance with the aggregation criteria defined in SFAS
131, our homebuilding operating segments have been grouped into three reportable segments: California, consisting of our operating divisions in California; Southwest, consisting of our operating divisions in Arizona, Texas, Colorado and Nevada; and
Southeast, consisting of our operating divisions in Florida and North Carolina. In particular, we have determined that the homebuilding operating divisions within their respective reportable segments have similar economic characteristics, including
similar historical and expected future long-term gross margin percentages. In addition, the operating divisions also share all other relevant aggregation characteristics prescribed in SFAS 131, such as similar product types, production processes and
methods of distribution.

Our mortgage financing operations provide mortgage financing to our homebuyers in substantially all of the
markets in which we operate. Our title service operation provides title examinations for our homebuyers in Texas. Our mortgage financing and title services operations are included in our financial services reportable segment, which is separately
reported in our condensed consolidated financial statements under Financial Services.

Corporate is a non-operating segment
that develops and implements strategic initiatives and supports our operating divisions by centralizing key administrative functions such as finance and treasury, information technology, risk management and litigation, and human resources. Corporate
also provides the necessary administrative functions to support us as a publicly traded company. A substantial portion of the expenses incurred by Corporate are allocated to the homebuilding operating divisions based on their respective percentage
of revenues.

Segment financial information relating to the Companys homebuilding operations was as follows:



|                                                           |  |                                 |          |   |                                |   |          |      |  |   |           |   |  |   |           |  
|---------------------------------------------------------- |  | ------------------------------- | -------- | - | ------------------------------ | - | -------- | ---- |  | - | --------- | - |  | - | --------- | -
|                                                           |  | Three Months EndedSeptember 30, |          |   | Nine Months EndedSeptember 30, |  
|                                                           |  | 2008                            |          |   | 2007                           |   |          | 2008 |  |   | 2007      |  
|                                                           |  | (Dollars in thousands)          |         
|Homebuilding revenues:                                     |  |                                 |          |   |                                |   |          |      |  |   |           |   |  |   |           |  
|California                                                 |  | $                               | 209,813  |   |                                | $ | 304,117  |      |  | $ | 583,304   |   |  | $ | 881,590   |  
|Southwest (1)                                              |  |                                 | 108,268  |   |                                |   | 186,640  |      |  |   | 333,759   |   |  |   | 627,299   |  
|Southeast                                                  |  |                                 | 82,259   |   |                                |   | 152,462  |      |  |   | 242,154   |   |  |   | 446,336   |  
|                                                           |  |                                 |          |   |                                |   |          |      |  |   |           |   |  |   |           |  
|Total homebuilding revenues                                |  | $                               | 400,340  |   |                                | $ | 643,219  |      |  | $ | 1,159,217 |   |  | $ | 1,955,225 |  
|                                                           |  |                                 |          |   |                                |   |          |      |  |   |           |   |  |   |           |  
|Homebuilding pretax loss:                                  |  |                                 |          |   |                                |   |          |      |  |   |           |   |  |   |           |  
|California                                                 |  | $                               | (226,471 | ) |                                | $ | (131,723 | )    |  | $ | (489,131  | ) |  | $ | (327,518  | )
|Southwest (1)                                              |  |                                 | (109,389 | ) |                                |   | (6,434   | )    |  |   | (172,461  | ) |  |   | (52,225   | )
|Southeast                                                  |  |                                 | (45,333  | ) |                                |   | (45,677  | )    |  |   | (97,845   | ) |  |   | (77,121   | )
|Corporate                                                  |  |                                 | (7,089   | ) |                                |   | (1,141   | )    |  |   | (30,649   | ) |  |   | (4,336    | )
|                                                           |  |                                 |          |   |                                |   |          |      |  |   |           |   |  |   |           |  
|Total homebuilding pretax loss                             |  | $                               | (388,282 | ) |                                | $ | (184,975 | )    |  | $ | (790,086  | ) |  | $ | (461,200  | )
|                                                           |  |                                 |          |   |                                |   |          |      |  |   |           |   |  |   |           |  
|Homebuilding loss from unconsolidated joint ventures:      |  |                                 |          |   |                                |   |          |      |  |   |           |   |  |   |           |  
|California                                                 |  | $                               | (46,492  | ) |                                | $ | (37,192  | )    |  | $ | (81,871   | ) |  | $ | (117,919  | )
|Southwest (1)                                              |  |                                 | (45,445  | ) |                                |   | 243      |      |  |   | (46,125   | ) |  |   | 411       |  
|Southeast                                                  |  |                                 |         |   |                                |   | (1,510   | )    |  |   | (2,326    | ) |  |   | (1,541    | )
|                                                           |  |                                 |          |   |                                |   |          |      |  |   |           |   |  |   |           |  
|Total homebuilding loss from unconsolidated joint ventures |  | $                               | (91,937  | ) |                                | $ | (38,459  | )    |  | $ | (130,322  | ) |  | $ | (119,049  | )
|                                                           |  |                                 |          |   |                                |   |          |      |  |   |           |   |  |   |           |  



|(1) | Excludes our Tucson and San Antonio divisions, which are classified as discontinued operations.
|--- | -----------------------------------------------------------------------------------------------



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Homebuilding pretax loss includes the following pretax inventory, joint venture and goodwill impairment
charges and land deposit write-offs recorded in the following segments:



|                                                           |  |                                       |         |               |   |           |  |       |         |  |   |        
|---------------------------------------------------------- |  | ------------------------------------- | ------- | ------------- | - | --------- |  | ----- | ------- |  | - | -------
|                                                           |  | Three Months Ended September 30, 2008
|                                                           |  | California                            |         | Southwest (1) |   | Southeast |  | Total
|                                                           |  | (Dollars in thousands)               
|Write-off of deposits and capitalized preacquisition costs |  | $                                     | 6,675   |               | $ | 2,214     |  | $     |        |  | $ | 8,889  
|Inventory impairments                                      |  |                                       | 163,580 |               |   | 61,627    |  |       | 42,009  |  |   | 267,216
|Joint venture impairments                                  |  |                                       | 46,431  |               |   | 45,818    |  |       |        |  |   | 92,249 
|                                                           |  |                                       |         |               |   |           |  |       |         |  |   |        
|Total impairments and write-offs                           |  | $                                     | 216,686 |               | $ | 109,659   |  | $     | 42,009  |  | $ | 368,354
|                                                           |  |                                       |         |               |   |           |  |       |         |  |   |        
|                                                           | 
|                                                           |  | Three Months Ended September 30, 2007
|                                                           |  | California                            |         | Southwest (1) |   | Southeast |  | Total
|                                                           |  | (Dollars in thousands)               
|Write-off of deposits and capitalized preacquisition costs |  | $                                     | 3,695   |               | $ | 379       |  | $     | 2,391   |  | $ | 6,465  
|Inventory impairments                                      |  |                                       | 103,392 |               |   | 14,061    |  |       | 50,545  |  |   | 167,998
|Joint venture impairments                                  |  |                                       | 40,234  |               |   |          |  |       | 1,356   |  |   | 41,590 
|                                                           |  |                                       |         |               |   |           |  |       |         |  |   |        
|Total impairments and write-offs                           |  | $                                     | 147,321 |               | $ | 14,440    |  | $     | 54,292  |  | $ | 216,053
|                                                           |  |                                       |         |               |   |           |  |       |         |  |   |        
|                                                           | 
|                                                           |  | Nine Months Ended September 30, 2008 
|                                                           |  | California                            |         | Southwest (1) |   | Southeast |  | Total
|                                                           |  | (Dollars in thousands)               
|Write-off of deposits and capitalized preacquisition costs |  | $                                     | 9,020   |               | $ | 5,113     |  | $     | 2,966   |  | $ | 17,099 
|Inventory impairments                                      |  |                                       | 361,776 |               |   | 120,172   |  |       | 84,232  |  |   | 566,180
|Joint venture impairments                                  |  |                                       | 79,833  |               |   | 45,818    |  |       | 954     |  |   | 126,605
|                                                           |  |                                       |         |               |   |           |  |       |         |  |   |        
|Total impairments and write-offs                           |  | $                                     | 450,629 |               | $ | 171,103   |  | $     | 88,152  |  | $ | 709,884
|                                                           |  |                                       |         |               |   |           |  |       |         |  |   |        
|                                                           | 
|                                                           |  | Nine Months Ended September 30, 2007 
|                                                           |  | California                            |         | Southwest (1) |   | Southeast |  | Total
|                                                           |  | (Dollars in thousands)               
|Write-off of deposits and capitalized preacquisition costs |  | $                                     | 2,550   |               | $ | 5,380     |  | $     | 2,776   |  | $ | 10,706 
|Inventory impairments                                      |  |                                       | 246,498 |               |   | 91,321    |  |       | 91,373  |  |   | 429,192
|Joint venture impairments                                  |  |                                       | 132,438 |               |   |          |  |       | 1,356   |  |   | 133,794
|Goodwill impairments                                       |  |                                       |        |               |   |          |  |       | 17,950  |  |   | 17,950 
|                                                           |  |                                       |         |               |   |           |  |       |         |  |   |        
|Total impairments and write-offs                           |  | $                                     | 381,486 |               | $ | 96,701    |  | $     | 113,455 |  | $ | 591,642
|                                                           |  |                                       |         |               |   |           |  |       |         |  |   |        



|(1) | Excludes our Tucson and San Antonio divisions, which are classified as discontinued operations.
|--- | -----------------------------------------------------------------------------------------------

Segment financial information relating to the Companys homebuilding assets and investments in unconsolidated joint ventures was as follows:



|                                                                                |  |                        |           |                  |   |          
|------------------------------------------------------------------------------- |  | ---------------------- | --------- | ---------------- | - | ---------
|                                                                                |  | September 30,2008      |           | December 31,2007
|                                                                                |  | (Dollars in thousands)
|Homebuilding assets:                                                            |  |                        |           |                  |   |          
|California                                                                      |  | $                      | 1,021,284 |                  | $ | 1,375,363
|Southwest (1)                                                                   |  |                        | 401,089   |                  |   | 622,584  
|Southeast                                                                       |  |                        | 423,963   |                  |   | 543,910  
|Corporate                                                                       |  |                        | 832,794   |                  |   | 648,569  
|                                                                                |  |                        |           |                  |   |          
|Total homebuilding assets                                                       |  | $                      | 2,679,130 |                  | $ | 3,190,426
|                                                                                |  |                        |           |                  |   |          
|Homebuilding investments in and advances to unconsolidated joint ventures:      |  |                        |           |                  |   |          
|California                                                                      |  | $                      | 49,086    |                  | $ | 220,608  
|Southwest (1)                                                                   |  |                        | 9,924     |                  |   | 69,462   
|Southeast                                                                       |  |                        | 508       |                  |   | 3,897    
|                                                                                |  |                        |           |                  |   |          
|Total homebuilding investments in and advances to unconsolidated joint ventures |  | $                      | 59,518    |                  | $ | 293,967  
|                                                                                |  |                        |           |                  |   |          



|(1) | Excludes our Tucson and San Antonio divisions, which are classified as discontinued operations.
|--- | -----------------------------------------------------------------------------------------------



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|4. | Earnings (Loss) Per Share
|-- | -------------------------

We compute earnings
(loss) per share in accordance with Statement of Financial Accounting Standards No. 128, Earnings per Share (SFAS 128) and the Financial Accounting Standards Board (FASB) Emerging Issues Task Force Issue
No. 03-6, Participating Securities and the Two-Class Method under FASB Statement No. 128, Earnings per Share (EITF No. 03-6). SFAS 128 requires the presentation of both basic and diluted earnings (loss) per
share for financial statement purposes. Basic earnings (loss) per share is computed by dividing income or loss available to common stockholders by the weighted average number of common shares outstanding. Our Series B Preferred Stock, which is
convertible into common stock at the holders option (subject to a limitation on voting control), is classified as a convertible participating security in accordance with SFAS 128 and EITF No. 03-6, which requires that both net income and
loss per share for each class of stock (common stock and participating preferred stock) be calculated for basic earnings per share purposes based on the contractual rights and obligations of this participating security. Net loss allocated to our
Series B Preferred shareholders is calculated based on the preferred shareholders proportionate share of weighted average common shares outstanding on an if-converted basis.

For purposes of determining diluted earnings per share, basic earnings per share is further adjusted to include the effect of the potential dilutive
shares outstanding, including convertible participating securities using the if-converted method. Warrants to purchase shares of convertible participating securities, stock options, nonvested performance share awards, nonvested restricted stock and
deferred stock units are included for purposes of computing diluted earnings per share using the treasury stock method. For the three and nine months ended September 30, 2008 and 2007, all dilutive securities were excluded from the calculation
as they were anti-dilutive as a result of the net loss for these respective periods. Shares outstanding under the share lending facility are not treated as outstanding for earnings per share purposes because the share borrower must return to us all
borrowed shares (or identical shares) on or about October 1, 2012, or earlier in certain circumstances. The table set forth below reconciles the components of the basic loss per share calculation to diluted loss per share.



|                                                    |  |                                                  |          |   |        |             |     |   |       |          |  |   |          |   |     |            |  |   |       |  
|--------------------------------------------------- |  | ------------------------------------------------ | -------- | - | ------ | ----------- | --- | - | ----- | -------- |  | - | -------- | - | --- | ---------- |  | - | ----- | -
|                                                    |  | Three Months Ended September 30,                 |         
|                                                    |  | 2008                                             |          |   | 2007   |            
|                                                    |  | Net Loss                                         |          |   | Shares |             | EPS |   |       | Net Loss |  |   | Shares   |   | EPS |           
|                                                    |  | (Dollars in thousands, except per share amounts) |         
|Basic loss per share from continuing operations     |  | $                                                | (204,057 | ) |        | 80,681,394  |     | $ | (2.53 | )        |  | $ | (113,742 | ) |     | 72,267,863 |  | $ | (1.58 | )
|Effect of dilutive securities:                      |  |                                                  |          |   |        |             |     |   |       |          |  |   |          |   |     |            |  |   |       |  
|Loss allocated to preferred shareholders            |  |                                                  | (164,698 | ) |        | 65,118,970  |     |   |       |          |  |   |         |   |     |           |  |   |       |  
|                                                    |  |                                                  |          |   |        |             |     |   |       |          |  |   |          |   |     |            |  |   |       |  
|Diluted loss per share from continuing operations   |  | $                                                | (368,755 | ) |        | 145,800,364 |     | $ | (2.53 | )        |  | $ | (113,742 | ) |     | 72,267,863 |  | $ | (1.58 | )
|                                                    |  |                                                  |          |   |        |             |     |   |       |          |  |   |          |   |     |            |  |   |       |  
|Basic loss per share from discontinued operations   |  | $                                                | (39      | ) |        | 80,681,394  |     | $ | (0.00 | )        |  | $ | (5,924   | ) |     | 72,267,863 |  | $ | (0.08 | )
|Effect of dilutive securities:                      |  |                                                  |          |   |        |             |     |   |       |          |  |   |          |   |     |            |  |   |       |  
|Loss allocated to preferred shareholders            |  |                                                  | (30      | ) |        | 65,118,970  |     |   |       |          |  |   |         |   |     |           |  |   |       |  
|                                                    |  |                                                  |          |   |        |             |     |   |       |          |  |   |          |   |     |            |  |   |       |  
|Diluted loss per share from discontinued operations |  | $                                                | (69      | ) |        | 145,800,364 |     | $ | (0.00 | )        |  | $ | (5,924   | ) |     | 72,267,863 |  | $ | (0.08 | )
|                                                    |  |                                                  |          |   |        |             |     |   |       |          |  |   |          |   |     |            |  |   |       |  
|Basic loss per share                                |  | $                                                | (204,096 | ) |        | 80,681,394  |     | $ | (2.53 | )        |  | $ | (119,666 | ) |     | 72,267,863 |  | $ | (1.66 | )
|                                                    |  |                                                  |          |   |        |             |     |   |       |          |  |   |          |   |     |            |  |   |       |  
|Diluted loss per share                              |  | $                                                | (368,824 | ) |        | 145,800,364 |     | $ | (2.53 | )        |  | $ | (119,666 | ) |     | 72,267,863 |  | $ | (1.66 | )
|                                                    |  |                                                  |          |   |        |             |     |   |       |          |  |   |          |   |     |            |  |   |       |  



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|                                                    |  |                                                  |          |   |        |            |     |   |       |          |  |   |          |   |     |            |  |   |       |  
|--------------------------------------------------- |  | ------------------------------------------------ | -------- | - | ------ | ---------- | --- | - | ----- | -------- |  | - | -------- | - | --- | ---------- |  | - | ----- | -
|                                                    |  | Nine Months Ended September 30,                  |         
|                                                    |  | 2008                                             |          |   | 2007   |           
|                                                    |  | Net Loss                                         |          |   | Shares |            | EPS |   |       | Net Loss |  |   | Shares   |   | EPS |           
|                                                    |  | (Dollars in thousands, except per share amounts) |         
|Basic loss per share from continuing operations     |  | $                                                | (644,105 | ) |        | 75,155,044 |     | $ | (8.57 | )        |  | $ | (280,802 | ) |     | 72,120,101 |  | $ | (3.90 | )
|Effect of dilutive securities:                      |  |                                                  |          |   |        |            |     |   |       |          |  |   |          |   |     |            |  |   |       |  
|Loss allocated to preferred shareholders            |  |                                                  | (187,390 | ) |        | 21,864,918 |     |   |       |          |  |   |         |   |     |           |  |   |       |  
|                                                    |  |                                                  |          |   |        |            |     |   |       |          |  |   |          |   |     |            |  |   |       |  
|Diluted loss per share from continuing operations   |  | $                                                | (831,495 | ) |        | 97,019,962 |     | $ | (8.57 | )        |  | $ | (280,802 | ) |     | 72,120,101 |  | $ | (3.90 | )
|                                                    |  |                                                  |          |   |        |            |     |   |       |          |  |   |          |   |     |            |  |   |       |  
|Basic loss per share from discontinued operations   |  | $                                                | (1,553   | ) |        | 75,155,044 |     | $ | (0.02 | )        |  | $ | (45,574  | ) |     | 72,120,101 |  | $ | (0.63 | )
|Effect of dilutive securities:                      |  |                                                  |          |   |        |            |     |   |       |          |  |   |          |   |     |            |  |   |       |  
|Loss allocated to preferred shareholders            |  |                                                  | (452     | ) |        | 21,864,918 |     |   |       |          |  |   |         |   |     |           |  |   |       |  
|                                                    |  |                                                  |          |   |        |            |     |   |       |          |  |   |          |   |     |            |  |   |       |  
|Diluted loss per share from discontinued operations |  | $                                                | (2,005   | ) |        | 97,019,962 |     | $ | (0.02 | )        |  | $ | (45,574  | ) |     | 72,120,101 |  | $ | (0.63 | )
|                                                    |  |                                                  |          |   |        |            |     |   |       |          |  |   |          |   |     |            |  |   |       |  
|Basic loss per share                                |  | $                                                | (645,658 | ) |        | 75,155,044 |     | $ | (8.59 | )        |  | $ | (326,376 | ) |     | 72,120,101 |  | $ | (4.53 | )
|                                                    |  |                                                  |          |   |        |            |     |   |       |          |  |   |          |   |     |            |  |   |       |  
|Diluted loss per share                              |  | $                                                | (833,500 | ) |        | 97,019,962 |     | $ | (8.59 | )        |  | $ | (326,376 | ) |     | 72,120,101 |  | $ | (4.53 | )
|                                                    |  |                                                  |          |   |        |            |     |   |       |          |  |   |          |   |     |            |  |   |       |  

On September 3, 2008, we completed our Rights Offering for which each holder of our common
stock as of the record date was issued a transferrable right to purchase up to such holders pro rata share of 50 million shares of our common stock at a per share price of $3.05. Record date stockholders received one right for every
0.68523554 shares of common stock on the record date. The market price of our common stock was $4.08 per share on July 23, 2008, which was the last day that our common stock and the rights traded together. Since the $3.05 per share subscription
price of common stock issued under the rights offering was lower than the $4.08 per share market price on July 23, 2008, the rights offering contained a bonus element as defined under SFAS 128. As a result, we retroactively increased the
weighted average common shares outstanding used to compute basic and diluted earnings (loss) per share by an adjustment factor of approximately 1.1144 for all periods prior to the rights issue. See Note 2 for further discussion of the Rights
Offering.



|5. | Comprehensive Loss
|-- | ------------------

The components of comprehensive
loss were as follows:



|                                                                                 |  |                                 |          |   |                                |   |          |      |  |   |          |   |  |   |          |  
|-------------------------------------------------------------------------------- |  | ------------------------------- | -------- | - | ------------------------------ | - | -------- | ---- |  | - | -------- | - |  | - | -------- | -
|                                                                                 |  | Three Months EndedSeptember 30, |          |   | Nine Months EndedSeptember 30, |  
|                                                                                 |  | 2008                            |          |   | 2007                           |   |          | 2008 |  |   | 2007     |  
|                                                                                 |  | (Dollars in thousands)          |         
|Net loss                                                                         |  | $                               | (368,824 | ) |                                | $ | (119,666 | )    |  | $ | (833,500 | ) |  | $ | (326,376 | )
|Unrealized gain (loss) on interest rate swaps, net of related income tax effects |  |                                 | (341     | ) |                                |   | (5,252   | )    |  |   | 2,015    |   |  |   | (1,406   | )
|                                                                                 |  |                                 |          |   |                                |   |          |      |  |   |          |   |  |   |          |  
|Comprehensive loss                                                               |  | $                               | (369,165 | ) |                                | $ | (124,918 | )    |  | $ | (831,485 | ) |  | $ | (327,782 | )
|                                                                                 |  |                                 |          |   |                                |   |          |      |  |   |          |   |  |   |          |  



|6. | Stock-Based Compensation
|-- | ------------------------

We account for
share-based awards in accordance with Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment (SFAS 123R). SFAS 123R requires that the cost resulting from all share-based payment
transactions be recognized in the financial statements. SFAS 123R requires all entities to apply a fair-value-based measurement method in accounting for share-based payment transactions with employees except for equity instruments held by employee
share ownership plans.

On May 14, 2008, our stockholders approved our 2008 Stock Incentive Plan (the 2008 Plan). Under
the 2008 Plan, the maximum number of shares of common stock that may be issued is 21,940,000. During the nine months ended September 30, 2008, we granted 12,765,000 stock options, issued 123,424 shares of unrestricted stock, and granted
performance share awards, net of cancellations, pursuant to which 170,000 shares were issued.



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We have determined that the change of control provisions under our stock option, performance share and
restricted stock agreements were triggered by obtaining stockholder approval on August 18, 2008 to convert the outstanding Senior Preferred Stock to Series B Convertible Preferred Stock. As a result, we adjusted the requisite service periods in
accordance with SFAS 123R and accelerated compensation expense of approximately $4.5 million and $4.8 million during the three and nine months ended September 30, 2008, respectively, related to stock options, performance share awards, and
restricted stock grants that were outstanding as of August 18, 2008.

Total compensation expense recognized related to stock-based
compensation was as follows:



|                                         |  |                                 |       |                                |   |       |  |      |        |  |   |      
|---------------------------------------- |  | ------------------------------- | ----- | ------------------------------ | - | ----- |  | ---- | ------ |  | - | -----
|                                         |  | Three Months EndedSeptember 30, |       | Nine Months EndedSeptember 30,
|                                         |  | 2008                            |       | 2007                           |   | 2008  |  | 2007
|                                         |  | (Dollars in thousands)         
|Stock options                            |  | $                               | 3,307 |                                | $ | 1,558 |  | $    | 5,852  |  | $ | 4,720
|Performance share awards                 |  |                                 | 1,581 |                                |   | 1,241 |  |      | 3,296  |  |   | 3,935
|Restricted and unrestricted stock grants |  |                                 | 286   |                                |   | 378   |  |      | 1,184  |  |   | 1,156
|                                         |  |                                 |       |                                |   |       |  |      |        |  |   |      
|Total                                    |  | $                               | 5,174 |                                | $ | 3,177 |  | $    | 10,332 |  | $ | 9,811
|                                         |  |                                 |       |                                |   |       |  |      |        |  |   |      

Total unrecognized compensation expense related to stock-based compensation was as follows:



|                                        |  |                          |        |                         |           |                     |   |                       |  |          
|--------------------------------------- |  | ------------------------ | ------ | ----------------------- | --------- | ------------------- | - | --------------------- |  | ---------
|                                        |  | As of September 30, 2008 |        | As of December 31, 2007
|                                        |  | UnrecognizedExpense      |        | WeightedAveragePeriod   |           | UnrecognizedExpense |   | WeightedAveragePeriod
|                                        |  | (Dollars in thousands)  
|Unvested stock options                  |  | $                        | 16,054 |                         | 4.0 years |                     | $ | 3,855                 |  | 1.8 years
|Nonvested performance share awards      |  |                          |       |                         |          |                     |   | 3,384                 |  | 1.8 years
|Nonvested restricted stock grants       |  |                          |       |                         |          |                     |   | 842                   |  | 0.9 years
|                                        |  |                          |        |                         |           |                     |   |                       |  |          
|Total unrecognized compensation expense |  | $                        | 16,054 |                         | 4.0 years |                     | $ | 8,081                 |  | 1.7 years
|                                        |  |                          |        |                         |           |                     |   |                       |  |          



|7. | Inventories
|-- | -----------

Inventories consisted of the following
at:



|                                            |  |                        |           |                  |   |          
|------------------------------------------- |  | ---------------------- | --------- | ---------------- | - | ---------
|                                            |  | September 30,2008      |           | December 31,2007
|                                            |  | (Dollars in thousands)
|Inventories owned:                          |  |                        |           |                  |   |          
|Land and land under development             |  | $                      | 897,828   |                  | $ | 1,162,651
|Homes completed and under construction      |  |                        | 579,023   |                  |   | 711,848  
|Model homes                                 |  |                        | 149,547   |                  |   | 184,736  
|                                            |  |                        |           |                  |   |          
|Total inventories owned                     |  | $                      | 1,626,398 |                  | $ | 2,059,235
|                                            |  |                        |           |                  |   |          
|Inventories not owned:                      |  |                        |           |                  |   |          
|Land purchase and lot option deposits       |  | $                      | 18,900    |                  | $ | 28,542   
|Variable interest entities, net of deposits |  |                        | 25,416    |                  |   | 49,640   
|Other lot option contracts, net of deposits |  |                        | 34,207    |                  |   | 31,575   
|                                            |  |                        |           |                  |   |          
|Total inventories not owned                 |  | $                      | 78,523    |                  | $ | 109,757  
|                                            |  |                        |           |                  |   |          

Under Financial Accounting Standards Board Interpretation No. 46 (revised December 2003),
Consolidation of Variable Interest Entities, an interpretation of ARB No. 51 (FIN 46R), a non-refundable deposit paid to an entity is deemed to be a variable interest that will absorb some or all of the entitys
expected losses if they occur. Therefore, whenever we enter into a land option or purchase contract with an entity and make a non-refundable deposit, a variable interest entity (VIE) may have been created.



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If a VIE exists and we have a variable interest in that entity, FIN 46R requires us to calculate expected losses and residual returns for the VIE based on
the probability of estimated future cash flows as described in FIN 46R. If we are deemed to be the primary beneficiary of a VIE based on such calculations, we are required to consolidate the VIE on our balance sheet.

At September 30, 2008 and December 31, 2007, we consolidated 3 and 7 VIEs, respectively, as a result of our options to purchase land or lots
from the selling entities. We made cash deposits or issued letters of credit to these VIEs totaling approximately $3.0 million and $8.1 million as of September 30, 2008 and December 31, 2007, respectively, of which the cash deposits are
included in land purchase and lot option deposits in the table above. Our option deposits generally represent our maximum exposure to the land seller if we elect not to purchase the optioned property. In some instances, we may also expend funds for
due diligence, development and construction activities with respect to optioned land prior to takedown, which we would have to write off should we not exercise the option. We consolidated these VIEs because we were considered the primary beneficiary
in accordance with FIN 46R. As a result, included in our condensed consolidated balance sheets at September 30, 2008 and December 31, 2007 were inventories not owned related to these VIEs of approximately $27.9 million and $56.8 million
(which includes $2.5 million and $7.1 million in deposits, exclusive of outstanding letters of credit), liabilities from inventories not owned of approximately $3.5 million and $11.4 million, and minority interests of approximately $21.9 million and
$38.2 million, respectively. These amounts were recorded based on each VIEs estimated fair value upon consolidation. Creditors of these VIEs, if any, have no recourse against us.

Other lot option contracts represent specific performance purchase obligations to purchase lots that we have with various land sellers. In certain
instances, the land option contract contains a binding obligation requiring us to complete lot purchases. In other instances, the land option contract does not obligate us to complete lot purchases but, due to the magnitude of our capitalized
preacquisition costs, development and construction expenditures, we are considered economically compelled to complete the lot purchases.

In accordance with Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, we record impairment losses on inventories when events and circumstances indicate that
they may be impaired, and the undiscounted cash flows estimated to be generated by those assets are less than their carrying amounts. Inventories that are determined to be impaired are written down to their estimated fair value. We calculate the
fair value of the project under a land residual value analysis and in certain cases in conjunction with a discounted cash flow analysis. The operating margins (defined as gross margin less direct selling and marketing costs) used to calculate land
residual values and related fair values for the majority of our projects during the nine months ended September 30, 2008 and 2007, were generally in the 8% to 12% range and discount rates were generally in the 15% to 25% range, with a small
portion of projects in the low 30% range. The following table summarizes inventory impairments recorded during the three and nine months ended September 30, 2008 and 2007:



|                                                                                                     |  |                                 |         |                                |   |         |  |      |         |  |   |        
|---------------------------------------------------------------------------------------------------- |  | ------------------------------- | ------- | ------------------------------ | - | ------- |  | ---- | ------- |  | - | -------
|                                                                                                     |  | Three Months EndedSeptember 30, |         | Nine Months EndedSeptember 30,
|                                                                                                     |  | 2008                            |         | 2007                           |   | 2008    |  | 2007
|                                                                                                     |  | (Dollars in thousands)         
|Inventory impairments related to:                                                                    |  |                                 |         |                                |   |         |  |      |         |  |   |        
|Land under development and homes completed and under construction                                    |  | $                               | 209,228 |                                | $ | 115,848 |  | $    | 477,274 |  | $ | 318,165
|Land held for sale or sold                                                                           |  |                                 | 57,988  |                                |   | 52,150  |  |      | 88,906  |  |   | 111,027
|                                                                                                     |  |                                 |         |                                |   |         |  |      |         |  |   |        
|Total inventory impairments                                                                          |  | $                               | 267,216 |                                | $ | 167,998 |  | $    | 566,180 |  | $ | 429,192
|                                                                                                     |  |                                 |         |                                |   |         |  |      |         |  |   |        
|Remaining carrying value of inventory impaired at period end                                         |  | $                               | 423,602 |                                | $ | 411,743 |  | $    | 714,756 |  | $ | 709,056
|                                                                                                     |  |                                 |         |                                |   |         |  |      |         |  |   |        
|Number of projects impaired during the period                                                        |  |                                 | 75      |                                |   | 48      |  |      | 129     |  |   | 90     
|                                                                                                     |  |                                 |         |                                |   |         |  |      |         |  |   |        
|Total number of projects included in inventories-owned and reviewed for impairment during the period |  |                                 | 286     |                                |   | 358     |  |      |         |  |   |        
|                                                                                                     |  |                                 |         |                                |   |         |  |      |         |  |   |        



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These impairment charges were included in cost of sales in the accompanying condensed consolidated
statements of operations (see Note 3 for a breakout of impairment charges by segment). The impairment charges recorded during the periods noted above resulted from lower home prices, which were driven by increased incentives, discounts and price
reductions to address weaker demand and homebuyer confidence, resulting from decreased affordability, more limited availability of mortgage credit, and an increased number of communities and completed and existing homes available for sale in the
marketplace. These factors have created a much more competitive market for new homes, which has continued to put downward pressure on home prices. Until market conditions stabilize, we may incur additional impairments in the future.



|8. | Capitalization of Interest
|-- | --------------------------

We follow the practice
of capitalizing interest to inventories owned during the period of development in accordance with Statement of Financial Accounting Standards No. 34, Capitalization of Interest Cost (SFAS 34). To the extent our debt
exceeds our qualified inventory as defined in SFAS 34, we expense a portion of the interest incurred by us. For the three and nine months ended September 30, 2008, we expensed $3.9 million of interest costs related to the portion of real estate
inventories held for development that were deemed unqualified assets in accordance with SFAS 34. All interest costs incurred during the first six months of 2008 and all of 2007 were capitalized to inventories.

The following is a summary of homebuilding interest capitalized to inventories owned and investments in and advances to unconsolidated joint ventures,
amortized to cost of sales and loss from unconsolidated joint ventures and expensed as interest expense (including discontinued operations), for the three and nine months ended September 30, 2008 and 2007:



|                                                                                                                                             |  |                                 |         |   |                                |   |         |      |  |   |         |   |  |   |         |  
|-------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------- | ------- | - | ------------------------------ | - | ------- | ---- |  | - | ------- | - |  | - | ------- | -
|                                                                                                                                             |  | Three Months EndedSeptember 30, |         |   | Nine Months EndedSeptember 30, |  
|                                                                                                                                             |  | 2008                            |         |   | 2007                           |   |         | 2008 |  |   | 2007    |  
|                                                                                                                                             |  | (Dollars in thousands)          |        
|Homebuilding interest capitalized in inventories owned and investments in and advances to unconsolidated joint ventures, beginning of period |  | $                               | 174,452 |   |                                | $ | 155,367 |      |  | $ | 137,418 |   |  | $ | 139,470 |  
|Homebuilding interest incurred and capitalized                                                                                               |  |                                 | 29,390  |   |                                |   | 35,759  |      |  |   | 102,206 |   |  |   | 102,456 |  
|Amortization of previously capitalized homebuilding interest                                                                                 |  |                                 | (21,416 | ) |                                |   | (27,864 | )    |  |   | (57,198 | ) |  |   | (78,664 | )
|                                                                                                                                             |  |                                 |         |   |                                |   |         |      |  |   |         |   |  |   |         |  
|Homebuilding interest capitalized in inventories owned and investments in and advances to unconsolidated joint ventures, end of
period       |  | $                               | 182,426 |   |                                | $ | 163,262 |      |  | $ | 182,426 |   |  | $ | 163,262 |  
|                                                                                                                                             |  |                                 |         |   |                                |   |         |      |  |   |         |   |  |   |         |  
|Homebuilding interest expense                                                                                                                |  | $                               | 3,938   |   |                                | $ |        |      |  | $ | 3,938   |   |  | $ |        |  
|                                                                                                                                             |  |                                 |         |   |                                |   |         |      |  |   |         |   |  |   |         |  



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|9. | Investments in Unconsolidated Land Development and Homebuilding Joint Ventures
|-- | ------------------------------------------------------------------------------

We enter into land development and homebuilding joint ventures from time to time as a means of accessing lot positions, expanding our market opportunities, establishing strategic alliances, managing our risk profile
and leveraging our capital base. These joint ventures are typically entered into with developers, other homebuilders, land sellers and financial partners. The tables set forth below summarize the combined financial information related to our
unconsolidated land development and homebuilding joint ventures, including discontinued operations, accounted for under the equity method:



|                                                |  |                        |           |                  |   |          
|----------------------------------------------- |  | ---------------------- | --------- | ---------------- | - | ---------
|                                                |  | September 30,2008      |           | December 31,2007
|                                                |  | (Dollars in thousands)
|Assets:                                         |  |                        |           |                  |   |          
|Cash                                            |  | $                      | 57,696    |                  | $ | 60,771   
|Inventories                                     |  |                        | 952,678   |                  |   | 1,640,601
|Other assets                                    |  |                        | 22,513    |                  |   | 30,507   
|                                                |  |                        |           |                  |   |          
|Total assets                                    |  | $                      | 1,032,887 |                  | $ | 1,731,879
|                                                |  |                        |           |                  |   |          
|Liabilities and Equity:                         |  |                        |           |                  |   |          
|Accounts payable and accrued liabilities        |  | $                      | 128,311   |                  | $ | 176,634  
|Construction loans and trust deed notes payable |  |                        | 512,184   |                  |   | 770,969  
|Equity                                          |  |                        | 392,392   |                  |   | 784,276  
|                                                |  |                        |           |                  |   |          
|Total liabilities and equity                    |  | $                      | 1,032,887 |                  | $ | 1,731,879
|                                                |  |                        |           |                  |   |          

Our share of equity in the unconsolidated joint ventures included in the table above was
approximately $99.5 million and $269.5 million at September 30, 2008 and December 31, 2007, respectively. Our net investment in these joint ventures totaled approximately $59.5 million and $294.0 million, respectively, as of
September 30, 2008 and December 31, 2007. These investment amounts included approximately $10.4 million and $11.3 million, respectively, of homebuilding interest capitalized to investments in unconsolidated joint ventures as of
September 30, 2008 and December 31, 2007. In some cases our net investment in these unconsolidated joint ventures is less than our proportionate share of the equity reflected in the table above because of differences between asset
impairments recorded against our joint venture investments and impairments recorded by the applicable joint venture.



|                           |  |                                 |          |   |                                |   |          |      |  |   |          |   |  |   |          |  
|-------------------------- |  | ------------------------------- | -------- | - | ------------------------------ | - | -------- | ---- |  | - | -------- | - |  | - | -------- | -
|                           |  | Three Months EndedSeptember 30, |          |   | Nine Months EndedSeptember 30, |  
|                           |  | 2008                            |          |   | 2007                           |   |          | 2008 |  |   | 2007     |  
|                           |  | (Dollars in thousands)          |         
|Revenues                   |  | $                               | 36,102   |   |                                | $ | 98,664   |      |  | $ | 116,535  |   |  | $ | 286,261  |  
|Cost of sales and expenses |  |                                 | (100,476 | ) |                                |   | (139,413 | )    |  |   | (232,610 | ) |  |   | (416,392 | )
|                           |  |                                 |          |   |                                |   |          |      |  |   |          |   |  |   |          |  
|Net loss                   |  | $                               | (64,374  | ) |                                | $ | (40,749  | )    |  | $ | (116,075 | ) |  | $ | (130,131 | )
|                           |  |                                 |          |   |                                |   |          |      |  |   |          |   |  |   |          |  



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Loss from unconsolidated joint ventures as presented in the accompanying condensed consolidated
statements of operations reflects our proportionate share of the loss of these unconsolidated land development and homebuilding joint ventures plus any additional impairments recorded against our investments in joint ventures which we do not deem
recoverable. Our ownership interests in the joint ventures vary but are generally less than or equal to 50%. The following table summarizes joint venture inventory impairments from continuing operations recorded during the three and nine months
ended September 30, 2008 and 2007:



|                                                                                                                     |  |                                 |        |                                |   |        |  |      |         |  |   |        
|-------------------------------------------------------------------------------------------------------------------- |  | ------------------------------- | ------ | ------------------------------ | - | ------ |  | ---- | ------- |  | - | -------
|                                                                                                                     |  | Three Months EndedSeptember 30, |        | Nine Months EndedSeptember 30,
|                                                                                                                     |  | 2008                            |        | 2007                           |   | 2008   |  | 2007
|                                                                                                                     |  | (Dollars in thousands)         
|Joint venture impairments related to:                                                                                |  |                                 |        |                                |   |        |  |      |         |  |   |        
|Homebuilding joint ventures                                                                                          |  | $                               | 19,295 |                                | $ | 25,124 |  | $    | 48,321  |  | $ | 80,206 
|Land development joint ventures                                                                                      |  |                                 | 72,954 |                                |   | 16,466 |  |      | 78,284  |  |   | 53,588 
|                                                                                                                     |  |                                 |        |                                |   |        |  |      |         |  |   |        
|Total joint venture impairments                                                                                      |  | $                               | 92,249 |                                | $ | 41,590 |  | $    | 126,605 |  | $ | 133,794
|                                                                                                                     |  |                                 |        |                                |   |        |  |      |         |  |   |        
|Number of projects impaired during the period                                                                        |  |                                 | 6      |                                |   | 11     |  |      | 18      |  |   | 17     
|                                                                                                                     |  |                                 |        |                                |   |        |  |      |         |  |   |        
|Total number of projects included in unconsolidated joint ventures and reviewed for impairment during the period (1) |  |                                 | 18     |                                |   | 59     |  |      |         |  |   |        
|                                                                                                                     |  |                                 |        |                                |   |        |  |      |         |  |   |        



|(1) | Certain unconsolidated joint ventures have multiple real estate projects.
|--- | -------------------------------------------------------------------------

These charges were included in loss from unconsolidated joint ventures in the accompanying condensed consolidated statements of operations.

For certain joint ventures for which we are the managing member, we receive management fees, which represent overhead and other reimbursements for costs
associated with managing the related real estate projects. During the three months ended September 30, 2008, we recorded net management fee expense of approximately $338,000 related to management fees that were recognized in previous periods
which were deemed uncollectable during the 2008 third quarter. During the three months ended September 30, 2007, we recognized management fees of approximately $1.7 million and during the nine months ended September 30, 2008 and 2007, we
recognized management fees of approximately $757,000 and $5.7 million, respectively. Management fees were recorded as a reduction of our general and administrative and construction overhead costs while management fee expense was recorded as an
increase to our general and administrative expenses. As of September 30, 2008 and 2007, we had approximately $454,000 and $1.1 million, respectively, in management fees receivable from various joint ventures, which were included in trade and
other receivables in the accompanying condensed consolidated balance sheets.

During the nine months ended September 30, 2008, we
purchased and unwound three Southern California joint ventures, accelerated the takedown of substantially all of the lots from one Southern California joint venture and one Arizona joint venture and exited two Northern California joint
ventures. In connection with these transactions, we made payments totaling approximately $168.5 million, assumed $47.7 million of joint venture indebtedness and accelerated the purchase of 1,186 lots.



|10. | Goodwill
|--- | --------

The excess amount paid for business
acquisitions over the net fair value of assets acquired and liabilities assumed was capitalized as goodwill in the accompanying condensed consolidated balance sheets. Statement of Financial Accounting Standards No. 142, Goodwill and Other
Intangible Assets (SFAS 142), addresses financial accounting and reporting for acquired goodwill and other intangible assets. SFAS 142 requires that goodwill not be amortized but instead be assessed for impairment at least
annually, or more frequently if certain impairment indicators are present. For purposes of this test, each of our homebuilding operating divisions has been treated as a reporting unit. During the nine months ended September 30, 2007, we
determined that the deteriorating housing market conditions in the Jacksonville market were indicators of impairment. As a result of the changes in the market outlook and our near-term



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and long-term forecasts and expected returns, we recorded non-cash pretax goodwill impairment charges totaling $18.0 million to write-off the remaining
goodwill balance for our Jacksonville division as the estimated fair value of the reporting unit was less than its carrying value. These charges were included in other income (expense) in the accompanying condensed consolidated financial statements.



|11. | Homebuilding Other Assets
|--- | -------------------------

Homebuilding other
assets consisted of the following at:



|                                |  |                        |         |                  |   |        
|------------------------------- |  | ---------------------- | ------- | ---------------- | - | -------
|                                |  | September 30,2008      |         | December 31,2007
|                                |  | (Dollars in thousands)
|Income tax receivables          |  | $                      | 90,595  |                  | $ | 240,719
|Deferred compensation assets    |  |                        | 206     |                  |   | 17,693 
|Property and equipment, net     |  |                        | 11,488  |                  |   | 15,379 
|Deferred debt issuance costs    |  |                        | 13,316  |                  |   | 16,149 
|Prepaid insurance               |  |                        | 3,479   |                  |   | 5,390  
|Other assets                    |  |                        | 5,221   |                  |   | 4,805  
|                                |  |                        |         |                  |   |        
|Total homebuilding other assets |  | $                      | 124,305 |                  | $ | 300,135
|                                |  |                        |         |                  |   |        



|12. | Warranty Costs
|--- | --------------

Estimated future direct warranty
costs are accrued and charged to cost of sales in the period in which the related homebuilding revenues are recognized. Amounts accrued are based upon historical experience rates. Indirect warranty overhead salaries and related costs are charged to
cost of sales in the period incurred. We assess the adequacy of our warranty accrual on a quarterly basis and adjust the amounts recorded if necessary. Our warranty accrual is included in accrued liabilities in the accompanying condensed
consolidated balance sheets. Changes in our warranty accrual from continuing operations are set forth in the table below:



|                                                               |  |                                 |        |   |      |   |        |  
|-------------------------------------------------------------- |  | ------------------------------- | ------ | - | ---- | - | ------ | -
|                                                               |  | Nine Months Ended September 30, |       
|                                                               |  | 2008                            |        |   | 2007 |  
|                                                               |  | (Dollars in thousands)          |       
|Warranty accrual, beginning of the period                      |  | $                               | 30,790 |   |      | $ | 32,384 |  
|Warranty costs accrued and other adjustments during the period |  |                                 | 6,757  |   |      |   | 9,044  |  
|Warranty costs paid during the period                          |  |                                 | (5,984 | ) |      |   | (9,335 | )
|                                                               |  |                                 |        |   |      |   |        |  
|Warranty accrual, end of the period                            |  | $                               | 31,563 |   |      | $ | 32,093 |  
|                                                               |  |                                 |        |   |      |   |        |  



|13. | Revolving Credit Facility and Term Loans
|--- | ----------------------------------------

On
June 27, 2008, we amended our revolving credit facility, our Term Loan A and our Term Loan B (collectively, the Credit Facilities) to, among other things, (i) reduce the total commitment under the revolving credit facility
from $500 million to $395 million, (ii) pay down the unsecured borrowings under the revolver from $90 million to $55 million and the unsecured Term Loan A balance from $100 million to $65 million, (iii) reduce the letter of credit sublimit
under the revolver from $450 million to $100 million, (iv) agree to make quarterly principal amortization payments under the Term Loan A and the revolver, of $2.5 million each (subject to increase to $5.0 million upon any future entry by the
Company or its subsidiaries into certain types of credit facilities), and (v) agree to secure future revolver borrowings and letters of credit (other than certain existing borrowings and letters of credit) with certain specified types of
collateral (including model homes and other real property assets to be determined) based on specified loan-to-value ratios. In addition, the commitment under the revolving credit facility will be reduced at the end of each calendar quarter by the
face amount of all unsecured letters of credit that mature and are not renewed or are cancelled during such quarter. As of September 30, 2008, we had approximately $62.5 million and $225.0 million outstanding on our Term Loan A and Term Loan B,
respectively, and $52.5 million in borrowings outstanding and $40.8 million in letters of credit outstanding (of which $36.6 million is unsecured) under our revolving credit facility which had a current commitment amount of $392.3 million.



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In connection with the amendments to the Credit Facilities, the financial covenants contained in such
facilities were modified to eliminate covenants relating to consolidated tangible net worth, leverage, unsold land and minimum interest coverage. The borrowing base covenant and limitations on joint venture investments were also eliminated. The
amended Credit Facilities contain a new liquidity test requiring us to maintain either a minimum ratio of cash flow from operations to consolidated home building interest incurred or a minimum cash interest reserve equal to our last four fiscal
quarters actual interest incurred and also prohibit, subject to various exceptions, the repurchase of capital stock, payment of dividends, the early repayment of debt and the incurrence of debt. The limitation on incurring new debt contains a
number of exceptions including $270 million to $500 million of ACI debt (dependent on whether we have fully secured the revolving credit facility and Term Loan A borrowings), non-recourse indebtedness, subordinated debt, and up to $400 million of
new senior unsecured debt having a maturity of at least 180 days after the maturity dates of the revolving credit facility and Term Loan A. The financial covenants, including elimination of the borrowing base, and certain other provisions of our
$225 million Term Loan B were automatically amended to match those of the revolver and Term Loan A as of the effective time of the amendments of the Credit Facilities. Also, in connection with the amendments to the Credit Facilities, certain waivers
previously granted under the facilities were permanently extended.



|14. | Trust Deed and Other Notes Payable
|--- | ----------------------------------

From time to
time, we use purchase money mortgage financing to finance land acquisitions. We also use community development district (CDD), community facilities district or other similar assessment district bond financings from time to time to
finance land development and infrastructure costs. Subject to certain exceptions, we generally are not responsible for the repayment of these assessment district bonds. At September 30, 2008, we had approximately $71.5 million outstanding in
trust deed and other notes payable, including $38.6 million in secured debt that was assumed in connection with unwinding one joint venture during the 2008 second quarter and $3.8 million related to CDD bonds.



|15. | Senior and Senior Subordinated Notes Payable
|--- | --------------------------------------------

Senior notes payable consisted of the following at:



|                                                                 |  |                        |           |                  |   |          
|---------------------------------------------------------------- |  | ---------------------- | --------- | ---------------- | - | ---------
|                                                                 |  | September 30,2008      |           | December 31,2007
|                                                                 |  | (Dollars in thousands)
|61/2% Senior Notes
due 2008                                      |  | $                      | 103,500   |                  | $ | 126,000  
|51/8% Senior Notes
due 2009                                      |  |                        | 124,550   |                  |   | 150,000  
|61/2% Senior Notes
due 2010                                      |  |                        | 173,000   |                  |   | 175,000  
|67/8% Senior Notes
due 2011                                      |  |                        | 175,000   |                  |   | 175,000  
|73/4% Senior Notes
due 2013, net                                 |  |                        | 124,423   |                  |   | 124,344  
|61/4% Senior Notes
due 2014                                      |  |                        | 150,000   |                  |   | 150,000  
|7% Senior Notes due 2015                                         |  |                        | 175,000   |                  |   | 175,000  
|Term Loan A                                                      |  |                        | 62,500    |                  |   | 100,000  
|Term Loan B                                                      |  |                        | 225,000   |                  |   | 225,000  
|                                                                 |  |                        |           |                  |   |          
|                                                                 |  | $                      | 1,312,973 |                  | $ | 1,400,344
|                                                                 |  |                        |           |                  |   |          
|Senior subordinated notes payable consisted of the
following at: |  |                        |           |                  |   |          
|                                                                 |  | September 30,2008      |           | December 31,2007
|                                                                 |  | (Dollars in thousands)
|6% Convertible Senior Subordinated Notes due 2012                |  | $                      | 78,450    |                  | $ | 100,000  
|91/4% Senior
Subordinated Notes due 2012, net                    |  |                        | 70,243    |                  |   | 149,350  
|                                                                 |  |                        |           |                  |   |          
|                                                                 |  | $                      | 148,693   |                  | $ | 249,350  
|                                                                 |  |                        |           |                  |   |          



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The senior and senior subordinated notes outstanding (the Notes) generally contain certain
restrictive covenants, including a limitation on additional indebtedness and a limitation on restricted payments. Under the limitation on additional indebtedness, we are permitted to incur specified categories of indebtedness but are prohibited,
aside from those exceptions, from incurring further indebtedness if we do not satisfy either a leverage condition or an interest coverage condition. While, as of September 30, 2008, we satisfied the leverage condition, we may be unable to
satisfy this condition in the near term. As a result our ability to incur further indebtedness may be limited. Exceptions to this limitation include new borrowings of up to $550 million under bank credit facilities (including our revolving credit
facility), subject to available borrowing sources, and indebtedness incurred for the purpose of refinancing or repaying existing indebtedness. We believe that these exceptions and our homebuilding cash balance of $712 million at September 30,
2008, which includes cash held in unrestricted subsidiaries, provide us with substantial resources and alternatives to fund our short-term cash needs.

On May 22, 2008, we obtained the written consent of a majority of the holders of our 91/4% Senior Subordinated Notes due 2012 to modify certain provisions to be consistent with the analogous, less restrictive provisions
applicable to the Companys 73/4% Senior Notes due 2013. Among other things, the definitions of consolidated tangible net
worth and restricted investment, as well as the limitation on restricted payments, were amended.

In connection with the
Rights Offering, the conversion rate applicable to our 6% Convertible Senior Subordinated Notes due 2012 was increased to 119.5312 shares of our common stock per $1,000 principal amount of the notes (equivalent to a conversion price of $8.37). The
conversion rate prior to such adjustment was 114.2857 shares of our common stock per $1,000 principal amount of the notes (equivalent to an initial conversion price of $8.75 per share). The new conversion rate is subject to further adjustments as
provided in the indenture governing the notes.

During the nine months ended
September 30, 2008, in conjunction with the Investment Agreement, MatlinPatterson exchanged $128.5 million of senior and senior subordinated notes (consisting of $25.5 million of 51/8% Senior Notes due 2009, $2.0 million of 61/2%
Senior Notes due 2010, $21.6 million of 6% Senior Subordinated Convertible Notes due 2012 and $79.5 million of 91/4% Senior
Subordinated Notes due 2012) for the Warrant to purchase 272,670 shares of Series B Preferred Stock at a common stock equivalent exercise price of $4.10 per share. In connection with this exchange, we recognized a loss of $9.1 million during the
nine months ended September 30, 2008 related to the extinguishment of the debt which was included in other income (expense) in the accompanying condensed consolidated statements of operations. See Notes 2 and 16 for further discussion of the
Warrant.

During the nine months ended September 30, 2008,
we repurchased and simultaneously retired approximately $22.5 million of our 61/2% Senior Notes due 2008 through open market
purchases. As the notes were purchased at a discount to their par value, we recognized a $1.1 million gain from the early extinguishment of debt, which was included in other income (expense) in the accompanying condensed consolidated financial
statements. On October 1, 2008, the remaining $103.5 million balance was repaid in full in connection with the maturity of these notes.

We were in compliance with all covenants under our senior and senior subordinated public notes as of September 30, 2008.



|16. | Stockholders Equity
|--- | --------------------

a. Series B Preferred
Stock

The number of shares of common stock into which our Series B Preferred Stock is convertible is determined by dividing $1,000 by
the applicable conversion price (currently $3.05), subject to customary anti-dilution adjustments, plus cash in lieu of fractional shares. The Series B Preferred Stock ranks pari passu with our common stock and our Series A Preferred Stock
and junior to all of our other equity securities and has no liquidation preference over our common stock. The Series B Preferred Stock will be



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convertible at the holders option into shares of our common stock provided that no holder, with its affiliates, may beneficially own total voting power
of our voting stock in excess of 49%. The Series B Preferred Stock also mandatorily converts into our common stock upon its sale, transfer or other disposition by MatlinPatterson or its affiliates to an unaffiliated third party. The Series B
Preferred Stock votes together with our common stock on all matters upon which holders of our common stock are entitled to vote. Each share of Series B Preferred Stock is entitled to such number of votes as the number of shares of our common stock
into which such share of Series B Preferred Stock is convertible, provided that the aggregate votes attributable to such shares with respect to any holder of Series B Preferred Stock (including its affiliates) cannot exceed more than 49% of the
total voting power of the voting stock of the Company. Shares of Series B Preferred Stock are entitled to receive only those dividends declared and paid on the common stock.

b. Warrant

On June 27, 2008,
pursuant to the Investment Agreement, MatlinPatterson exchanged approximately $128.5 million principal amount of our outstanding senior and senior subordinated notes for the Warrant to purchase 272,670 shares of Senior Preferred Stock at a
common stock equivalent exercise price of $4.10 per share, which became exercisable for Series B Preferred Stock following the receipt of stockholder approval on August 18, 2008. The shares of Series B Preferred Stock issuable upon exercise of
the Warrant (assuming MatlinPatterson does not make a cashless exercise) will initially be convertible into 89.4 million shares of our common stock. The Warrant contains a mandatory exercise provision requiring exercise of 25%, 25% and 50% of
the shares subject to the Warrant if the following price hurdles for a share of our common stock are exceeded for twenty out of thirty consecutive trading days: $7.50, $9.00, and $10.50, respectively. We established the fair value of the Warrant
using a Monte Carlo simulation resulting in an aggregate fair value of $138.7 million.

c. Rights Offering

Pursuant to the Investment Agreement, we completed our Rights Offering for which approximately 27.2 million shares of common stock were exercised for
a total subscription price of $82.9 million. In addition, MatlinPatterson purchased from us (in the form of Series B Preferred Stock), 22.8 million of equivalent shares of common stock not purchased by our existing common stockholders in the
Rights Offering for a total subscription price of $69.6 million (see Note 2 for further discussion of the Rights Offering).



|17. | Derivative Instruments and Hedging Activities
|--- | ---------------------------------------------

We
account for derivatives and certain hedging activities in accordance with Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities as amended by Statement of Financial
Accounting Standards No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities, and Statement of Financial Accounting Standards No. 149, Amendment of Statement 133 on Derivative Instruments and
Hedging Activities (SFAS 133). SFAS 133 establishes the accounting and reporting standards requiring that every derivative instrument, including certain derivative instruments embedded in other contracts, be recorded as either
assets or liabilities in the consolidated balance sheets and to measure these instruments at fair market value. Gains or losses resulting from changes in the fair market value of derivatives are recognized in the consolidated statement of operations
or recorded in other comprehensive income (loss), net of tax, and recognized in the consolidated statement of operations when the hedged item affects earnings, depending on the purpose of the derivatives and whether the derivatives qualify for hedge
accounting treatment.

In May 2006, we entered into interest rate swap agreements that effectively fixed our 3-month LIBOR rates for our
term loans through their scheduled maturity dates. The swap agreements have been designated as cash flow hedges and, accordingly, are reflected at their fair market value in accrued liabilities in our condensed consolidated balance sheets. To the
extent the swaps are deemed effective and qualify for hedge accounting treatment, the related gain or loss is deferred, net of tax, in stockholders equity as accumulated



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other comprehensive income or loss. During 2007, we repaid $25 million of our Term Loan B which resulted in a portion of the interest rate swap being
ineffective, and as a result, we recorded approximately $382,000 and $224,000 of expense during the three and nine months ended September 30, 2008, respectively, to other income (expense). During the three and nine months ended
September 30, 2008, we repaid $2.5 million and $37.5 million, respectively, of our Term Loan A which resulted in the related interest rate swap being ineffective, and as a result, we recorded $1.5 million and $3.1 million of expense during the
three and nine months ended September 30, 2008, respectively, which had previously been included in other comprehensive income or loss. On September 8, 2008, we unwound $35 million and $25 million notional amounts of the Term Loan A and
Term Loan B interest rate swaps for approximately $2.5 million and $1.9 million, respectively. In addition, the notional amount of the Term Loan A swap will reduce by $2.5 million per quarter in tandem with the scheduled amortization of the Term
Loan A notes payable. The reduction in the notional amount of our Term Loan A swap agreement resulted in re-designating the original cash flow hedge and, accordingly, prospective gains or losses are recorded, net of tax, in stockholders equity
as accumulated other comprehensive income or loss.

The estimated fair value of the swaps at September 30, 2008 and December 31,
2007 represented liabilities of $17.8 million and $21.8 million, respectively, which were included in accrued liabilities in the accompanying condensed consolidated financial statements. For the three months ended September 30, 2008 and 2007,
we recorded after-tax other comprehensive losses of approximately $341,000 and $5.3 million, respectively, and for the nine months ended September 30, 2008 and 2007, we recorded an after-tax other comprehensive gain of $2.0 million and a loss
of $1.4 million, respectively, related to the swap agreements.

We also enter into fair value hedges for certain of our mortgage banking
activities, as discussed in Note 19.



|18. | Mortgage Credit Facilities
|--- | --------------------------

During the three
months ended September 30, 2008, our mortgage financing subsidiary utilized four mortgage credit facilities to fund its operations with commitments aggregating $148 million and with maturity dates ranging from January to June 2009. Two of
the mortgage credit facilities with an aggregate borrowing capacity totaling $80 million are uncommitted (meaning that the lender has discretion to refuse to fund requests) and require that Standard Pacific Mortgage maintain cash collateral
accounts aggregating $4.0 million. At September 30, 2008, we had approximately $65.1 million advanced under the four mortgage credit facilities and as of and for the three and nine months ended September 30, 2008, we were in
compliance with the financial and other covenants contained in these facilities, except that we did not satisfy the profitability covenant contained in the $60 million facility for the three month period ended September 30, 2008. On
October 7, 2008, we obtained a permanent waiver for this noncompliance.



|19. | Disclosures about Fair Value of Financial Instruments
|--- | -----------------------------------------------------

Effective January 1, 2008, we implemented the requirements of Statement of Accounting Standards No. 157, Fair Value Measurements (SFAS 157) for our financial assets and liabilities. In February 2008, the
Financial Accounting Standards Board (FASB) issued Staff Position 157-2 (FSP 157-2). FSP 157-2 permits delayed adoption of SFAS 157 for certain non-financial assets and liabilities, which are not recognized at fair value on a
recurring basis, until fiscal years and interim periods beginning after November 15, 2008. As permitted by FSP 157-2, the Company has elected to delay the adoption of SFAS 157 for qualifying non-financial assets and liabilities and is in the
process of evaluating the impact, if any, that the application of SFAS 157 to its non-financial assets will have on the Companys consolidated results of operations or financial position. SFAS 157 establishes a framework for measuring fair
value, expands disclosures regarding fair value measurements and defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
Further, SFAS 157 requires the Company to maximize the use of observable market inputs, minimize the use of unobservable market inputs and disclose in the form of an outlined hierarchy the details of such fair value measurements. SFAS 157
specifies a hierarchy of valuation techniques based on whether the inputs to a fair value measurement are considered to be observable or unobservable in a marketplace. The three levels of the hierarchy are as follows:



| |  |  | Level 1  quoted prices for identicalassets or liabilities in active markets;
| | - |  | -----------------------------------------------------------------------------



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| |  |  | Level 2  quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets
that are not active; and model-derived valuations in which significant inputs and significant value drivers are observable in active markets; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Level 3  valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------

The following assets and liabilities have been measured at fair value in accordance with SFAS 157 for the nine months
ended September 30, 2008:



|                             |  |                         |        |                                                           |   |                                           |  |                                        |        |  |   |  
|---------------------------- |  | ----------------------- | ------ | --------------------------------------------------------- | - | ----------------------------------------- |  | -------------------------------------- | ------ |  | - | -
|                             |  |                         |        | Fair Value Measurements at Reporting Date Using          
|Description                  |  | As ofSeptember 30, 2008 |        | Quoted Pricesin ActiveMarketsfor IdenticalAssets(Level 1) |   | SignificantOtherObservableInputs(Level 2) |  | SignificantUnobservableInputs(Level 3)
|                             |  | (Dollars in thousands) 
|Assets:                      |  |                         |        |                                                           |   |                                           |  |                                        |        |  |   |  
|Mortgage loans held for sale |  | $                       | 60,983 |                                                           | $ |                                          |  | $                                      | 60,983 |  | $ | 
|Liabilities:                 |  |                         |        |                                                           |   |                                           |  |                                        |        |  |   |  
|Interest rate swaps          |  | $                       | 17,779 |                                                           | $ |                                          |  | $                                      | 17,779 |  | $ | 

The following methods and assumptions were used to estimate the fair value of each class of
financial instrument:

Mortgage Loans Held for SaleThese consist of first mortgages on single-family residences which are
eligible for sale to Fannie Mae, Freddie Mac, FHA or VA. Fair values of these loans are based on quoted market prices for similar loans.

Interest Rate SwapsThe fair value of interest rate swap agreements is the estimated amount that we would receive or pay to terminate the swap agreements at the reporting date, based on quoted mid-market prices or pricing models
using current mid-market rates.



|20. | Commitments and Contingencies
|--- | -----------------------------

a. Land Purchase
and Option Agreements

We are subject to customary obligations associated with entering into land purchase or lot option contracts for
the purchase of land and improved homesites. These lot option and purchase contracts generally require a non-refundable cash deposit or delivery of a letter of credit, and the purchase of properties under these contracts is generally contingent upon
satisfaction of certain requirements by the sellers, including obtaining applicable property and development entitlements. We generally have the right at our discretion to terminate our obligations under both purchase contracts and option contracts
by forfeiting our cash deposit or by repaying amounts drawn under our letter of credit with no further financial responsibility to the land seller. Also, in a few instances where we have entered into option contracts with third party financial
entities, we have generally entered into construction agreements that do not terminate if we elect not to exercise our option. In these instances, we are generally obligated to complete land development improvements on the optioned property at a
predetermined cost (paid by the option provider) and are responsible for all cost overruns. In some instances, we may also expend funds for due diligence, development and construction activities with respect to these contracts prior to purchase,
which we would have to write off should we not purchase the land. At September 30, 2008, we had cash deposits and letters of credit outstanding of approximately $24.9 million and capitalized preacquisition and other development and construction
costs of approximately $15.2 million relating to land purchase and option contracts having



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a total remaining purchase price of approximately $261.5 million. Approximately $59.6 million of the remaining purchase price is included in inventories not
owned in the accompanying condensed consolidated balance sheets.

For the three months ended September 30, 2008 and 2007, we incurred
pretax charges (net of recoveries) of approximately $8.9 million and $6.5 million, respectively, related to the write-offs of option deposits and capitalized preacquisition costs for abandoned projects. For the nine months ended September 30,
2008 and 2007, we incurred pretax charges (net of recoveries) of approximately $17.1 million and $10.7 million, respectively, related to the write-offs of option deposits and capitalized preacquisition costs for abandoned projects. These charges
were included in other income (expense) in the accompanying condensed consolidated statements of operations. We continue to evaluate the terms of open land option and purchase contracts in light of slower housing market conditions and may write-off
additional option deposits and capitalized preacquisition costs in the future, particularly in those instances where land sellers or third party financial entities are unwilling to renegotiate significant contract terms.

b. Land Development and Homebuilding Joint Ventures

We enter into land development and homebuilding joint ventures from time to time.

These joint ventures
typically obtain secured acquisition, development and construction financing, which reduce the use of funds from our revolving credit facility and other corporate financing sources.

Our potential future obligations to our joint venture partners and joint venture lenders include:



| |  |  | capital calls related to credit enhancements
| | - |  | --------------------------------------------



| |  |  | planned and unplanned capital contributions
| | - |  | -------------------------------------------



| |  |  | capital calls related to surety indemnities
| | - |  | -------------------------------------------



| |  |  | buy-sell obligations
| | - |  | --------------------



| |  |  | land development and construction completion obligations
| | - |  | --------------------------------------------------------



| |  |  | land takedown obligations
| | - |  | -------------------------



| |  |  | capital calls related to environmental indemnities
| | - |  | --------------------------------------------------



| |  |  | joint venture exit costs, including loan payoffs
| | - |  | ------------------------------------------------

Credit Enhancements. We and our joint venture partners generally provide credit enhancements in connection with joint venture borrowings in the form of loan-to-value maintenance agreements, which require us to
repay the ventures borrowings to the extent such borrowings plus, in certain circumstances, construction completion costs, exceed a specified percentage of the value of the property securing the loan. Typically, we share these obligations with
our other partners, and in some instances, these obligations are subject to limitations on the amount that we could be required to pay down. At September 30, 2008, approximately $245.0 million of our unconsolidated joint venture borrowings were
subject to these credit enhancements by us (of which $16.6 million we would be solely responsible for and $228.4 million of which we would be jointly and severally responsible with our partners, either directly under the credit enhancement or
through contribution provisions in the applicable joint venture document).

During the nine months ended September 30, 2008, we made
$20.7 million of loan remargin payments related to two of our Southern California joint ventures and one Arizona joint venture (of which $4.2 million was paid during the 2008 third quarter).

Land Development and Construction Completion Agreements. We and our joint venture partners are generally obligated to the project lenders to
complete land development improvements and the construction of planned homes if the joint venture does not perform the required development and construction. Provided that we and the other joint venture partners are in compliance with these
completion obligations, the project lenders would be obligated to fund these improvements through any financing commitments available under the applicable joint venture development and construction loans, with any completion costs in excess of the
funding commitments being borne directly by us and our joint venture partners.



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Environmental Indemnities. We and our joint venture partners have from time to time provided
unsecured environmental indemnities to joint venture project lenders. In each case, we have performed due diligence on potential environmental risks. These indemnities obligate us and, in certain instances, our joint venture partners, to reimburse
the project lenders for claims related to environmental matters for which they are held responsible.

Surety Indemnities. We and our
joint venture partners have also agreed to indemnify third party surety providers with respect to performance bonds issued on behalf of certain of our joint ventures. If a joint venture does not perform its obligations, the surety bond could be
called. If these surety bonds are called and the joint venture fails to reimburse the surety, we and our joint venture partners would be obligated to indemnify the surety. These surety indemnity arrangements are generally joint and several
obligations with our joint venture partners. At September 30, 2008, our joint ventures had approximately $34.6 million of surety bonds outstanding subject to these indemnity arrangements by us and our partners.

c. Surety Bonds

We issue surety
bonds to third parties in the normal course of business to ensure completion of the infrastructure of our projects. At September 30, 2008, we had approximately $306.1 million in surety bonds outstanding from continuing operations (exclusive of
surety bonds related to our joint ventures) of which $135.2 million represents our estimated cost to complete.

d. Mortgage Loans and
Commitments

We commit to making mortgage loans to our homebuyers through our mortgage financing subsidiary, Standard Pacific Mortgage,
Inc. Mortgage loans in process for which interest rates were committed to borrowers totaled approximately $60.5 million at September 30, 2008 and carried a weighted average interest rate of approximately 5.9%. Interest rate risks related to
these obligations are generally mitigated by Standard Pacific Mortgage preselling the loans to third party investors or through its interest rate hedging program. As of September 30, 2008, Standard Pacific Mortgage had approximately $112.1
million of closed mortgage loans held for sale and mortgage loans in process which were or are expected to be originated on a non-presold basis, all of which were hedged by forward sale commitments of mortgage-backed securities. In addition, as of
September 30, 2008, Standard Pacific Mortgage held approximately $9.5 million in closed mortgage loans held for sale and mortgage loans in process which were presold to third party investors subject to completion of the investors
administrative review of the applicable loan documents.

Standard Pacific Mortgage sells substantially all of the loans it originates in
the secondary mortgage market, with servicing rights released on a non-recourse basis. This sale is subject to Standard Pacific Mortgages obligation to repay its gain on sale if the loan is prepaid by the borrower within a certain time period
following such sale, or to repurchase the loan if, among other things, the borrower defaults on the loan within a specified period following the sale, the purchasers underwriting guidelines are not met, or there is fraud in connection with the
loan.



|21. | Income Taxes
|--- | ------------

We account for income taxes in
accordance with Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes (SFAS 109). This statement requires an asset and a liability approach for measuring deferred taxes based on temporary
differences between the financial statement and tax bases of assets and liabilities existing at each balance sheet date using enacted tax rates for years in which taxes are expected to be paid or recovered.

We evaluate our deferred tax assets on a quarterly basis to determine whether a valuation allowance is required. In accordance with SFAS 109, we assess
whether a valuation allowance should be established based on our determination of whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets depends
primarily on: (i) our



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ability to carryback net operating losses to tax years where we have previously paid income taxes based on applicable federal law; and (ii) our ability
to generate future taxable income during the periods in which the related temporary differences become deductible. The assessment of a valuation allowance includes giving appropriate consideration to all positive and negative evidence related to the
realization of the deferred tax asset. This assessment considers, among other things, the nature, frequency and severity of current and cumulative losses, forecasts of future profitability, the duration of statutory carryforward periods, our
experience with operating loss and tax credit carryforwards not expiring unused, and tax planning alternatives. Significant judgment is required in determining the future tax consequences of events that have been recognized in our consolidated
financial statements and/or tax returns. Differences between anticipated and actual outcomes of these future tax consequences could have a material impact on our consolidated financial position or results of operations.

We generated significant deferred tax assets in 2006, 2007 and the first nine months of 2008 largely due to inventory, joint venture and goodwill
impairments incurred during those periods. As a result of the continued downturn in the housing market and the uncertainty as to its magnitude and length and the fact that we were in a cumulative loss position as described in SFAS 109 as of
September 30, 2008, we recorded a noncash valuation allowance of $348.7 million, net of the reversal of a portion of the deferred tax asset valuation allowance discussed below, against the net deferred tax assets created during the first nine
months of 2008 resulting in a total valuation allowance of $529.2 million at September 30, 2008. To the extent that we generate taxable income in the future to utilize the tax benefits of the related deferred tax assets, subject to certain
potential limitations, we will be able to reduce our effective tax rate by reducing the valuation allowance.

During the three months ended
September 30, 2008, we recognized an income tax benefit as a result of filing a $20.8 million refund claim related to our 2007 federal income tax return, which resulted in the reversal of a portion of the deferred tax asset valuation allowance,
and is included in homebuilding other assets in the accompanying condensed consolidated balance sheets.

We believe that an ownership
change under Internal Revenue Code Section 382 (Section 382) occurred as a result of closing the first phase of the MatlinPatterson transaction. Accordingly, we may be limited on the use of certain tax attributes that relate to
tax periods prior to the ownership change. As such, included in total valuation allowance of $529.2 million is a $39.8 million charge related to the potential Section 382 limitation on the Companys ability to carry 2008 tax losses back to
2006 for refund purposes. We are in the process of evaluating these potential carryback limitations, including soliciting a private ruling from the IRS, and to the extent successful, in subsequent quarters may result in the reversal of a portion of
the current valuation allowance.

Effective January 1, 2007, we adopted Financial Accounting Standards Board (FASB)
Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109, Accounting for Income Taxes (FIN 48). FIN 48 defines the methodology for recognizing the
benefits of tax return positions as well as guidance regarding the measurement of the resulting tax benefits. FIN 48 requires an enterprise to recognize the financial statement effects of a tax position when it is more likely than not (defined as a
likelihood of more than 50%), based on the technical merits, that the position will be sustained upon examination. In addition, FIN 48 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods,
disclosure, and transition. The evaluation of whether a tax position meets the more-likely-than-not recognition threshold requires a substantial degree of judgment by management based on the individual facts and circumstances. Actual results could
differ from estimates.

As of September 30, 2008, we remain subject to examination by certain tax jurisdictions for the tax years
ended December 31, 2003 through 2007. There were no significant changes in the accrued liability related to uncertain tax positions during the nine months ended September 30, 2008, nor do we anticipate significant changes during the next
12-month period.



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|22. | Discontinued Operations
|--- | -----------------------

During the fourth quarter
of 2007, we sold substantially all of the assets of our Tucson and San Antonio homebuilding divisions. We are actively selling our remaining inventory of homes in these markets and it is our intention to have substantially exited these markets
before the end of 2008. The results of operations of our Tucson and San Antonio divisions have been classified as discontinued operations in accordance with SFAS No. 144. In addition, assets and liabilities related to these discontinued
operations are presented separately on the consolidated balance sheets, and all prior periods have been reclassified to conform with current year presentation.

The following amounts related to the Tucson and San Antonio homebuilding divisions were derived from historical financial information and have been segregated from continuing operations and reported as discontinued
operations:



|                                             |  |                                 |        |   |                                |   |         |      |  |   |         |   |  |   |          |  
|-------------------------------------------- |  | ------------------------------- | ------ | - | ------------------------------ | - | ------- | ---- |  | - | ------- | - |  | - | -------- | -
|                                             |  | Three Months EndedSeptember 30, |        |   | Nine Months EndedSeptember 30, |  
|                                             |  | 2008                            |        |   | 2007                           |   |         | 2008 |  |   | 2007    |  
|                                             |  | (Dollars in thousands)          |       
|Home sale revenues                           |  | $                               | 2,468  |   |                                | $ | 23,980  |      |  | $ | 25,698  |   |  | $ | 92,350   |  
|Land sale revenues                           |  |                                 |       |   |                                |   | 8,311   |      |  |   | 694     |   |  |   | 21,104   |  
|                                             |  |                                 |        |   |                                |   |         |      |  |   |         |   |  |   |          |  
|Total revenues                               |  |                                 | 2,468  |   |                                |   | 32,291  |      |  |   | 26,392  |   |  |   | 113,454  |  
|                                             |  |                                 |        |   |                                |   |         |      |  |   |         |   |  |   |          |  
|Cost of home sales                           |  |                                 | (1,843 | ) |                                |   | (23,682 | )    |  |   | (21,354 | ) |  |   | (118,744 | )
|Cost of land sales                           |  |                                 |       |   |                                |   | (11,817 | )    |  |   | (751    | ) |  |   | (34,564  | )
|                                             |  |                                 |        |   |                                |   |         |      |  |   |         |   |  |   |          |  
|Total cost of sales                          |  |                                 | (1,843 | ) |                                |   | (35,499 | )    |  |   | (22,105 | ) |  |   | (153,308 | )
|                                             |  |                                 |        |   |                                |   |         |      |  |   |         |   |  |   |          |  
|Gross margin                                 |  |                                 | 625    |   |                                |   | (3,208  | )    |  |   | 4,287   |   |  |   | (39,854  | )
|                                             |  |                                 |        |   |                                |   |         |      |  |   |         |   |  |   |          |  
|Selling, general and administrative expenses |  |                                 | (954   | ) |                                |   | (5,838  | )    |  |   | (7,634  | ) |  |   | (18,594  | )
|Loss from unconsolidated joint ventures      |  |                                 |       |   |                                |   | (240    | )    |  |   |        |   |  |   | (365     | )
|Other income (expense)                       |  |                                 | 214    |   |                                |   | 70      |      |  |   | 195     |   |  |   | (11,690  | )
|                                             |  |                                 |        |   |                                |   |         |      |  |   |         |   |  |   |          |  
|Pretax loss                                  |  |                                 | (115   | ) |                                |   | (9,216  | )    |  |   | (3,152  | ) |  |   | (70,503  | )
|                                             |  |                                 |        |   |                                |   |         |      |  |   |         |   |  |   |          |  
|(Provision) benefit for income taxes         |  |                                 | 46     |   |                                |   | 3,292   |      |  |   | 1,147   |   |  |   | 24,929   |  
|                                             |  |                                 |        |   |                                |   |         |      |  |   |         |   |  |   |          |  
|Net loss from discontinued operations        |  | $                               | (69    | ) |                                | $ | (5,924  | )    |  | $ | (2,005  | ) |  | $ | (45,574  | )
|                                             |  |                                 |        |   |                                |   |         |      |  |   |         |   |  |   |          |  

During the three and nine months ended September 30, 2007, we recorded the following pretax
inventory impairment charges, land deposit write-offs and goodwill impairment charges related to our discontinued operations:



|                                                           |  |                                      |       |                                     |   |       
|---------------------------------------------------------- |  | ------------------------------------ | ----- | ----------------------------------- | - | ------
|                                                           |  | Three Months EndedSeptember 30, 2007 |       | Nine Months EndedSeptember 30, 2007
|                                                           |  | (Dollars in thousands)              
|Write-off of deposits and capitalized preacquisition costs |  | $                                    |      |                                     | $ | 524   
|Inventory impairments                                      |  |                                      | 7,239 |                                     |   | 55,389
|Joint venture impairments                                  |  |                                      | 201   |                                     |   | 201   
|Goodwill impairments                                       |  |                                      |      |                                     |   | 11,430
|                                                           |  |                                      |       |                                     |   |       
|Total impairments                                          |  | $                                    | 7,440 |                                     | $ | 67,544
|                                                           |  |                                      |       |                                     |   |       

We did not record any impairments related to our discontinued operations during the three or nine
months ended September 30, 2008.



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The following is a summary of the assets and liabilities of the Tucson and San Antonio divisions
discontinued operations. The amounts presented below were derived from historical financial information and adjusted to exclude intercompany receivables between the divisions, discontinued operations and the Company:



|                            |  |                        |       |                  |   |       
|--------------------------- |  | ---------------------- | ----- | ---------------- | - | ------
|                            |  | September 30,2008      |       | December 31,2007
|                            |  | (Dollars in thousands)
|Assets                      |  |                        |       |                  |   |       
|Cash and equivalents        |  | $                      | 8     |                  | $ | 7     
|Trade and other receivables |  |                        | 245   |                  |   | 1,959 
|Inventories-owned           |  |                        | 821   |                  |   | 16,542
|Other assets                |  |                        | 577   |                  |   | 1,219 
|                            |  |                        |       |                  |   |       
|Total Assets                |  | $                      | 1,651 |                  | $ | 19,727
|                            |  |                        |       |                  |   |       
|Liabilities                 |  |                        |       |                  |   |       
|Accounts payable            |  | $                      | 488   |                  | $ | 3,305 
|Accrued liabilities         |  |                        | 982   |                  |   | 1,916 
|                            |  |                        |       |                  |   |       
|Total Liabilities           |  | $                      | 1,470 |                  | $ | 5,221 
|                            |  |                        |       |                  |   |       



|23. | Recent Accounting Pronouncements
|--- | --------------------------------

In February 2007,
the FASB issued Statement of Financial Accounting Standards No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (SFAS 159), which includes amendments to FASB Statement No. 115,
Accounting for Certain Investments in Debt and Equity Securities. SFAS 159 permits entities to measure financial instruments and certain related items at their fair value at specified election dates. SFAS 159 is effective for financial
statements issued for fiscal years beginning after November 15, 2007. We have elected not to implement SFAS 159 as of January 1, 2008, however, we will continue to evaluate for possible future implementation for new financial instruments.

In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (SFAS 141R). SFAS 141R
broadens the guidance of SFAS 141, extending its applicability to all transactions and other events in which one entity obtains control over one or more other businesses. It broadens the fair value measurement and recognition of assets acquired,
liabilities assumed, and interests transferred as a result of business combinations. SFAS 141R expands on required disclosures to improve the statement users abilities to evaluate the nature and financial effects of business combinations. SFAS
141R is effective for our fiscal year beginning January 1, 2009. We do not believe adopting SFAS 141R will have a material impact on our financial condition or results of operations.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statementsan amendment of ARB
No. 51 (SFAS 160). SFAS 160 requires that a noncontrolling interest in a subsidiary be reported as equity and the amount of consolidated net income specifically attributable to the noncontrolling interest be identified in the
consolidated financial statements. It also calls for consistency in the manner of reporting changes in the parents ownership interest and requires fair value measurement of any noncontrolling equity investment retained in a deconsolidation.
SFAS 160 is effective for our fiscal year beginning January 1, 2009. Upon adoption on January 1, 2009, the amount remaining in minority interests will be classified as a separate component in stockholders equity. We do not believe
adopting SFAS 160 will have a material impact on our financial condition or results of operations.

In March 2008, the FASB issued SFAS
No. 161, Disclosures about Derivative Instruments and Hedging Activities (SFAS 161). SFAS 161 changes the disclosure requirements for derivative instruments and hedging activities accounted for under FASB issued SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS 133). Under SFAS 161, entities will be required to provide enhanced disclosures about (a) how and why an entity uses derivative
instruments, (b) how derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entitys financial
position, financial performance, and cash flows. SFAS 161 is effective for our fiscal year beginning January 1, 2009.



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In May 2008, the FASB issued APB No. 14-1, Accounting for Convertible Debt Instruments That
May Be Settled in Cash upon Conversion (Including Partial Cash Settlement) (FSP 14-1). This FSP would require bifurcation of a component of convertible debt instruments, classification of that component in stockholders
equity, and then accretion of the resulting discount on the debt to result in interest expense equal to the issuers nonconvertible debt borrowing rate. Early adoption is not permitted and retroactive application is required for all
periods presented. FSP 14-1 is effective for our fiscal year beginning January 1, 2009. Upon adoption on January 1, 2009, approximately $25 million of our Senior Subordinated Convertible Notes due in 2012 will be classified in
stockholders equity, and the remaining principal amount of the notes will be accreted to its redemption value, approximately $78.5 million, through interest expense over the remaining term of these notes.

On August 27, 2008, the SEC announced that it will issue for comment a proposed roadmap regarding the potential use of International Financial
Reporting Standards (IFRS) for the preparation of financial statements by U.S. registrants. IFRS are standards and interpretations adopted by the International Accounting Standards Board. Under the proposed roadmap, we anticipate that we
would be required to prepare financial statements in accordance with IFRS in fiscal year 2014, including comparative information also prepared under IFRS for fiscal years 2012 and 2013. We are currently assessing the potential impact of IFRS on our
financial statements and will continue to follow the proposed roadmap for future developments.



|24. | Supplemental Disclosures to Condensed Consolidated Statements of Cash Flows
|--- | ---------------------------------------------------------------------------

The following are supplemental disclosures to the condensed consolidated statements of cash flows:



|                                                                                                                              |  |                                 |         |      |   |        
|----------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------- | ------- | ---- | - | -------
|                                                                                                                              |  | Nine Months Ended September 30,
|                                                                                                                              |  | 2008                            |         | 2007
|                                                                                                                              |  | (Dollars in thousands)         
|Supplemental Disclosures of Cash Flow Information:                                                                            |  |                                 |         |      |   |        
|Cash paid during the period for:                                                                                              |  |                                 |         |      |   |        
|Interest                                                                                                                      |  | $                               | 100,813 |      | $ | 104,341
|Income taxes                                                                                                                  |  | $                               | 343     |      | $ | 13,899 
|Supplemental Disclosure of Noncash Activities:                                                                                |  |                                 |         |      |   |        
|Inventory received as distributions from unconsolidated homebuilding joint ventures                                           |  | $                               | 36,696  |      | $ | 45,711 
|Increase in inventory in connection with purchase or consolidation of joint ventures                                          |  | $                               | 51,731  |      | $ | 64,268 
|Increase in investments in and advances to joint ventures related to accrued joint venture loan-to-value remargin obligations |  | $                               |        |      | $ | 45,000 
|Senior and senior subordinated notes exchanged for the issuance of the Warrant                                                |  | $                               | 128,496 |      | $ |       
|Increase in trust deed notes payable in connection with purchase or consolidation of joint ventures                           |  | $                               | 47,663  |      | $ | 66,166 
|Reduction in seller trust deed note payable in connection with modification of purchase agreement                             |  | $                               |        |      | $ | 14,079 
|Changes in inventories not owned                                                                                              |  | $                               | 21,592  |      | $ | 64,084 
|Changes in liabilities from inventories not owned                                                                             |  | $                               | 5,300   |      | $ | 39,098 
|Changes in minority interests                                                                                                 |  | $                               | 16,292  |      | $ | 24,986 



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|25. | Supplemental Guarantor Information
|--- | ----------------------------------

Other than our
financial services subsidiary, title services subsidiary, and certain other subsidiaries (collectively, Non-Guarantor Subsidiaries), our 100% owned direct and indirect subsidiaries (Guarantor Subsidiaries) guarantee our
outstanding senior and senior subordinated public notes payable. The guarantees are full and unconditional and joint and several. Presented below are the condensed consolidated financial statements for our Guarantor Subsidiaries and Non-Guarantor
Subsidiaries.

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS



|                                                             |  |                                       |          |   |                       |   |          |                           |  |   |                          |   |                                   |   |         |  |   |          |  
|------------------------------------------------------------ |  | ------------------------------------- | -------- | - | --------------------- | - | -------- | ------------------------- |  | - | ------------------------ | - | --------------------------------- | - | ------- |  | - | -------- | -
|                                                             |  | Three Months Ended September 30, 2008 |         
|                                                             |  | StandardPacific Corp.                 |          |   | GuarantorSubsidiaries |   |          | Non-GuarantorSubsidiaries |  |   | ConsolidatingAdjustments |   | ConsolidatedStandardPacific Corp. |  
|                                                             |  | (Dollars in thousands)                |         
|Homebuilding:                                                |  |                                       |          |   |                       |   |          |                           |  |   |                          |   |                                   |   |         |  |   |          |  
|Revenues                                                     |  | $                                     | 183,717  |   |                       | $ | 216,579  |                           |  | $ | 44                       |   |                                   | $ |        |  | $ | 400,340  |  
|Cost of sales                                                |  |                                       | (294,648 | ) |                       |   | (287,835 | )                         |  |   | (24,429                  | ) |                                   |   |        |  |   | (606,912 | )
|                                                             |  |                                       |          |   |                       |   |          |                           |  |   |                          |   |                                   |   |         |  |   |          |  
|Gross margin                                                 |  |                                       | (110,931 | ) |                       |   | (71,256  | )                         |  |   | (24,385                  | ) |                                   |   |        |  |   | (206,572 | )
|                                                             |  |                                       |          |   |                       |   |          |                           |  |   |                          |   |                                   |   |         |  |   |          |  
|Selling, general and administrative expenses                 |  |                                       | (44,409  | ) |                       |   | (32,468  | )                         |  |   | (17                      | ) |                                   |   |        |  |   | (76,894  | )
|Loss from unconsolidated joint ventures                      |  |                                       | (37,654  | ) |                       |   | (44,705  | )                         |  |   | (9,578                   | ) |                                   |   |        |  |   | (91,937  | )
|Equity income (loss) of subsidiaries                         |  |                                       | (129,067 | ) |                       |   |         |                           |  |   |                         |   |                                   |   | 129,067 |  |   |         |  
|Interest expense                                             |  |                                       | (1,465   | ) |                       |   | (2,365   | )                         |  |   | (108                     | ) |                                   |   |        |  |   | (3,938   | )
|Other income (expense)                                       |  |                                       | (7,484   | ) |                       |   | (1,911   | )                         |  |   | 454                      |   |                                   |   |        |  |   | (8,941   | )
|                                                             |  |                                       |          |   |                       |   |          |                           |  |   |                          |   |                                   |   |         |  |   |          |  
|Homebuilding pretax income (loss)                            |  |                                       | (331,010 | ) |                       |   | (152,705 | )                         |  |   | (33,634                  | ) |                                   |   | 129,067 |  |   | (388,282 | )
|                                                             |  |                                       |          |   |                       |   |          |                           |  |   |                          |   |                                   |   |         |  |   |          |  
|Financial Services:                                          |  |                                       |          |   |                       |   |          |                           |  |   |                          |   |                                   |   |         |  |   |          |  
|Financial services pretax income (loss)                      |  |                                       | (15      | ) |                       |   | 300      |                           |  |   | (598                     | ) |                                   |   |        |  |   | (313     | )
|                                                             |  |                                       |          |   |                       |   |          |                           |  |   |                          |   |                                   |   |         |  |   |          |  
|Income (loss) from continuing operations before income taxes |  |                                       | (331,025 | ) |                       |   | (152,405 | )                         |  |   | (34,232                  | ) |                                   |   | 129,067 |  |   | (388,595 | )
|(Provision) benefit for income taxes                         |  |                                       | (37,799  | ) |                       |   | 54,082   |                           |  |   | 3,557                    |   |                                   |   |        |  |   | 19,840   |  
|                                                             |  |                                       |          |   |                       |   |          |                           |  |   |                          |   |                                   |   |         |  |   |          |  
|Income (loss) from continuing operations                     |  |                                       | (368,824 | ) |                       |   | (98,323  | )                         |  |   | (30,675                  | ) |                                   |   | 129,067 |  |   | (368,755 | )
|Loss from discontinued operations, net of income taxes       |  |                                       |         |   |                       |   | (69      | )                         |  |   |                         |   |                                   |   |        |  |   | (69      | )
|                                                             |  |                                       |          |   |                       |   |          |                           |  |   |                          |   |                                   |   |         |  |   |          |  
|Net income (loss)                                            |  | $                                     | (368,824 | ) |                       | $ | (98,392  | )                         |  | $ | (30,675                  | ) |                                   | $ | 129,067 |  | $ | (368,824 | )
|                                                             |  |                                       |          |   |                       |   |          |                           |  |   |                          |   |                                   |   |         |  |   |          |  
|                                                             | 
|                                                             |  | Three Months Ended September 30, 2007 |         
|                                                             |  | StandardPacific Corp.                 |          |   | GuarantorSubsidiaries |   |          | Non-GuarantorSubsidiaries |  |   | ConsolidatingAdjustments |   | ConsolidatedStandardPacific Corp. |  
|                                                             |  | (Dollars in thousands)                |         
|Homebuilding:                                                |  |                                       |          |   |                       |   |          |                           |  |   |                          |   |                                   |   |         |  |   |          |  
|Revenues                                                     |  | $                                     | 304,117  |   |                       | $ | 339,102  |                           |  | $ |                         |   |                                   | $ |        |  | $ | 643,219  |  
|Cost of sales                                                |  |                                       | (347,773 | ) |                       |   | (343,966 | )                         |  |   |                         |   |                                   |   |        |  |   | (691,739 | )
|                                                             |  |                                       |          |   |                       |   |          |                           |  |   |                          |   |                                   |   |         |  |   |          |  
|Gross margin                                                 |  |                                       | (43,656  | ) |                       |   | (4,864   | )                         |  |   |                         |   |                                   |   |        |  |   | (48,520  | )
|                                                             |  |                                       |          |   |                       |   |          |                           |  |   |                          |   |                                   |   |         |  |   |          |  
|Selling, general and administrative expenses                 |  |                                       | (47,541  | ) |                       |   | (46,080  | )                         |  |   |                         |   |                                   |   |        |  |   | (93,621  | )
|Income (loss) from unconsolidated joint ventures             |  |                                       | (39,254  | ) |                       |   | 795      |                           |  |   |                         |   |                                   |   |        |  |   | (38,459  | )
|Equity income (loss) of subsidiaries                         |  |                                       | (39,729  | ) |                       |   |         |                           |  |   |                         |   |                                   |   | 39,729  |  |   |         |  
|Other income (expense)                                       |  |                                       | (4,456   | ) |                       |   | 81       |                           |  |   |                         |   |                                   |   |        |  |   | (4,375   | )
|                                                             |  |                                       |          |   |                       |   |          |                           |  |   |                          |   |                                   |   |         |  |   |          |  
|Homebuilding pretax income (loss)                            |  |                                       | (174,636 | ) |                       |   | (50,068  | )                         |  |   |                         |   |                                   |   | 39,729  |  |   | (184,975 | )
|                                                             |  |                                       |          |   |                       |   |          |                           |  |   |                          |   |                                   |   |         |  |   |          |  
|Financial Services:                                          |  |                                       |          |   |                       |   |          |                           |  |   |                          |   |                                   |   |         |  |   |          |  
|Financial services pretax income (loss)                      |  |                                       | (195     | ) |                       |   | 403      |                           |  |   | (1,062                   | ) |                                   |   |        |  |   | (854     | )
|                                                             |  |                                       |          |   |                       |   |          |                           |  |   |                          |   |                                   |   |         |  |   |          |  
|Income (loss) from continuing operations before income taxes |  |                                       | (174,831 | ) |                       |   | (49,665  | )                         |  |   | (1,062                   | ) |                                   |   | 39,729  |  |   | (185,829 | )
|(Provision) benefit for income taxes                         |  |                                       | 55,165   |   |                       |   | 16,634   |                           |  |   | 288                      |   |                                   |   |        |  |   | 72,087   |  
|                                                             |  |                                       |          |   |                       |   |          |                           |  |   |                          |   |                                   |   |         |  |   |          |  
|Income (loss) from continuing operations                     |  |                                       | (119,666 | ) |                       |   | (33,031  | )                         |  |   | (774                     | ) |                                   |   | 39,729  |  |   | (113,742 | )
|Loss from discontinued operations, net of income taxes       |  |                                       |         |   |                       |   | (5,924   | )                         |  |   |                         |   |                                   |   |        |  |   | (5,924   | )
|                                                             |  |                                       |          |   |                       |   |          |                           |  |   |                          |   |                                   |   |         |  |   |          |  
|Net income (loss)                                            |  | $                                     | (119,666 | ) |                       | $ | (38,955  | )                         |  | $ | (774                     | ) |                                   | $ | 39,729  |  | $ | (119,666 | )
|                                                             |  |                                       |          |   |                       |   |          |                           |  |   |                          |   |                                   |   |         |  |   |          |  



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##### Table of Contents

|25. | Supplemental Guarantor Information (continued)
|--- | ----------------------------------------------

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS



|                                                             |  |                                      |          |   |                       |   |            |                           |  |   |                          |   |                                   |   |         |  |   |            |  
|------------------------------------------------------------ |  | ------------------------------------ | -------- | - | --------------------- | - | ---------- | ------------------------- |  | - | ------------------------ | - | --------------------------------- | - | ------- |  | - | ---------- | -
|                                                             |  | Nine Months Ended September 30, 2008 |         
|                                                             |  | StandardPacific Corp.                |          |   | GuarantorSubsidiaries |   |            | Non-GuarantorSubsidiaries |  |   | ConsolidatingAdjustments |   | ConsolidatedStandardPacific Corp. |  
|                                                             |  | (Dollars in thousands)               |         
|Homebuilding:                                                |  |                                      |          |   |                       |   |            |                           |  |   |                          |   |                                   |   |         |  |   |            |  
|Revenues                                                     |  | $                                    | 531,353  |   |                       | $ | 613,797    |                           |  | $ | 14,067                   |   |                                   | $ |        |  | $ | 1,159,217  |  
|Cost of sales                                                |  |                                      | (776,286 | ) |                       |   | (744,008   | )                         |  |   | (37,792                  | ) |                                   |   |        |  |   | (1,558,086 | )
|                                                             |  |                                      |          |   |                       |   |            |                           |  |   |                          |   |                                   |   |         |  |   |            |  
|Gross margin                                                 |  |                                      | (244,933 | ) |                       |   | (130,211   | )                         |  |   | (23,725                  | ) |                                   |   |        |  |   | (398,869   | )
|                                                             |  |                                      |          |   |                       |   |            |                           |  |   |                          |   |                                   |   |         |  |   |            |  
|Selling, general and administrative expenses                 |  |                                      | (133,490 | ) |                       |   | (101,149   | )                         |  |   | (834                     | ) |                                   |   |        |  |   | (235,473   | )
|Loss from unconsolidated joint ventures                      |  |                                      | (72,101  | ) |                       |   | (48,614    | )                         |  |   | (9,607                   | ) |                                   |   |        |  |   | (130,322   | )
|Equity income (loss) of subsidiaries                         |  |                                      | (222,679 | ) |                       |   |           |                           |  |   |                         |   |                                   |   | 222,679 |  |   |           |  
|Interest expense                                             |  |                                      | (1,465   | ) |                       |   | (2,365     | )                         |  |   | (108                     | ) |                                   |   |        |  |   | (3,938     | )
|Other income (expense)                                       |  |                                      | (17,063  | ) |                       |   | (5,149     | )                         |  |   | 728                      |   |                                   |   |        |  |   | (21,484    | )
|                                                             |  |                                      |          |   |                       |   |            |                           |  |   |                          |   |                                   |   |         |  |   |            |  
|Homebuilding pretax income (loss)                            |  |                                      | (691,731 | ) |                       |   | (287,488   | )                         |  |   | (33,546                  | ) |                                   |   | 222,679 |  |   | (790,086   | )
|                                                             |  |                                      |          |   |                       |   |            |                           |  |   |                          |   |                                   |   |         |  |   |            |  
|Financial Services:                                          |  |                                      |          |   |                       |   |            |                           |  |   |                          |   |                                   |   |         |  |   |            |  
|Financial services pretax income (loss)                      |  |                                      | (168     | ) |                       |   | 787        |                           |  |   | 2                        |   |                                   |   |        |  |   | 621        |  
|                                                             |  |                                      |          |   |                       |   |            |                           |  |   |                          |   |                                   |   |         |  |   |            |  
|Income (loss) from continuing operations before income taxes |  |                                      | (691,899 | ) |                       |   | (286,701   | )                         |  |   | (33,544                  | ) |                                   |   | 222,679 |  |   | (789,465   | )
|(Provision) benefit for income taxes                         |  |                                      | (141,601 | ) |                       |   | 96,059     |                           |  |   | 3,512                    |   |                                   |   |        |  |   | (42,030    | )
|                                                             |  |                                      |          |   |                       |   |            |                           |  |   |                          |   |                                   |   |         |  |   |            |  
|Income (loss) from continuing operations                     |  |                                      | (833,500 | ) |                       |   | (190,642   | )                         |  |   | (30,032                  | ) |                                   |   | 222,679 |  |   | (831,495   | )
|Loss from discontinued operations, net of income taxes       |  |                                      |         |   |                       |   | (2,005     | )                         |  |   |                         |   |                                   |   |        |  |   | (2,005     | )
|                                                             |  |                                      |          |   |                       |   |            |                           |  |   |                          |   |                                   |   |         |  |   |            |  
|Net income (loss)                                            |  | $                                    | (833,500 | ) |                       | $ | (192,647   | )                         |  | $ | (30,032                  | ) |                                   | $ | 222,679 |  | $ | (833,500   | )
|                                                             |  |                                      |          |   |                       |   |            |                           |  |   |                          |   |                                   |   |         |  |   |            |  
|                                                             | 
|                                                             |  | Nine Months Ended September 30, 2007 |         
|                                                             |  | StandardPacific Corp.                |          |   | GuarantorSubsidiaries |   |            | Non-GuarantorSubsidiaries |  |   | ConsolidatingAdjustments |   | ConsolidatedStandardPacific Corp. |  
|                                                             |  | (Dollars in thousands)               |         
|Homebuilding:                                                |  |                                      |          |   |                       |   |            |                           |  |   |                          |   |                                   |   |         |  |   |            |  
|Revenues                                                     |  | $                                    | 875,606  |   |                       | $ | 1,079,619  |                           |  | $ |                         |   |                                   | $ |        |  | $ | 1,955,225  |  
|Cost of sales                                                |  |                                      | (950,647 | ) |                       |   | (1,045,581 | )                         |  |   |                         |   |                                   |   |        |  |   | (1,996,228 | )
|                                                             |  |                                      |          |   |                       |   |            |                           |  |   |                          |   |                                   |   |         |  |   |            |  
|Gross margin                                                 |  |                                      | (75,041  | ) |                       |   | 34,038     |                           |  |   |                         |   |                                   |   |        |  |   | (41,003    | )
|                                                             |  |                                      |          |   |                       |   |            |                           |  |   |                          |   |                                   |   |         |  |   |            |  
|Selling, general and administrative expenses                 |  |                                      | (132,875 | ) |                       |   | (145,895   | )                         |  |   |                         |   |                                   |   |        |  |   | (278,770   | )
|Income (loss) from unconsolidated joint ventures             |  |                                      | (128,596 | ) |                       |   | 9,547      |                           |  |   |                         |   |                                   |   |        |  |   | (119,049   | )
|Equity income (loss) of subsidiaries                         |  |                                      | (124,430 | ) |                       |   |           |                           |  |   |                         |   |                                   |   | 124,430 |  |   |           |  
|Other income (expense)                                       |  |                                      | (3,185   | ) |                       |   | (19,193    | )                         |  |   |                         |   |                                   |   |        |  |   | (22,378    | )
|                                                             |  |                                      |          |   |                       |   |            |                           |  |   |                          |   |                                   |   |         |  |   |            |  
|Homebuilding pretax income (loss)                            |  |                                      | (464,127 | ) |                       |   | (121,503   | )                         |  |   |                         |   |                                   |   | 124,430 |  |   | (461,200   | )
|                                                             |  |                                      |          |   |                       |   |            |                           |  |   |                          |   |                                   |   |         |  |   |            |  
|Financial Services:                                          |  |                                      |          |   |                       |   |            |                           |  |   |                          |   |                                   |   |         |  |   |            |  
|Financial services pretax income (loss)                      |  |                                      | (646     | ) |                       |   | 1,281      |                           |  |   | 738                      |   |                                   |   |        |  |   | 1,373      |  
|                                                             |  |                                      |          |   |                       |   |            |                           |  |   |                          |   |                                   |   |         |  |   |            |  
|Income (loss) from continuing operations before income taxes |  |                                      | (464,773 | ) |                       |   | (120,222   | )                         |  |   | 738                      |   |                                   |   | 124,430 |  |   | (459,827   | )
|(Provision) benefit for income taxes                         |  |                                      | 138,397  |   |                       |   | 40,884     |                           |  |   | (256                     | ) |                                   |   |        |  |   | 179,025    |  
|                                                             |  |                                      |          |   |                       |   |            |                           |  |   |                          |   |                                   |   |         |  |   |            |  
|Income (loss) from continuing operations                     |  |                                      | (326,376 | ) |                       |   | (79,338    | )                         |  |   | 482                      |   |                                   |   | 124,430 |  |   | (280,802   | )
|Loss from discontinued operations, net of income taxes       |  |                                      |         |   |                       |   | (45,574    | )                         |  |   |                         |   |                                   |   |        |  |   | (45,574    | )
|                                                             |  |                                      |          |   |                       |   |            |                           |  |   |                          |   |                                   |   |         |  |   |            |  
|Net income (loss)                                            |  | $                                    | (326,376 | ) |                       | $ | (124,912   | )                         |  | $ | 482                      |   |                                   | $ | 124,430 |  | $ | (326,376   | )
|                                                             |  |                                      |          |   |                       |   |            |                           |  |   |                          |   |                                   |   |         |  |   |            |  



-28-



---

##### Table of Contents

|25. | Supplemental Guarantor Information (continued)
|--- | ----------------------------------------------

CONDENSED CONSOLIDATING BALANCE SHEET



|                                                             |  |                        |           |                       |   |                           |  |   |                          |   |  |                                   |            |   |  |   |          
|------------------------------------------------------------ |  | ---------------------- | --------- | --------------------- | - | ------------------------- |  | - | ------------------------ | - |  | --------------------------------- | ---------- | - |  | - | ---------
|                                                             |  | September 30, 2008    
|                                                             |  | StandardPacific Corp.  |           | GuarantorSubsidiaries |   | Non-GuarantorSubsidiaries |  |   | ConsolidatingAdjustments |   |  | ConsolidatedStandardPacific Corp.
|                                                             |  | (Dollars in thousands)
|ASSETS                                                       |  |                        |           |                       |   |                           |  |   |                          |   |  |                                   |            |   |  |   |          
|Homebuilding:                                                |  |                        |           |                       |   |                           |  |   |                          |   |  |                                   |            |   |  |   |          
|Cash and equivalents                                         |  | $                      | 179,524   |                       | $ | 576                       |  | $ | 531,853                  |   |  | $                                 |           |   |  | $ | 711,953  
|Trade and other receivables                                  |  |                        | 442,759   |                       |   | 11,544                    |  |   | 7,670                    |   |  |                                   | (426,245   | ) |  |   | 35,728   
|Inventories:                                                 |  |                        |           |                       |   |                           |  |   |                          |   |  |                                   |            |   |  |   |          
|Owned                                                        |  |                        | 541,604   |                       |   | 1,016,172                 |  |   | 68,622                   |   |  |                                   |           |   |  |   | 1,626,398
|Not owned                                                    |  |                        | 19,003    |                       |   | 59,520                    |  |   |                         |   |  |                                   |           |   |  |   | 78,523   
|Investments in and advances to unconsolidated joint ventures |  |                        | 46,493    |                       |   | 20,120                    |  |   | (7,095                   | ) |  |                                   |           |   |  |   | 59,518   
|Investments in subsidiaries                                  |  |                        | 1,194,696 |                       |   |                          |  |   |                         |   |  |                                   | (1,194,696 | ) |  |   |         
|Deferred income taxes                                        |  |                        | 7,042     |                       |   |                          |  |   |                         |   |  |                                   | 141        |   |  |   | 7,183    
|Goodwill and other intangibles                               |  |                        | 2,691     |                       |   | 32,831                    |  |   |                         |   |  |                                   |           |   |  |   | 35,522   
|Other assets                                                 |  |                        | 117,074   |                       |   | 7,588                     |  |   | 13                       |   |  |                                   | (370       | ) |  |   | 124,305  
|                                                             |  |                        |           |                       |   |                           |  |   |                          |   |  |                                   |            |   |  |   |          
|                                                             |  |                        | 2,550,886 |                       |   | 1,148,351                 |  |   | 601,063                  |   |  |                                   | (1,621,170 | ) |  |   | 2,679,130
|                                                             |  |                        |           |                       |   |                           |  |   |                          |   |  |                                   |            |   |  |   |          
|Financial Services:                                          |  |                        |           |                       |   |                           |  |   |                          |   |  |                                   |            |   |  |   |          
|Cash and equivalents                                         |  |                        |          |                       |   |                          |  |   | 9,197                    |   |  |                                   |           |   |  |   | 9,197    
|Mortgage loans held for sale                                 |  |                        |          |                       |   |                          |  |   | 60,983                   |   |  |                                   |           |   |  |   | 60,983   
|Mortgage loans held for investment                           |  |                        |          |                       |   |                          |  |   | 12,341                   |   |  |                                   |           |   |  |   | 12,341   
|Other assets                                                 |  |                        |          |                       |   |                          |  |   | 7,326                    |   |  |                                   | (141       | ) |  |   | 7,185    
|                                                             |  |                        |           |                       |   |                           |  |   |                          |   |  |                                   |            |   |  |   |          
|                                                             |  |                        |          |                       |   |                          |  |   | 89,847                   |   |  |                                   | (141       | ) |  |   | 89,706   
|Assets of discontinued operations                            |  |                        |          |                       |   | 1,651                     |  |   |                         |   |  |                                   |           |   |  |   | 1,651    
|                                                             |  |                        |           |                       |   |                           |  |   |                          |   |  |                                   |            |   |  |   |          
|Total Assets                                                 |  | $                      | 2,550,886 |                       | $ | 1,150,002                 |  | $ | 690,910                  |   |  | $                                 | (1,621,311 | ) |  | $ | 2,770,487
|                                                             |  |                        |           |                       |   |                           |  |   |                          |   |  |                                   |            |   |  |   |          
|LIABILITIES AND STOCKHOLDERS EQUITY                         |  |                        |           |                       |   |                           |  |   |                          |   |  |                                   |            |   |  |   |          
|Homebuilding:                                                |  |                        |           |                       |   |                           |  |   |                          |   |  |                                   |            |   |  |   |          
|Accounts payable                                             |  | $                      | 34,609    |                       | $ | 29,699                    |  | $ | 1,038                    |   |  | $                                 |           |   |  | $ | 65,346   
|Accrued liabilities                                          |  |                        | 174,666   |                       |   | 452,904                   |  |   | 495                      |   |  |                                   | (426,245   | ) |  |   | 201,820  
|Liabilities from inventories not owned                       |  |                        | 10,141    |                       |   | 27,566                    |  |   |                         |   |  |                                   |           |   |  |   | 37,707   
|Revolving credit facility                                    |  |                        | 52,500    |                       |   |                          |  |   |                         |   |  |                                   |           |   |  |   | 52,500   
|Trust deed and other notes payable                           |  |                        | 29,178    |                       |   | 42,364                    |  |   |                         |   |  |                                   |           |   |  |   | 71,542   
|Senior notes payable                                         |  |                        | 1,312,973 |                       |   |                          |  |   |                         |   |  |                                   |           |   |  |   | 1,312,973
|Senior subordinated notes payable                            |  |                        | 148,693   |                       |   |                          |  |   |                         |   |  |                                   |           |   |  |   | 148,693  
|                                                             |  |                        |           |                       |   |                           |  |   |                          |   |  |                                   |            |   |  |   |          
|                                                             |  |                        | 1,762,760 |                       |   | 552,533                   |  |   | 1,533                    |   |  |                                   | (426,245   | ) |  |   | 1,890,581
|                                                             |  |                        |           |                       |   |                           |  |   |                          |   |  |                                   |            |   |  |   |          
|Financial Services:                                          |  |                        |           |                       |   |                           |  |   |                          |   |  |                                   |            |   |  |   |          
|Accounts payable and other liabilities                       |  |                        |          |                       |   |                          |  |   | 3,661                    |   |  |                                   | (370       | ) |  |   | 3,291    
|Mortgage credit facilities                                   |  |                        |          |                       |   |                          |  |   | 65,110                   |   |  |                                   |           |   |  |   | 65,110   
|                                                             |  |                        |           |                       |   |                           |  |   |                          |   |  |                                   |            |   |  |   |          
|                                                             |  |                        |          |                       |   |                          |  |   | 68,771                   |   |  |                                   | (370       | ) |  |   | 68,401   
|                                                             |  |                        |           |                       |   |                           |  |   |                          |   |  |                                   |            |   |  |   |          
|Liabilities of discontinued operations                       |  |                        |          |                       |   | 1,470                     |  |   |                         |   |  |                                   |           |   |  |   | 1,470    
|                                                             |  |                        |           |                       |   |                           |  |   |                          |   |  |                                   |            |   |  |   |          
|Total Liabilities                                            |  |                        | 1,762,760 |                       |   | 554,003                   |  |   | 70,304                   |   |  |                                   | (426,615   | ) |  |   | 1,960,452
|                                                             |  |                        |           |                       |   |                           |  |   |                          |   |  |                                   |            |   |  |   |          
|Minority Interests                                           |  |                        |          |                       |   | 21,909                    |  |   |                         |   |  |                                   |           |   |  |   | 21,909   
|Stockholders Equity:                                        |  |                        |           |                       |   |                           |  |   |                          |   |  |                                   |            |   |  |   |          
|Total Stockholders Equity                                   |  |                        | 788,126   |                       |   | 574,090                   |  |   | 620,606                  |   |  |                                   | (1,194,696 | ) |  |   | 788,126  
|                                                             |  |                        |           |                       |   |                           |  |   |                          |   |  |                                   |            |   |  |   |          
|Total Liabilities and Stockholders Equity                   |  | $                      | 2,550,886 |                       | $ | 1,150,002                 |  | $ | 690,910                  |   |  | $                                 | (1,621,311 | ) |  | $ | 2,770,487
|                                                             |  |                        |           |                       |   |                           |  |   |                          |   |  |                                   |            |   |  |   |          



-29-



---

##### Table of Contents

|25. | Supplemental Guarantor Information (continued)
|--- | ----------------------------------------------

CONDENSED CONSOLIDATING BALANCE SHEET



|                                                             |  |                        |           |                       |   |                           |  |                          |         |  |                                   |            |   |  |   |          
|------------------------------------------------------------ |  | ---------------------- | --------- | --------------------- | - | ------------------------- |  | ------------------------ | ------- |  | --------------------------------- | ---------- | - |  | - | ---------
|                                                             |  | December 31, 2007     
|                                                             |  | StandardPacific Corp.  |           | GuarantorSubsidiaries |   | Non-GuarantorSubsidiaries |  | ConsolidatingAdjustments |         |  | ConsolidatedStandardPacific Corp.
|                                                             |  | (Dollars in thousands)
|ASSETS                                                       |  |                        |           |                       |   |                           |  |                          |         |  |                                   |            |   |  |   |          
|Homebuilding:                                                |  |                        |           |                       |   |                           |  |                          |         |  |                                   |            |  
|Cash and equivalents                                         |  | $                      | 218,129   |                       | $ | 756                       |  | $                        | 256     |  | $                                 |           |   |  | $ | 219,141  
|Trade and other receivables                                  |  |                        | 430,716   |                       |   | 7,164                     |  |                          | 5,835   |  |                                   | (415,116   | ) |  |   | 28,599   
|Inventories:                                                 |  |                        |           |                       |   |                           |  |                          |         |  |                                   |            |   |  |   |          
|Owned                                                        |  |                        | 935,401   |                       |   | 992,526                   |  |                          | 131,308 |  |                                   |           |   |  |   | 2,059,235
|Not owned                                                    |  |                        | 23,972    |                       |   | 85,785                    |  |                          |        |  |                                   |           |   |  |   | 109,757  
|Investments in and advances to unconsolidated joint ventures |  |                        | 171,340   |                       |   | 122,627                   |  |                          |        |  |                                   |           |   |  |   | 293,967  
|Investments in subsidiaries                                  |  |                        | 863,383   |                       |   |                          |  |                          |        |  |                                   | (863,383   | ) |  |   |         
|Deferred income taxes                                        |  |                        | 142,721   |                       |   |                          |  |                          |        |  |                                   | 1,274      |   |  |   | 143,995  
|Goodwill and other intangibles                               |  |                        | 2,691     |                       |   | 32,906                    |  |                          |        |  |                                   |           |   |  |   | 35,597   
|Other assets                                                 |  |                        | 292,893   |                       |   | 8,988                     |  |                          | 13      |  |                                   | (1,759     | ) |  |   | 300,135  
|                                                             |  |                        |           |                       |   |                           |  |                          |         |  |                                   |            |   |  |   |          
|                                                             |  |                        | 3,081,246 |                       |   | 1,250,752                 |  |                          | 137,412 |  |                                   | (1,278,984 | ) |  |   | 3,190,426
|                                                             |  |                        |           |                       |   |                           |  |                          |         |  |                                   |            |   |  |   |          
|Financial Services:                                          |  |                        |           |                       |   |                           |  |                          |         |  |                                   |            |   |  |   |          
|Cash and equivalents                                         |  |                        |          |                       |   |                          |  |                          | 12,413  |  |                                   |           |   |  |   | 12,413   
|Mortgage loans held for sale                                 |  |                        |          |                       |   |                          |  |                          | 155,340 |  |                                   |           |   |  |   | 155,340  
|Mortgage loans held for investment                           |  |                        |          |                       |   |                          |  |                          | 10,973  |  |                                   |           |   |  |   | 10,973   
|Other assets                                                 |  |                        |          |                       |   |                          |  |                          | 13,121  |  |                                   | (1,274     | ) |  |   | 11,847   
|                                                             |  |                        |           |                       |   |                           |  |                          |         |  |                                   |            |   |  |   |          
|                                                             |  |                        |          |                       |   |                          |  |                          | 191,847 |  |                                   | (1,274     | ) |  |   | 190,573  
|Assets of discontinued operations                            |  |                        |          |                       |   | 19,727                    |  |                          |        |  |                                   |           |   |  |   | 19,727   
|                                                             |  |                        |           |                       |   |                           |  |                          |         |  |                                   |            |   |  |   |          
|Total Assets                                                 |  | $                      | 3,081,246 |                       | $ | 1,270,479                 |  | $                        | 329,259 |  | $                                 | (1,280,258 | ) |  | $ | 3,400,726
|                                                             |  |                        |           |                       |   |                           |  |                          |         |  |                                   |            |   |  |   |          
|LIABILITIES AND STOCKHOLDERS EQUITY                         |  |                        |           |                       |   |                           |  |                          |         |  |                                   |            |   |  |   |          
|Homebuilding:                                                |  |                        |           |                       |   |                           |  |                          |         |  |                                   |            |   |  |   |          
|Accounts payable                                             |  | $                      | 60,445    |                       | $ | 33,711                    |  | $                        | 1,034   |  | $                                 |           |   |  | $ | 95,190   
|Accrued liabilities                                          |  |                        | 242,696   |                       |   | 451,969                   |  |                          | 964     |  |                                   | (415,116   | ) |  |   | 280,513  
|Liabilities from inventories not owned                       |  |                        | 12,253    |                       |   | 30,754                    |  |                          |        |  |                                   |           |   |  |   | 43,007   
|Revolving credit facility                                    |  |                        | 90,000    |                       |   |                          |  |                          |        |  |                                   |           |   |  |   | 90,000   
|Trust deed and other notes payable                           |  |                        | 29,867    |                       |   | 4,847                     |  |                          |        |  |                                   |           |   |  |   | 34,714   
|Senior notes payable                                         |  |                        | 1,400,344 |                       |   |                          |  |                          |        |  |                                   |           |   |  |   | 1,400,344
|Senior subordinated notes payable                            |  |                        | 249,350   |                       |   |                          |  |                          |        |  |                                   |           |   |  |   | 249,350  
|                                                             |  |                        |           |                       |   |                           |  |                          |         |  |                                   |            |   |  |   |          
|                                                             |  |                        | 2,084,955 |                       |   | 521,281                   |  |                          | 1,998   |  |                                   | (415,116   | ) |  |   | 2,193,118
|                                                             |  |                        |           |                       |   |                           |  |                          |         |  |                                   |            |   |  |   |          
|Financial Services:                                          |  |                        |           |                       |   |                           |  |                          |         |  |                                   |            |   |  |   |          
|Accounts payable and other liabilities                       |  |                        |          |                       |   |                          |  |                          | 6,445   |  |                                   | (1,422     | ) |  |   | 5,023    
|Mortgage credit facilities                                   |  |                        |          |                       |   |                          |  |                          | 164,509 |  |                                   | (337       | ) |  |   | 164,172  
|                                                             |  |                        |           |                       |   |                           |  |                          |         |  |                                   |            |   |  |   |          
|                                                             |  |                        |          |                       |   |                          |  |                          | 170,954 |  |                                   | (1,759     | ) |  |   | 169,195  
|                                                             |  |                        |           |                       |   |                           |  |                          |         |  |                                   |            |   |  |   |          
|Liabilities of discontinued operations                       |  |                        |          |                       |   | 5,221                     |  |                          |        |  |                                   |           |   |  |   | 5,221    
|                                                             |  |                        |           |                       |   |                           |  |                          |         |  |                                   |            |   |  |   |          
|Total Liabilities                                            |  |                        | 2,084,955 |                       |   | 526,502                   |  |                          | 172,952 |  |                                   | (416,875   | ) |  |   | 2,367,534
|                                                             |  |                        |           |                       |   |                           |  |                          |         |  |                                   |            |   |  |   |          
|Minority Interests                                           |  |                        | 1,300     |                       |   | 36,901                    |  |                          |        |  |                                   |           |   |  |   | 38,201   
|Stockholders Equity:                                        |  |                        |           |                       |   |                           |  |                          |         |  |                                   |            |   |  |   |          
|Total Stockholders Equity                                   |  |                        | 994,991   |                       |   | 707,076                   |  |                          | 156,307 |  |                                   | (863,383   | ) |  |   | 994,991  
|                                                             |  |                        |           |                       |   |                           |  |                          |         |  |                                   |            |   |  |   |          
|Total Liabilities and Stockholders Equity                   |  | $                      | 3,081,246 |                       | $ | 1,270,479                 |  | $                        | 329,259 |  | $                                 | (1,280,258 | ) |  | $ | 3,400,726
|                                                             |  |                        |           |                       |   |                           |  |                          |         |  |                                   |            |   |  |   |          



-30-



---

##### Table of Contents

|25. | Supplemental Guarantor Information (continued)
|--- | ----------------------------------------------

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS



|                                                                                                 |  |                                      |          |   |                       |   |         |                           |  |   |                          |   |  |                                   |      |   |  |   |         |  
|------------------------------------------------------------------------------------------------ |  | ------------------------------------ | -------- | - | --------------------- | - | ------- | ------------------------- |  | - | ------------------------ | - |  | --------------------------------- | ---- | - |  | - | ------- | -
|                                                                                                 |  | Nine Months Ended September 30, 2008 |         
|                                                                                                 |  | StandardPacific Corp.                |          |   | GuarantorSubsidiaries |   |         | Non-GuarantorSubsidiaries |  |   | ConsolidatingAdjustments |   |  | ConsolidatedStandardPacific Corp. |     
|                                                                                                 |  | (Dollars in thousands)               |         
|Cash Flows From Operating Activities:                                                            |  |                                      |          |   |                       |   |         |                           |  |   |                          |   |  |                                   |      |   |  |   |         |  
|Net cash provided by (used in) operating activities                                              |  | $                                    | 82,511   |   |                       | $ | (17,485 | )                         |  | $ | 133,274                  |   |  | $                                 | (337 | ) |  | $ | 197,963 |  
|                                                                                                 |  |                                      |          |   |                       |   |         |                           |  |   |                          |   |  |                                   |      |   |  |   |         |  
|Cash Flows From Investing Activities:                                                            |  |                                      |          |   |                       |   |         |                           |  |   |                          |   |  |                                   |      |   |  |   |         |  
|Investments in and advances to unconsolidated homebuilding joint ventures                        |  |                                      | (27,285  | ) |                       |   | (36,819 | )                         |  |   | (13,598                  | ) |  |                                   |     |   |  |   | (77,702 | )
|Capital distributions and repayments of advances from unconsolidated homebuilding joint ventures |  |                                      | 53,920   |   |                       |   | 16,658  |                           |  |   | 26,267                   |   |  |                                   |     |   |  |   | 96,845  |  
|Other investing activities                                                                       |  |                                      | (1,265   | ) |                       |   | (50     | )                         |  |   | (1,408                   | ) |  |                                   |     |   |  |   | (2,723  | )
|                                                                                                 |  |                                      |          |   |                       |   |         |                           |  |   |                          |   |  |                                   |      |   |  |   |         |  
|Net cash provided by (used in) investing activities                                              |  |                                      | 25,370   |   |                       |   | (20,211 | )                         |  |   | 11,261                   |   |  |                                   |     |   |  |   | 16,420  |  
|                                                                                                 |  |                                      |          |   |                       |   |         |                           |  |   |                          |   |  |                                   |      |   |  |   |         |  
|Cash Flows From Financing Activities:                                                            |  |                                      |          |   |                       |   |         |                           |  |   |                          |   |  |                                   |      |   |  |   |         |  
|Net proceeds from (payments on) revolving credit facility                                        |  |                                      | (37,500  | ) |                       |   |        |                           |  |   |                         |   |  |                                   |     |   |  |   | (37,500 | )
|Principal payments on trust deed and other notes payable                                         |  |                                      | (2,000   | ) |                       |   | 37,517  |                           |  |   | (47,663                  | ) |  |                                   |     |   |  |   | (12,146 | )
|Principal payments on senior notes payable                                                       |  |                                      | (58,875  | ) |                       |   |        |                           |  |   |                         |   |  |                                   |     |   |  |   | (58,875 | )
|Net proceeds from (payments on) mortgage credit facilities                                       |  |                                      |         |   |                       |   |        |                           |  |   | (99,399                  | ) |  |                                   | 337  |   |  |   | (99,062 | )
|Repurchases of common stock                                                                      |  |                                      | (726     | ) |                       |   |        |                           |  |   |                         |   |  |                                   |     |   |  |   | (726    | )
|Distributions from (contributions to) corporate and subsidiaries                                 |  |                                      | (530,908 | ) |                       |   |        |                           |  |   | 530,908                  |   |  |                                   |     |   |  |   |        |  
|Net proceeds from the issuance of Senior Preferred Stock and the issuance of Warrant             |  |                                      | 339,171  |   |                       |   |        |                           |  |   |                         |   |  |                                   |     |   |  |   | 339,171 |  
|Net proceeds from the issuance of Junior Preferred Stock                                         |  |                                      | 65,422   |   |                       |   |        |                           |  |   |                         |   |  |                                   |     |   |  |   | 65,422  |  
|Net proceeds from the issuance of common stock and common stock under share lending agreement    |  |                                      | 78,930   |   |                       |   |        |                           |  |   |                         |   |  |                                   |     |   |  |   | 78,930  |  
|                                                                                                 |  |                                      |          |   |                       |   |         |                           |  |   |                          |   |  |                                   |      |   |  |   |         |  
|Net cash provided by (used in) financing activities                                              |  |                                      | (146,486 | ) |                       |   | 37,517  |                           |  |   | 383,846                  |   |  |                                   | 337  |   |  |   | 275,214 |  
|                                                                                                 |  |                                      |          |   |                       |   |         |                           |  |   |                          |   |  |                                   |      |   |  |   |         |  
|Net increase (decrease) in cash and equivalents                                                  |  |                                      | (38,605  | ) |                       |   | (179    | )                         |  |   | 528,381                  |   |  |                                   |     |   |  |   | 489,597 |  
|Cash and equivalents at beginning of period                                                      |  |                                      | 218,129  |   |                       |   | 763     |                           |  |   | 12,669                   |   |  |                                   |     |   |  |   | 231,561 |  
|                                                                                                 |  |                                      |          |   |                       |   |         |                           |  |   |                          |   |  |                                   |      |   |  |   |         |  
|Cash and equivalents at end of period                                                            |  | $                                    | 179,524  |   |                       | $ | 584     |                           |  | $ | 541,050                  |   |  | $                                 |     |   |  | $ | 721,158 |  
|                                                                                                 |  |                                      |          |   |                       |   |         |                           |  |   |                          |   |  |                                   |      |   |  |   |         |  



|                                                                                                 |  |                                      |          |   |                       |   |         |                           |  |   |                          |   |  |                                   |         |   |  |   |          |  
|------------------------------------------------------------------------------------------------ |  | ------------------------------------ | -------- | - | --------------------- | - | ------- | ------------------------- |  | - | ------------------------ | - |  | --------------------------------- | ------- | - |  | - | -------- | -
|                                                                                                 |  | Nine Months Ended September 30, 2007 |         
|                                                                                                 |  | StandardPacific Corp.                |          |   | GuarantorSubsidiaries |   |         | Non-GuarantorSubsidiaries |  |   | ConsolidatingAdjustments |   |  | ConsolidatedStandardPacific Corp. |        
|                                                                                                 |  | (Dollars in thousands)               |         
|Cash Flows From Operating Activities:                                                            |  |                                      |          |   |                       |   |         |                           |  |   |                          |   |  |                                   |         |   |  |   |          |  
|Net cash provided by (used in) operating activities                                              |  | $                                    | 85,056   |   |                       | $ | 36,565  |                           |  | $ | 173,819                  |   |  | $                                 | 12,135  |   |  | $ | 307,575  |  
|                                                                                                 |  |                                      |          |   |                       |   |         |                           |  |   |                          |   |  |                                   |         |   |  |   |          |  
|Cash Flows From Investing Activities:                                                            |  |                                      |          |   |                       |   |         |                           |  |   |                          |   |  |                                   |         |   |  |   |          |  
|Investments in and advances to unconsolidated homebuilding joint ventures                        |  |                                      | (167,104 | ) |                       |   | (43,536 | )                         |  |   |                         |   |  |                                   |        |   |  |   | (210,640 | )
|Capital distributions and repayments of advances from unconsolidated homebuilding joint ventures |  |                                      | 54,157   |   |                       |   | 11,344  |                           |  |   |                         |   |  |                                   |        |   |  |   | 65,501   |  
|Other investing activities                                                                       |  |                                      | (4,022   | ) |                       |   | (1,520  | )                         |  |   | (7,422                   | ) |  |                                   |        |   |  |   | (12,964  | )
|                                                                                                 |  |                                      |          |   |                       |   |         |                           |  |   |                          |   |  |                                   |         |   |  |   |          |  
|Net cash provided by (used in) investing activities                                              |  |                                      | (116,969 | ) |                       |   | (33,712 | )                         |  |   | (7,422                   | ) |  |                                   |        |   |  |   | (158,103 | )
|                                                                                                 |  |                                      |          |   |                       |   |         |                           |  |   |                          |   |  |                                   |         |   |  |   |          |  
|Cash Flows From Financing Activities:                                                            |  |                                      |          |   |                       |   |         |                           |  |   |                          |   |  |                                   |         |   |  |   |          |  
|Net proceeds from (payments on) revolving credit facility                                        |  |                                      | (36,000  | ) |                       |   |        |                           |  |   |                         |   |  |                                   |        |   |  |   | (36,000  | )
|Principal payments on senior notes payable                                                       |  |                                      | (25,000  | ) |                       |   |        |                           |  |   |                         |   |  |                                   |        |   |  |   | (25,000  | )
|Net proceeds from (payments on) mortgage credit facilities                                       |  |                                      |         |   |                       |   |        |                           |  |   | (155,609                 | ) |  |                                   | (12,135 | ) |  |   | (167,744 | )
|Proceeds from the issuance of senior subordinated convertible notes                              |  |                                      | 97,000   |   |                       |   |        |                           |  |   |                         |   |  |                                   |        |   |  |   | 97,000   |  
|Other financing activities                                                                       |  |                                      | (19,947  | ) |                       |   | (2,977  | )                         |  |   |                         |   |  |                                   |        |   |  |   | (22,924  | )
|                                                                                                 |  |                                      |          |   |                       |   |         |                           |  |   |                          |   |  |                                   |         |   |  |   |          |  
|Net cash provided by (used in) financing activities                                              |  |                                      | 16,053   |   |                       |   | (2,977  | )                         |  |   | (155,609                 | ) |  |                                   | (12,135 | ) |  |   | (154,668 | )
|                                                                                                 |  |                                      |          |   |                       |   |         |                           |  |   |                          |   |  |                                   |         |   |  |   |          |  
|Net increase (decrease) in cash and equivalents                                                  |  |                                      | (15,860  | ) |                       |   | (124    | )                         |  |   | 10,788                   |   |  |                                   |        |   |  |   | (5,196   | )
|Cash and equivalents at beginning of period                                                      |  |                                      | 16,349   |   |                       |   | 1,020   |                           |  |   | 14,734                   |   |  |                                   |        |   |  |   | 32,103   |  
|                                                                                                 |  |                                      |          |   |                       |   |         |                           |  |   |                          |   |  |                                   |         |   |  |   |          |  
|Cash and equivalents at end of period                                                            |  | $                                    | 489      |   |                       | $ | 896     |                           |  | $ | 25,522                   |   |  | $                                 |        |   |  | $ | 26,907   |  
|                                                                                                 |  |                                      |          |   |                       |   |         |                           |  |   |                          |   |  |                                   |         |   |  |   |          |  



-31-



---

##### Table of Contents

|ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- | -------------------------------------------------------------------------------------

Critical Accounting Policies

The preparation of our condensed consolidated financial
statements requires us to make estimates and judgments that affect the reported amounts of our assets, liabilities, revenues and expenses, and the related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our
estimates and judgments, including those that impact our most critical accounting policies. We base our estimates and judgments on historical experience and various other assumptions that are believed to be reasonable under the circumstances. Actual
results may differ from these estimates under different assumptions or conditions. We believe that the accounting policies related to the following accounts or activities are those that are most critical to the portrayal of our financial condition
and results of operations and require the more significant judgments and estimates:



| |  |  | Segment reporting;
| | - |  | ------------------



| |  |  | Inventories and impairments;
| | - |  | ----------------------------



| |  |  | Cost of sales;
| | - |  | --------------



| |  |  | Variable interest entities;
| | - |  | ---------------------------



| |  |  | Limited partnerships and limited liability companies;
| | - |  | -----------------------------------------------------



| |  |  | Unconsolidated homebuilding and land development joint ventures;
| | - |  | ----------------------------------------------------------------



| |  |  | Business combinations and goodwill;
| | - |  | -----------------------------------



| |  |  | Warranty accruals;
| | - |  | ------------------



| |  |  | Insurance and litigation accruals; and
| | - |  | --------------------------------------



| |  |  | Income taxes.
| | - |  | -------------

For a more detailed
description of these critical accounting policies, refer to Item 7, Managements Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the year ended December 31,
2007.



-32-



---

##### Table of Contents

Results of Operations

Selected Financial Information

(Unaudited)



|                                                       |  |                                                  |             |   |                                 |   |            |          |  |       |      |  |   |            |   |  |          |            |   |  |       |  
|------------------------------------------------------ |  | ------------------------------------------------ | ----------- | - | ------------------------------- | - | ---------- | -------- |  | ----- | ---- |  | - | ---------- | - |  | -------- | ---------- | - |  | ----- | -
|                                                       |  | Three Months Ended September 30,                 |             |   | Nine Months Ended September 30, |  
|                                                       |  | 2008                                             |             |   | 2007                            |   |            | % Change |  |       | 2008 |  |   | 2007       |   |  | % Change |           
|                                                       |  | (Dollars in thousands, except per share amounts) |            
|Homebuilding:                                          |  |                                                  |             |   |                                 |   |            |          |  |       |      |  |   |            |   |  |          |            |   |  |       |  
|Home sale revenues                                     |  | $                                                | 394,942     |   |                                 | $ | 594,266    |          |  | (34%  | )    |  | $ | 1,145,608  |   |  | $        | 1,782,673  |   |  | (36%  | )
|Land sale revenues                                     |  |                                                  | 5,398       |   |                                 |   | 48,953     |          |  | (89%  | )    |  |   | 13,609     |   |  |          | 172,552    |   |  | (92%  | )
|                                                       |  |                                                  |             |   |                                 |   |            |          |  |       |      |  |   |            |   |  |          |            |   |  |       |  
|Total revenues                                         |  |                                                  | 400,340     |   |                                 |   | 643,219    |          |  | (38%  | )    |  |   | 1,159,217  |   |  |          | 1,955,225  |   |  | (41%  | )
|                                                       |  |                                                  |             |   |                                 |   |            |          |  |       |      |  |   |            |   |  |          |            |   |  |       |  
|Cost of home sales                                     |  |                                                  | (547,537    | ) |                                 |   | (589,219   | )        |  | (7%   | )    |  |   | (1,460,382 | ) |  |          | (1,715,486 | ) |  | (15%  | )
|Cost of land sales                                     |  |                                                  | (59,375     | ) |                                 |   | (102,520   | )        |  | (42%  | )    |  |   | (97,704    | ) |  |          | (280,742   | ) |  | (65%  | )
|                                                       |  |                                                  |             |   |                                 |   |            |          |  |       |      |  |   |            |   |  |          |            |   |  |       |  
|Total cost of sales                                    |  |                                                  | (606,912    | ) |                                 |   | (691,739   | )        |  | (12%  | )    |  |   | (1,558,086 | ) |  |          | (1,996,228 | ) |  | (22%  | )
|                                                       |  |                                                  |             |   |                                 |   |            |          |  |       |      |  |   |            |   |  |          |            |   |  |       |  
|Gross margin                                           |  |                                                  | (206,572    | ) |                                 |   | (48,520    | )        |  | 326%  |      |  |   | (398,869   | ) |  |          | (41,003    | ) |  | 873%  |  
|                                                       |  |                                                  |             |   |                                 |   |            |          |  |       |      |  |   |            |   |  |          |            |   |  |       |  
|Gross margin percentage                                |  |                                                  | (51.6%      | ) |                                 |   | (7.5%      | )        |  |       |      |  |   | (34.4%     | ) |  |          | (2.1%      | ) |  |       |  
|                                                       |  |                                                  |             |   |                                 |   |            |          |  |       |      |  |   |            |   |  |          |            |   |  |       |  
|Selling, general and administrative expenses           |  |                                                  | (76,894     | ) |                                 |   | (93,621    | )        |  | (18%  | )    |  |   | (235,473   | ) |  |          | (278,770   | ) |  | (16%  | )
|Loss from unconsolidated joint ventures                |  |                                                  | (91,937     | ) |                                 |   | (38,459    | )        |  | 139%  |      |  |   | (130,322   | ) |  |          | (119,049   | ) |  | 9%    |  
|Interest expense                                       |  |                                                  | (3,938      | ) |                                 |   |           |          |  |      |      |  |   | (3,938     | ) |  |          |           |   |  |      |  
|Other income (expense)                                 |  |                                                  | (8,941      | ) |                                 |   | (4,375     | )        |  | 104%  |      |  |   | (21,484    | ) |  |          | (22,378    | ) |  | (4%   | )
|                                                       |  |                                                  |             |   |                                 |   |            |          |  |       |      |  |   |            |   |  |          |            |   |  |       |  
|Homebuilding pretax loss                               |  |                                                  | (388,282    | ) |                                 |   | (184,975   | )        |  | 110%  |      |  |   | (790,086   | ) |  |          | (461,200   | ) |  | 71%   |  
|                                                       |  |                                                  |             |   |                                 |   |            |          |  |       |      |  |   |            |   |  |          |            |   |  |       |  
|Financial Services:                                    |  |                                                  |             |   |                                 |   |            |          |  |       |      |  |   |            |   |  |          |            |   |  |       |  
|Revenues                                               |  |                                                  | 2,492       |   |                                 |   | 2,336      |          |  | 7%    |      |  |   | 10,897     |   |  |          | 12,015     |   |  | (9%   | )
|Expenses                                               |  |                                                  | (3,106      | ) |                                 |   | (3,593     | )        |  | (14%  | )    |  |   | (11,063    | ) |  |          | (11,923    | ) |  | (7%   | )
|Income from unconsolidated joint ventures              |  |                                                  | 284         |   |                                 |   | 248        |          |  | 15%   |      |  |   | 659        |   |  |          | 780        |   |  | (16%  | )
|Other income                                           |  |                                                  | 17          |   |                                 |   | 155        |          |  | (89%  | )    |  |   | 128        |   |  |          | 501        |   |  | (74%  | )
|                                                       |  |                                                  |             |   |                                 |   |            |          |  |       |      |  |   |            |   |  |          |            |   |  |       |  
|Financial services pretax income (loss)                |  |                                                  | (313        | ) |                                 |   | (854       | )        |  | (63%  | )    |  |   | 621        |   |  |          | 1,373      |   |  | (55%  | )
|                                                       |  |                                                  |             |   |                                 |   |            |          |  |       |      |  |   |            |   |  |          |            |   |  |       |  
|Loss from continuing operations before income taxes    |  |                                                  | (388,595    | ) |                                 |   | (185,829   | )        |  | 109%  |      |  |   | (789,465   | ) |  |          | (459,827   | ) |  | 72%   |  
|(Provision) benefit for income taxes                   |  |                                                  | 19,840      |   |                                 |   | 72,087     |          |  | (72%  | )    |  |   | (42,030    | ) |  |          | 179,025    |   |  | (123% | )
|                                                       |  |                                                  |             |   |                                 |   |            |          |  |       |      |  |   |            |   |  |          |            |   |  |       |  
|Loss from continuing operations                        |  |                                                  | (368,755    | ) |                                 |   | (113,742   | )        |  | 224%  |      |  |   | (831,495   | ) |  |          | (280,802   | ) |  | 196%  |  
|Loss from discontinued operations, net of income taxes |  |                                                  | (69         | ) |                                 |   | (5,924     | )        |  | (99%  | )    |  |   | (2,005     | ) |  |          | (45,574    | ) |  | (96%  | )
|                                                       |  |                                                  |             |   |                                 |   |            |          |  |       |      |  |   |            |   |  |          |            |   |  |       |  
|Net loss                                               |  |                                                  | (368,824    | ) |                                 |   | (119,666)  |          |  | 208%  |      |  |   | (833,500   | ) |  |          | (326,376   | ) |  | 155%  |  
|Less: Net loss allocated to preferred shareholders     |  |                                                  | 164,728     |   |                                 |   |           |          |  |      |      |  |   | 187,842    |   |  |          |           |   |  |      |  
|                                                       |  |                                                  |             |   |                                 |   |            |          |  |       |      |  |   |            |   |  |          |            |   |  |       |  
|Net loss available to common stockholders              |  | $                                                | (204,096    | ) |                                 | $ | (119,666   | )        |  | 71%   |      |  | $ | (645,658   | ) |  | $        | (326,376   | ) |  | 98%   |  
|                                                       |  |                                                  |             |   |                                 |   |            |          |  |       |      |  |   |            |   |  |          |            |   |  |       |  
|Basic Loss Per Share:                                  |  |                                                  |             |   |                                 |   |            |          |  |       |      |  |   |            |   |  |          |            |   |  |       |  
|Continuing operations                                  |  | $                                                | (2.53       | ) |                                 | $ | (1.58      | )        |  | 60%   |      |  | $ | (8.57      | ) |  | $        | (3.90      | ) |  | 120%  |  
|Discontinued operations                                |  |                                                  |            |   |                                 |   | (0.08      | )        |  | (100% | )    |  |   | (0.02      | ) |  |          | (0.63      | ) |  | (97%  | )
|                                                       |  |                                                  |             |   |                                 |   |            |          |  |       |      |  |   |            |   |  |          |            |   |  |       |  
|Basic loss per share                                   |  | $                                                | (2.53       | ) |                                 | $ | (1.66      | )        |  | 52%   |      |  | $ | (8.59      | ) |  | $        | (4.53      | ) |  | 90%   |  
|                                                       |  |                                                  |             |   |                                 |   |            |          |  |       |      |  |   |            |   |  |          |            |   |  |       |  
|Diluted Loss Per Share:                                |  |                                                  |             |   |                                 |   |            |          |  |       |      |  |   |            |   |  |          |            |   |  |       |  
|Continuing operations                                  |  | $                                                | (2.53       | ) |                                 | $ | (1.58      | )        |  | 60%   |      |  | $ | (8.57      | ) |  | $        | (3.90      | ) |  | 120%  |  
|Discontinued operations                                |  |                                                  |            |   |                                 |   | (0.08      | )        |  | (100% | )    |  |   | (0.02      | ) |  |          | (0.63      | ) |  | (97%  | )
|                                                       |  |                                                  |             |   |                                 |   |            |          |  |       |      |  |   |            |   |  |          |            |   |  |       |  
|Diluted loss per share                                 |  | $                                                | (2.53       | ) |                                 | $ | (1.66      | )        |  | 52%   |      |  | $ | (8.59      | ) |  | $        | (4.53      | ) |  | 90%   |  
|                                                       |  |                                                  |             |   |                                 |   |            |          |  |       |      |  |   |            |   |  |          |            |   |  |       |  
|Weighted Average Common Shares Outstanding:            |  |                                                  |             |   |                                 |   |            |          |  |       |      |  |   |            |   |  |          |            |   |  |       |  
|Basic                                                  |  |                                                  | 80,681,394  |   |                                 |   | 72,267,863 |          |  | 12%   |      |  |   | 75,155,044 |   |  |          | 72,120,101 |   |  | 4%    |  
|Diluted                                                |  |                                                  | 145,800,364 |   |                                 |   | 72,267,863 |          |  | 102%  |      |  |   | 97,019,962 |   |  |          | 72,120,101 |   |  | 35%   |  
|Other Financial Measures:                              |  |                                                  |             |   |                                 |   |            |          |  |       |      |  |   |            |   |  |          |            |   |  |       |  
|Net cash provided by (used in) operating activities    |  | $                                                | 31,933      |   |                                 | $ | (14,628    | )        |  | (318% | )    |  | $ | 197,963    |   |  | $        | 307,575    |   |  | (36%  | )
|Net cash provided by (used in) investing activities    |  | $                                                | (11,111     | ) |                                 | $ | (38,465    | )        |  | (71%  | )    |  | $ | 16,420     |   |  | $        | (158,103   | ) |  | (110% | )
|Net cash provided by (used in) financing activities    |  | $                                                | 121,014     |   |                                 | $ | 57,662     |          |  | 110%  |      |  | $ | 275,214    |   |  | $        | (154,668   | ) |  | (278% | )
|Adjusted Homebuilding EBITDA (1)                       |  | $                                                | 11,285      |   |                                 | $ | 63,742     |          |  | (82%  | )    |  | $ | (6,061     | ) |  | $        | 220,610    |   |  | (103% | )



|(1) | Adjusted Homebuilding EBITDA means net income (loss) (plus cash distributions of income from unconsolidated joint ventures) before (a) income taxes, (b) homebuilding
interest expense, (c) expensing of previously capitalized interest included in cost of sales, (d) impairment charges, (e) homebuilding depreciation and amortization, (f) amortization of stock-based compensation, (g) income
(loss) from unconsolidated joint ventures and (h) income (loss) from financial services subsidiary. Other companies may calculate Adjusted Homebuilding EBITDA (or similarly titled measures) differently. We believe Adjusted Homebuilding EBITDA
information is useful to investors as one measure of our ability to service debt and obtain financing. However, it should be noted that Adjusted Homebuilding EBITDA is not a U.S. generally accepted accounting principles (GAAP) financial
measure. Due to the significance of the GAAP components excluded, Adjusted Homebuilding EBITDA should not be considered in isolation or as an alternative to cash flows from operations or any other liquidity performance measure prescribed by GAAP.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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---

##### Table of Contents

|(1) | continued
|--- | ---------

The table set forth below reconciles net cash
provided by (used in) operating activities, calculated and presented in accordance with GAAP, to Adjusted Homebuilding EBITDA:



|                                                                       |  |                                       |          |   |                                      |   |         |      |  |   |          |   |  |   |          |  
|---------------------------------------------------------------------- |  | ------------------------------------- | -------- | - | ------------------------------------ | - | ------- | ---- |  | - | -------- | - |  | - | -------- | -
|                                                                       |  | Three Months Ended September 30, 2008 |          |   | Nine Months Ended September 30, 2008 |  
|                                                                       |  | 2008                                  |          |   | 2007                                 |   |         | 2008 |  |   | 2007     |  
|                                                                       |  | (Dollars in thousands)                |         
|Net cash provided by (used in) operating activities                    |  | $                                     | 31,933   |   |                                      | $ | (14,628 | )    |  | $ | 197,963  |   |  | $ | 307,575  |  
|Add:                                                                   |  |                                       |          |   |                                      |   |         |      |  |   |          |   |  |   |          |  
|Provision (benefit) for income taxes                                   |  |                                       | (19,886  | ) |                                      |   | (75,379 | )    |  |   | 40,883   |   |  |   | (203,954 | )
|Deferred tax valuation allowance                                       |  |                                       | (134,088 | ) |                                      |   |        |      |  |   | (348,705 | ) |  |   |         |  
|Homebuilding interest expense                                          |  |                                       | 3,938    |   |                                      |   |        |      |  |   | 3,938    |   |  |   |         |  
|Expensing of previously capitalized interest included in cost of sales |  |                                       | 20,844   |   |                                      |   | 26,384  |      |  |   | 53,705   |   |  |   | 75,845   |  
|Excess tax benefits from share-based payment arrangements              |  |                                       |         |   |                                      |   | 28      |      |  |   |         |   |  |   | 1,498    |  
|Gain (loss) on early extinguishment of debt                            |  |                                       |         |   |                                      |   |        |      |  |   | (8,019   | ) |  |   |         |  
|Less:                                                                  |  |                                       |          |   |                                      |   |         |      |  |   |          |   |  |   |          |  
|Income (loss) from financial services subsidiary                       |  |                                       | (614     | ) |                                      |   | (1,257  | )    |  |   | (166     | ) |  |   | 92       |  
|Depreciation and amortization from financial services subsidiary       |  |                                       | 188      |   |                                      |   | 182     |      |  |   | 598      |   |  |   | 464      |  
|Loss on disposal of property and equipment                             |  |                                       | 901      |   |                                      |   |        |      |  |   | 901      |   |  |   |         |  
|Net changes in operating assets and liabilities:                       |  |                                       |          |   |                                      |   |         |      |  |   |          |   |  |   |          |  
|Trade and other receivables                                            |  |                                       | 1,442    |   |                                      |   | 40,527  |      |  |   | 5,415    |   |  |   | 647      |  
|Mortgage loans held for sale                                           |  |                                       | 14,446   |   |                                      |   | 565     |      |  |   | (94,357  | ) |  |   | (171,006 | )
|Inventories-owned                                                      |  |                                       | (59,724  | ) |                                      |   | 57,908  |      |  |   | 27,489   |   |  |   | (40,959  | )
|Inventories-not owned                                                  |  |                                       | 8,426    |   |                                      |   | (4,744  | )    |  |   | 8,400    |   |  |   | (9,665   | )
|Deferred income taxes                                                  |  |                                       | 124,936  |   |                                      |   | 41,438  |      |  |   | 211,893  |   |  |   | 141,498  |  
|Other assets                                                           |  |                                       | 18,669   |   |                                      |   | 37,908  |      |  |   | (168,412 | ) |  |   | 81,935   |  
|Accounts payable                                                       |  |                                       | 1,264    |   |                                      |   | (35,145 | )    |  |   | 32,661   |   |  |   | (4,769   | )
|Accrued liabilities                                                    |  |                                       | (440     | ) |                                      |   | (12,195 | )    |  |   | 32,418   |   |  |   | 42,521   |  
|                                                                       |  |                                       |          |   |                                      |   |         |      |  |   |          |   |  |   |          |  
|Adjusted Homebuilding EBITDA                                           |  | $                                     | 11,285   |   |                                      | $ | 63,742  |      |  | $ | (6,061   | ) |  | $ | 220,610  |  
|                                                                       |  |                                       |          |   |                                      |   |         |      |  |   |          |   |  |   |          |  



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##### Table of Contents

Three and Nine Month Periods Ended September 30, 2008 Compared to Three and Nine Month Periods Ended
September 30, 2007

Overview

Our operations continue to be impacted by weak housing demand in substantially all of the major housing markets across the country. The decline in demand has led to significant home price reductions and incentives to move inventory which
has continued to erode our margins and trigger asset impairments and land deposit write-offs. These conditions were brought about as a result of reduced housing affordability, more limited availability of mortgage credit, growing levels of existing
housing inventory and weaker homebuyer confidence. Housing market conditions have deteriorated further during the three months ended September 30, 2008 as the growing level of foreclosure inventory combined with the worsening economic
conditions and stressed financial markets further undermine the already weak housing market. These conditions have created a much more competitive market for new homes which has contributed to slower sales rates, high levels of cancellations and a
further reduction in home prices.

On June 27, 2008, we closed the first phase of our $530 million equity commitment from MP CA Homes
LLC (MatlinPatterson), an affiliate of MatlinPatterson Global Advisers LLC, and amended our revolving credit facility and term loans (Credit Facilities). On September 3, 2008, we closed the second phase of the
MatlinPatterson transaction and raised approximately $152.5 million (before expenses) from a 50 million common stock rights offering (Rights Offering) of which 27.2 million shares of common stock were issued to our existing
common stockholders for a total subscription price of $82.9 million and the remaining 22.8 million shares of common stock not purchased by our existing common stockholders in the Rights Offering was purchased from us by MatlinPatterson (in the
form of preferred stock) for a total subscription price of $69.6 million.

As a result of paying down a portion of our bank credit
facilities and extinguishing debt previously owned by MatlinPatterson, we were able to reduce our level of consolidated homebuilding debt during the nine months ended September 30, 2008 by approximately $188.7 million, after the assumption of
approximately $47.7 million of project specific joint venture debt and making aggregate cash payments totaling $168.5 million to exit or unwind seven joint ventures. As a result of the equity infusion from MatlinPatterson, the proceeds from the
Rights Offering and the positive cash flow generated from operations for the nine months ended September 30, 2008, our homebuilding cash balance increased by $492.8 million since December 31, 2007 to $712.0 million as of September 30,
2008.

For the 2008 third quarter we incurred a net loss of $368.8 million, or $2.53 per diluted share, compared to a net loss of $119.7
million, or $1.66 per diluted share, in the third quarter of 2007. The increase in the net loss was driven primarily by a $152.3 million increase in homebuilding asset impairment charges, a noncash net deferred tax valuation allowance of $134.1
million, a $242.9 million reduction in homebuilding revenues, and further erosion in our homebuilding gross margins. For the nine months ended September 30, 2008, we generated a net loss of $833.5 million, or $8.59 per diluted share, compared
to a net loss of $326.4 million, or $4.53 per diluted share, for the year earlier period. The increase in the net loss was driven primarily by a $328.9 million increase in homebuilding pretax loss to a loss of $790.1 million and a noncash deferred
tax valuation allowance of $348.7 million recorded during the first nine months of 2008. Our results for the three and nine months ended September 30, 2008 included pretax impairment charges totaling $368.4 million and $709.9 million,
respectively, which is discussed in more detail below.



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##### Table of Contents

Homebuilding



|                                                           |  |                                  |          |   |                                 |   |          |          |  |        |      |  |   |           |   |  |          |           |   |  |       |  
|---------------------------------------------------------- |  | -------------------------------- | -------- | - | ------------------------------- | - | -------- | -------- |  | ------ | ---- |  | - | --------- | - |  | -------- | --------- | - |  | ----- | -
|                                                           |  | Three Months Ended September 30, |          |   | Nine Months Ended September 30, |  
|                                                           |  | 2008                             |          |   | 2007                            |   |          | % Change |  |        | 2008 |  |   | 2007      |   |  | % Change |          
|                                                           |  | (Dollars in thousands)           |         
|Homebuilding revenues:                                     |  |                                  |          |   |                                 |   |          |          |  |        |      |  |   |           |   |  |          |           |   |  |       |  
|California                                                 |  | $                                | 209,813  |   |                                 | $ | 304,117  |          |  | (31%   | )    |  | $ | 583,304   |   |  | $        | 881,590   |   |  | (34%  | )
|Southwest (1)                                              |  |                                  | 108,268  |   |                                 |   | 186,640  |          |  | (42%   | )    |  |   | 333,759   |   |  |          | 627,299   |   |  | (47%  | )
|Southeast                                                  |  |                                  | 82,259   |   |                                 |   | 152,462  |          |  | (46%   | )    |  |   | 242,154   |   |  |          | 446,336   |   |  | (46%  | )
|                                                           |  |                                  |          |   |                                 |   |          |          |  |        |      |  |   |           |   |  |          |           |   |  |       |  
|Total homebuilding revenues                                |  | $                                | 400,340  |   |                                 | $ | 643,219  |          |  | (38%   | )    |  | $ | 1,159,217 |   |  | $        | 1,955,225 |   |  | (41%  | )
|                                                           |  |                                  |          |   |                                 |   |          |          |  |        |      |  |   |           |   |  |          |           |   |  |       |  
|Homebuilding pretax loss:                                  |  |                                  |          |   |                                 |   |          |          |  |        |      |  |   |           |   |  |          |           |   |  |       |  
|California                                                 |  | $                                | (226,471 | ) |                                 | $ | (131,723 | )        |  | 72%    |      |  | $ | (489,131  | ) |  | $        | (327,518  | ) |  | 49%   |  
|Southwest (1)                                              |  |                                  | (109,389 | ) |                                 |   | (6,434   | )        |  | 1,600% |      |  |   | (172,461  | ) |  |          | (52,225   | ) |  | 230%  |  
|Southeast                                                  |  |                                  | (45,333  | ) |                                 |   | (45,677  | )        |  | (1%    | )    |  |   | (97,845   | ) |  |          | (77,121   | ) |  | 27%   |  
|Corporate                                                  |  |                                  | (7,089   | ) |                                 |   | (1,141   | )        |  | 521%   |      |  |   | (30,649   | ) |  |          | (4,336    | ) |  | 607%  |  
|                                                           |  |                                  |          |   |                                 |   |          |          |  |        |      |  |   |           |   |  |          |           |   |  |       |  
|Total homebuilding pretax loss                             |  | $                                | (388,282 | ) |                                 | $ | (184,975 | )        |  | 110%   |      |  | $ | (790,086  | ) |  | $        | (461,200  | ) |  | 71%   |  
|                                                           |  |                                  |          |   |                                 |   |          |          |  |        |      |  |   |           |   |  |          |           |   |  |       |  
|Homebuilding pretax impairment charges:                    |  |                                  |          |   |                                 |   |          |          |  |        |      |  |   |           |   |  |          |           |   |  |       |  
|California                                                 |  | $                                | 216,686  |   |                                 | $ | 147,321  |          |  | 47%    |      |  | $ | 450,629   |   |  | $        | 381,486   |   |  | 18%   |  
|Southwest (1)                                              |  |                                  | 109,659  |   |                                 |   | 14,440   |          |  | 659%   |      |  |   | 171,103   |   |  |          | 96,701    |   |  | 77%   |  
|Southeast                                                  |  |                                  | 42,009   |   |                                 |   | 54,292   |          |  | (23%   | )    |  |   | 88,152    |   |  |          | 113,455   |   |  | (22%  | )
|                                                           |  |                                  |          |   |                                 |   |          |          |  |        |      |  |   |           |   |  |          |           |   |  |       |  
|Total homebuilding pretax impairment charges               |  | $                                | 368,354  |   |                                 | $ | 216,053  |          |  | 70%    |      |  | $ | 709,884   |   |  | $        | 591,642   |   |  | 20%   |  
|                                                           |  |                                  |          |   |                                 |   |          |          |  |        |      |  |   |           |   |  |          |           |   |  |       |  
|Homebuilding pretax impairment charges:                    |  |                                  |          |   |                                 |   |          |          |  |        |      |  |   |           |   |  |          |           |   |  |       |  
|Write-off of deposits and capitalized preacquisition costs |  | $                                | 8,889    |   |                                 | $ | 6,465    |          |  | 37%    |      |  | $ | 17,099    |   |  | $        | 10,706    |   |  | 60%   |  
|Inventory impairments                                      |  |                                  | 267,216  |   |                                 |   | 167,998  |          |  | 59%    |      |  |   | 566,180   |   |  |          | 429,192   |   |  | 32%   |  
|Joint venture impairments                                  |  |                                  | 92,249   |   |                                 |   | 41,590   |          |  | 122%   |      |  |   | 126,605   |   |  |          | 133,794   |   |  | (5%   | )
|Goodwill impairments                                       |  |                                  |         |   |                                 |   |         |          |  |       |      |  |   |          |   |  |          | 17,950    |   |  | (100% | )
|                                                           |  |                                  |          |   |                                 |   |          |          |  |        |      |  |   |           |   |  |          |           |   |  |       |  
|Total homebuilding pretax impairment charges               |  | $                                | 368,354  |   |                                 | $ | 216,053  |          |  | 70%    |      |  | $ | 709,884   |   |  | $        | 591,642   |   |  | 20%   |  
|                                                           |  |                                  |          |   |                                 |   |          |          |  |        |      |  |   |           |   |  |          |           |   |  |       |  



|(1) | Excludes our Tucson and San Antonio divisions, which are classified as discontinued operations.
|--- | -----------------------------------------------------------------------------------------------

We generated a homebuilding pretax loss from continuing operations for the 2008 third quarter of $388.3 million compared to a pretax loss of $185.0
million in the year earlier period. The increase in pretax loss was primarily the result of a $152.3 million, or 70%, increase in impairment charges, a 38% decrease in homebuilding revenues to $400.3 million, a $53.5 million increase in joint
venture loss (to a loss of $91.9 million), and a reduction in our homebuilding gross margin percentage. These changes were partially offset by a $16.7 million decrease in our absolute level of selling, general and administrative
(SG&A) expenses. Our homebuilding operations for the 2008 third quarter included $368.4 million of pretax impairment charges, which are detailed in the table above. The inventory impairment charges were included in cost of sales,
while the land deposit and capitalized preacquisition cost write-offs were included in other income (expense).

For the nine months ended
September 30, 2008, homebuilding pretax loss from continuing operations increased 71% to $790.1 million compared to a pretax loss of $461.2 million in the year earlier period. The increase in pretax loss was driven primarily by a $118.2 million
increase in impairment charges, a $796.0 million, or 41%, decrease in homebuilding revenues, a meaningful decline in homebuilding gross margin percentage and an $11.3 million increase in joint venture loss (to a loss of $130.3 million). These
changes were partially offset by a $43.3 million decrease in the absolute level of SG&A expenses. Our homebuilding operations for the nine months ended September 30, 2008 included $709.9 million of pretax impairment charges, which are
detailed in the table above.



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##### Table of Contents

The 38% decrease in homebuilding revenues for the 2008 third quarter was primarily attributable to a 24%
decrease in new home deliveries (exclusive of joint ventures and discontinued operations), a 12% decrease in our consolidated average home price to $332,000 and a $43.6 million year-over-year decrease in land sale revenues. Homebuilding revenues for
the nine months ended September 30, 2008 decreased 41% and was driven by a 27% decrease in new home deliveries (exclusive of joint ventures and discontinued operations), an 11% decrease in our consolidated average home price to $331,000 and a
$158.9 million decrease in revenues from land sales.



|                                     |  |                                  |  |       |                                 |          |   |  |       |  |       |  |          |  
|------------------------------------ |  | -------------------------------- |  | ----- | ------------------------------- | -------- | - |  | ----- |  | ----- |  | -------- | -
|                                     |  | Three Months Ended September 30, |  |       | Nine Months Ended September 30, |         
|                                     |  | 2008                             |  | 2007  |                                 | % Change |   |  | 2008  |  | 2007  |  | % Change |  
|New homes delivered:                 |  |                                  |  |       |                                 |          |   |  |       |  |       |  |          |  
|Southern California                  |  | 274                              |  | 294   |                                 | (7%      | ) |  | 741   |  | 764   |  | (3%      | )
|Northern California                  |  | 161                              |  | 172   |                                 | (6%      | ) |  | 467   |  | 452   |  | 3%       |  
|                                     |  |                                  |  |       |                                 |          |   |  |       |  |       |  |          |  
|Total California                     |  | 435                              |  | 466   |                                 | (7%      | ) |  | 1,208 |  | 1,216 |  | (1%      | )
|                                     |  |                                  |  |       |                                 |          |   |  |       |  |       |  |          |  
|Arizona (1)                          |  | 132                              |  | 218   |                                 | (39%     | ) |  | 436   |  | 862   |  | (49%     | )
|Texas (1)                            |  | 165                              |  | 239   |                                 | (31%     | ) |  | 520   |  | 749   |  | (31%     | )
|Colorado                             |  | 62                               |  | 89    |                                 | (30%     | ) |  | 180   |  | 270   |  | (33%     | )
|Nevada                               |  | 22                               |  | 27    |                                 | (19%     | ) |  | 55    |  | 43    |  | 28%      |  
|                                     |  |                                  |  |       |                                 |          |   |  |       |  |       |  |          |  
|Total Southwest                      |  | 381                              |  | 573   |                                 | (34%     | ) |  | 1,191 |  | 1,924 |  | (38%     | )
|                                     |  |                                  |  |       |                                 |          |   |  |       |  |       |  |          |  
|Florida                              |  | 220                              |  | 305   |                                 | (28%     | ) |  | 646   |  | 1,015 |  | (36%     | )
|Carolinas                            |  | 152                              |  | 225   |                                 | (32%     | ) |  | 416   |  | 613   |  | (32%     | )
|                                     |  |                                  |  |       |                                 |          |   |  |       |  |       |  |          |  
|Total Southeast                      |  | 372                              |  | 530   |                                 | (30%     | ) |  | 1,062 |  | 1,628 |  | (35%     | )
|                                     |  |                                  |  |       |                                 |          |   |  |       |  |       |  |          |  
|Consolidated total                   |  | 1,188                            |  | 1,569 |                                 | (24%     | ) |  | 3,461 |  | 4,768 |  | (27%     | )
|                                     |  |                                  |  |       |                                 |          |   |  |       |  |       |  |          |  
|Unconsolidated joint ventures (2):   |  |                                  |  |       |                                 |          |   |  |       |  |       |  |          |  
|Southern California                  |  | 41                               |  | 79    |                                 | (48%     | ) |  | 144   |  | 202   |  | (29%     | )
|Northern California                  |  | 24                               |  | 35    |                                 | (31%     | ) |  | 76    |  | 82    |  | (7%      | )
|Illinois                             |  | 1                                |  | 4     |                                 | (75%     | ) |  | 2     |  | 25    |  | (92%     | )
|                                     |  |                                  |  |       |                                 |          |   |  |       |  |       |  |          |  
|Total unconsolidated joint ventures  |  | 66                               |  | 118   |                                 | (44%     | ) |  | 222   |  | 309   |  | (28%     | )
|                                     |  |                                  |  |       |                                 |          |   |  |       |  |       |  |          |  
|Discontinued operations              |  | 14                               |  | 128   |                                 | (89%     | ) |  | 147   |  | 473   |  | (69%     | )
|                                     |  |                                  |  |       |                                 |          |   |  |       |  |       |  |          |  
|Total (including joint ventures) (2) |  | 1,268                            |  | 1,815 |                                 | (30%     | ) |  | 3,830 |  | 5,550 |  | (31%     | )
|                                     |  |                                  |  |       |                                 |          |   |  |       |  |       |  |          |  



|(1) | Arizona and Texas exclude our Tucson and San Antonio divisions, which are classified as discontinued operations.
|--- | ----------------------------------------------------------------------------------------------------------------



|(2) | Numbers presented regarding unconsolidated joint ventures reflect total deliveries of such joint ventures. Our ownership interests in these joint ventures vary but are generally
less than or equal to 50%.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

New home deliveries (exclusive of joint ventures and discontinued operations) decreased 24%
during the 2008 third quarter as compared to the prior year period. The decline in deliveries reflected the significant slowdown in our order activity, a decrease in our backlog levels and weaker housing demand. We continue to experience challenging
housing market conditions as evidenced by the need to provide substantial sales incentives and price reductions in order to sell homes.



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##### Table of Contents

|                                                           |  |                                  |         |      |                                 |          |  |      |      |  |      |         |          |   |         |  |      |  
|---------------------------------------------------------- |  | -------------------------------- | ------- | ---- | ------------------------------- | -------- |  | ---- | ---- |  | ---- | ------- | -------- | - | ------- |  | ---- | -
|                                                           |  | Three Months Ended September 30, |         |      | Nine Months Ended September 30, |         
|                                                           |  | 2008                             |         | 2007 |                                 | % Change |  |      | 2008 |  | 2007 |         | % Change |  
|Average selling prices of homes delivered:                 |  |                                  |         |      |                                 |          |  |      |      |  |      |         |          |   |         |  |      |  
|Southern California                                        |  | $                                | 540,000 |      | $                               | 711,000  |  | (24% | )    |  | $    | 525,000 |          | $ | 722,000 |  | (27% | )
|Northern California                                        |  |                                  | 384,000 |      |                                 | 483,000  |  | (20% | )    |  |      | 407,000 |          |   | 532,000 |  | (23% | )
|                                                           |  |                                  |         |      |                                 |          |  |      |      |  |      |         |          |   |         |  |      |  
|Total California                                           |  |                                  | 482,000 |      |                                 | 627,000  |  | (23% | )    |  |      | 479,000 |          |   | 651,000 |  | (26% | )
|                                                           |  |                                  |         |      |                                 |          |  |      |      |  |      |         |          |   |         |  |      |  
|Arizona (1)                                                |  |                                  | 215,000 |      |                                 | 291,000  |  | (26% | )    |  |      | 233,000 |          |   | 315,000 |  | (26% | )
|Texas (1)                                                  |  |                                  | 291,000 |      |                                 | 253,000  |  | 15%  |      |  |      | 279,000 |          |   | 253,000 |  | 10%  |  
|Colorado                                                   |  |                                  | 358,000 |      |                                 | 364,000  |  | (2%  | )    |  |      | 358,000 |          |   | 349,000 |  | 3%   |  
|Nevada                                                     |  |                                  | 278,000 |      |                                 | 299,000  |  | (7%  | )    |  |      | 289,000 |          |   | 320,000 |  | (10% | )
|                                                           |  |                                  |         |      |                                 |          |  |      |      |  |      |         |          |   |         |  |      |  
|Total Southwest                                            |  |                                  | 275,000 |      |                                 | 287,000  |  | (4%  | )    |  |      | 275,000 |          |   | 296,000 |  | (7%  | )
|                                                           |  |                                  |         |      |                                 |          |  |      |      |  |      |         |          |   |         |  |      |  
|Florida                                                    |  |                                  | 206,000 |      |                                 | 274,000  |  | (25% | )    |  |      | 211,000 |          |   | 276,000 |  | (24% | )
|Carolinas                                                  |  |                                  | 233,000 |      |                                 | 241,000  |  | (3%  | )    |  |      | 249,000 |          |   | 230,000 |  | 8%   |  
|                                                           |  |                                  |         |      |                                 |          |  |      |      |  |      |         |          |   |         |  |      |  
|Total Southeast                                            |  |                                  | 217,000 |      |                                 | 260,000  |  | (17% | )    |  |      | 226,000 |          |   | 259,000 |  | (13% | )
|                                                           |  |                                  |         |      |                                 |          |  |      |      |  |      |         |          |   |         |  |      |  
|Consolidated (excluding joint ventures)                    |  |                                  | 332,000 |      |                                 | 379,000  |  | (12% | )    |  |      | 331,000 |          |   | 374,000 |  | (11% | )
|Unconsolidated joint ventures (2)                          |  |                                  | 578,000 |      |                                 | 558,000  |  | 4%   |      |  |      | 507,000 |          |   | 511,000 |  | (1%  | )
|                                                           |  |                                  |         |      |                                 |          |  |      |      |  |      |         |          |   |         |  |      |  
|Total continuing operations (including joint ventures) (2) |  | $                                | 345,000 |      | $                               | 391,000  |  | (12% | )    |  | $    | 342,000 |          | $ | 382,000 |  | (10% | )
|                                                           |  |                                  |         |      |                                 |          |  |      |      |  |      |         |          |   |         |  |      |  
|Discontinued operations                                    |  | $                                | 176,000 |      | $                               | 269,000  |  | (35% | )    |  | $    | 175,000 |          | $ | 277,000 |  | (37% | )
|                                                           |  |                                  |         |      |                                 |          |  |      |      |  |      |         |          |   |         |  |      |  



|(1) | Arizona and Texas exclude the Tucson and San Antonio divisions, which are classified as discontinued operations.
|--- | ----------------------------------------------------------------------------------------------------------------



|(2) | Numbers presented regarding unconsolidated joint ventures reflect total average selling prices of such joint ventures. Our ownership interests in these joint ventures vary but are
generally less than or equal to 50%.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

During the 2008 third quarter, our consolidated average home price (excluding joint
ventures and discontinued operations) decreased 12% to $332,000 compared to the year earlier period. The decrease was due primarily to the significant level of incentives, discounts and price reductions required to sell homes in most of our markets,
partially offset by changes in our geographic delivery mix, whereby a greater percentage of homes were delivered from our higher priced California markets.

Our average home price in California for the 2008 third quarter decreased 23% from the year earlier period. In Southern California, our average home price was off 24% during the 2008 third quarter as compared to the
prior year period primarily due to increased incentives and discounts required to generate sales combined with a product mix shift within the region, including a greater distribution of deliveries generated in the 2008 third quarter from our more
affordable Inland Empire, Ventura, and Bakersfield operations combined with a reduction in the number of deliveries from our more expensive Orange County operation where our average sales prices were in excess of $1 million. In Northern California,
the average home price for the 2008 third quarter was down 20% from the prior year period as a result of the meaningful level of incentives and price reductions required to sell homes.

In the Southwest, our average home price for the three months ended September 30, 2008 was off 4% from the year earlier period. Our average price in
Arizona for the 2008 third quarter decreased 26% year-over-year reflecting the extremely competitive Phoenix market and the increased use of incentives and discounts utilized to generate sales. The Texas average prices increased 15% during the 2008
third quarter as compared to the year earlier period reflecting a shift in product mix to larger, higher priced homes which was partially offset in part by downward price pressure experienced in both our Dallas and Austin markets. Our average price
in Colorado fell slightly due to the increased use of incentives and discounts as a result of weak demand experienced in this market. In Nevada, the average home price was down 7% in the 2008 third quarter as compared to the year earlier period
reflective of the weak housing market conditions in the Las Vegas area.

Our average home price in the Southeast for the 2008 third quarter
declined 17% from the year earlier period. In Florida, the average sales price for the 2008 third quarter was down 25% from the year earlier period and primarily reflected the substantial level of incentives and discounts required to sell homes
across all of our Florida markets, and to a lesser degree, a geographic and product mix shift within the state. Our average price for the 2008 third quarter was off 3% in the Carolinas from the 2007 third quarter as a result of further slowing in
housing demand in these markets.



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##### Table of Contents

Gross Margin

Our 2008 third quarter homebuilding gross margin percentage from continuing operations (including land sales) was down year-over-year to a negative 51.6% from a negative 7.5% in the prior year period. The 2008 third
quarter gross margin reflected a $267.2 million pretax inventory impairment charge related to 75 projects, of which $209.2 million related to current and future projects and $58.0 million related to land or lots that have been or are intended to be
sold. These impairments related primarily to projects located in California, Nevada and Florida, and to a lesser degree, in Arizona, Colorado, the Carolinas and Texas. Excluding the housing inventory impairment charges from continuing operations,
our 2008 third quarter gross margin percentage from home sales would have been 14.3% versus 20.3% in 2007 (please see the table set forth below reconciling this non-GAAP measure to our gross margin from home sales). The 600 basis point decrease in
the year-over-year as adjusted gross margin percentage was driven primarily by lower gross margins in California, Arizona and Florida, and to a lesser extent, Texas, Colorado and the Carolinas. The lower gross margins in these markets were driven by
increased incentives and discounts resulting from weaker demand, more limited availability of mortgage credit, and an increased level of existing homes available for sale in the marketplace. These factors have continued to put downward pressure on
home prices. Until market conditions stabilize, we may continue to incur additional inventory impairment charges.

The table set forth
below reconciles our homebuilding gross margin and gross margin percentage for the three months ended September 30, 2008 and 2007 to gross margin and gross margin percentage from home sales, excluding housing inventory impairment charges:



|                                          |  |                                  |          |   |               |        |   |      |   |         |               |  |       |  
|----------------------------------------- |  | -------------------------------- | -------- | - | ------------- | ------ | - | ---- | - | ------- | ------------- |  | ----- | -
|                                          |  | Three Months Ended September 30, |         
|                                          |  | 2008                             |          |   | GrossMargin % |        |   | 2007 |   |         | GrossMargin % | 
|                                          |  | (Dollars in thousands)           |         
|Homebuilding gross margin                 |  | $                                | (206,572 | ) |               | (51.6% | ) |      | $ | (48,520 | )             |  | (7.5% | )
|Less: Land sale revenues                  |  |                                  | 5,398    |   |               |        |   |      |   | 48,953  |               |  |       |  
|Add: Cost of land sales                   |  |                                  | 59,375   |   |               |        |   |      |   | 102,520 |               |  |       |  
|                                          |  |                                  |          |   |               |        |   |      |   |         |               |  |       |  
|Gross margin from home sales              |  |                                  | (152,595 | ) |               | (38.6% | ) |      |   | 5,047   |               |  | 0.8%  |  
|Add: Housing inventory impairment charges |  |                                  | 209,228  |   |               |        |   |      |   | 115,848 |               |  |       |  
|                                          |  |                                  |          |   |               |        |   |      |   |         |               |  |       |  
|Gross margin from home sales, as adjusted |  | $                                | 56,633   |   |               | 14.3%  |   |      | $ | 120,895 |               |  | 20.3% |  
|                                          |  |                                  |          |   |               |        |   |      |   |         |               |  |       |  



| | We believe that the measures described above, which exclude the effect of housing inventory impairment charges, are useful to investors as they provide investors with a perspective
on the underlying operating performance of the business by isolating the impact of charges related to housing inventory impairments. However, it should be noted that such measures are not GAAP financial measures. Due to the significance of the GAAP
components excluded, such measures should not be considered in isolation or as an alternative to operating performance measures prescribed by GAAP.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

SG&A Expenses

Our SG&A expense rate from continuing operations (including corporate G&A)
for the 2008 third quarter increased 460 basis points to 19.2% of homebuilding revenues compared to 14.6% for the same period last year. The higher level of SG&A expenses as a percentage of homebuilding revenues was due primarily to: (i) a
lower level of revenues to spread a fixed level of costs over (including a $43.6 million, or 89%, decrease in land sale revenues from the prior year quarter), (ii) a higher level of sales and marketing costs as a percentage of revenues as a
result of our focus on generating sales in these challenging market conditions, and (iii) an increase in stock-based compensation expense related to the acceleration of vesting as a result of the change in control due to the MatlinPatterson
transaction. These increases as a percentage of homebuilding revenues were offset in part by a reduction in personnel costs as a result of reductions in headcount made to better align our overhead with the weaker housing market combined with the
general effort to reduce other general and administrative expenses due to the downsizing of our operations.



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##### Table of Contents

Unconsolidated Joint Ventures

We recognized a $91.9 million loss from unconsolidated joint ventures during the 2008 third quarter compared to a loss of $38.5 million in the year
earlier period. The loss in the 2008 third quarter reflected a $92.2 million pretax charge related primarily to our share of joint venture impairments related to three projects located in Southern California and our master planned community
development in North Las Vegas. Excluding the impairment charges, we generated joint venture income of approximately $312,000 (please see the table set forth below reconciling this non-GAAP measure to our loss from joint ventures). Deliveries from
our unconsolidated homebuilding joint ventures totaled 66 new homes in the 2008 third quarter versus 118 in the prior year period.

During
the nine months ended September 30, 2008, we recognized a $130.3 million loss from unconsolidated joint ventures which included $126.6 million of pretax charges related primarily to our share of joint venture impairments related to 18 projects
as compared to a loss from unconsolidated joint ventures of $119.0 million for the prior year period, which included $133.8 million of joint venture impairments related to 17 projects.

The table set forth below reconciles our loss from homebuilding and land development joint ventures for the three months ended September 30, 2008,
to loss from joint ventures excluding joint venture impairment charges:



|                                                |  |                                       |         |   |                 |   |         |       |  |   |         |  
|----------------------------------------------- |  | ------------------------------------- | ------- | - | --------------- | - | ------- | ----- |  | - | ------- | -
|                                                |  | Three Months Ended September 30, 2008 |        
|                                                |  | Homebuilding                          |         |   | LandDevelopment |   |         | Total | 
|                                                |  | (Dollars in thousands)                |        
|Loss from unconsolidated joint ventures         |  | $                                     | (19,295 | ) |                 | $ | (72,642 | )     |  | $ | (91,937 | )
|Add: Joint venture inventory impairment charges |  |                                       | 19,295  |   |                 |   | 72,954  |       |  |   | 92,249  |  
|                                                |  |                                       |         |   |                 |   |         |       |  |   |         |  
|Income (loss) from joint ventures, as adjusted  |  | $                                     |        |   |                 | $ | 312     |       |  | $ | 312     |  
|                                                |  |                                       |         |   |                 |   |         |       |  |   |         |  



| | We believe that the measures described above, which exclude the effect of joint venture impairment charges, are useful to investors as they provide investors with a perspective on
the underlying operating performance of the business by isolating the impact of charges related to impairments for our unconsolidated joint ventures. However, it should be noted that such measures are not GAAP financial measures. Due to the
significance of the GAAP components excluded, such measures should not be considered in isolation or as an alternative to operating performance measures prescribed by GAAP.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Interest Expense

For the three
months ended September 30, 2008, we expensed $3.9 million of interest costs related to a portion of real estate inventories which we were not actively preparing for their intended use, and as a result were deemed unqualified assets in
accordance with Statement of Financial Accounting Standards No. 34, Capitalization of Interest Cost (SFAS 34). All interest costs incurred during the first half of 2008 and all of 2007 were capitalized to inventories. To
the extent our debt exceeds our qualified inventory as defined in SFAS 34, we will expense a portion of the interest incurred by us.

Other Income (Expense)

Included in other income (expense) for the
three and nine months ended September 30, 2008 were pretax charges of approximately $8.9 million and $17.1 million, respectively, related to the write-off of option deposits and capitalized preacquisition costs for abandoned projects. The nine
months ended September 30, 2008 also included a $9.1 million noncash charge related to the exchange of $128.5 million of senior and senior subordinated notes for a warrant that was issued to MatlinPatterson to purchase shares of preferred stock
(the Warrant). The charges in the first nine months of 2008 were partially offset by a $1.1 million gain, recognized in the first quarter of 2008, related to the early extinguishment of $22.5 million of our 61/2% Senior Notes due 2008 through open market purchases. During the three and nine months ended September 30, 2007, other income
(expense) included pretax charges of $6.5 million and $10.7 million, respectively, related to the write-off of option deposits and capitalized preacquisition costs for abandoned projects. We continue to carefully evaluate each land purchase in our
acquisition pipeline in



-40-



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##### Table of Contents

light of weakened market conditions and any decision to abandon additional land purchase or lot option transactions could lead to further deposit and
capitalized preacquisition cost write-offs. In addition, other income (expense) for the nine months ended September 30, 2007 included a goodwill impairment charge of $18.0 million related to our Jacksonville division.



|                                                         |  |                                  |   |  |                                 |  |          |   |  |                    |   |  |       |  |       |  |          |   |  |                    |  
|-------------------------------------------------------- |  | -------------------------------- | - |  | ------------------------------- |  | -------- | - |  | ------------------ | - |  | ----- |  | ----- |  | -------- | - |  | ------------------ | -
|                                                         |  | Three Months Ended September 30, |   |  | Nine Months Ended September 30, | 
|                                                         |  | 2008                             |   |  | 2007                            |  | % Change |   |  | % ChangeSame Store |   |  | 2008  |  | 2007  |  | % Change |   |  | % ChangeSame Store |  
|Net new orders (1):                                      |  |                                  |   |  |                                 |  |          |   |  |                    |   |  |       |  |       |  |          |   |  |                    |  
|Southern California                                      |  | 218                              |   |  | 356                             |  | (39%     | ) |  | (32%               | ) |  | 772   |  | 1,134 |  | (32%     | ) |  | (35%               | )
|Northern California                                      |  | 122                              |   |  | 164                             |  | (26%     | ) |  | (16%               | ) |  | 494   |  | 587   |  | (16%     | ) |  | (19%               | )
|                                                         |  |                                  |   |  |                                 |  |          |   |  |                    |   |  |       |  |       |  |          |   |  |                    |  
|Total California                                         |  | 340                              |   |  | 520                             |  | (35%     | ) |  | (27%               | ) |  | 1,266 |  | 1,721 |  | (26%     | ) |  | (30%               | )
|                                                         |  |                                  |   |  |                                 |  |          |   |  |                    |   |  |       |  |       |  |          |   |  |                    |  
|Arizona (2)                                              |  | 100                              |   |  | 150                             |  | (33%     | ) |  | (13%               | ) |  | 382   |  | 501   |  | (24%     | ) |  | (14%               | )
|Texas (2)                                                |  | 117                              |   |  | 196                             |  | (40%     | ) |  | (49%               | ) |  | 438   |  | 710   |  | (38%     | ) |  | (51%               | )
|Colorado                                                 |  | 54                               |   |  | 79                              |  | (32%     | ) |  | (6%                | ) |  | 160   |  | 314   |  | (49%     | ) |  | (24%               | )
|Nevada                                                   |  | 15                               |   |  | 30                              |  | (50%     | ) |  | 0%                 |   |  | 40    |  | 71    |  | (44%     | ) |  | (25%               | )
|                                                         |  |                                  |   |  |                                 |  |          |   |  |                    |   |  |       |  |       |  |          |   |  |                    |  
|Total Southwest                                          |  | 286                              |   |  | 455                             |  | (37%     | ) |  | (31%               | ) |  | 1,020 |  | 1,596 |  | (36%     | ) |  | (35%               | )
|                                                         |  |                                  |   |  |                                 |  |          |   |  |                    |   |  |       |  |       |  |          |   |  |                    |  
|Florida                                                  |  | 168                              |   |  | 174                             |  | (3%      | ) |  | 1%                 |   |  | 687   |  | 664   |  | 3%       |   |  | 3%                 |  
|Carolinas                                                |  | 127                              |   |  | 201                             |  | (37%     | ) |  | (32%               | ) |  | 434   |  | 714   |  | (39%     | ) |  | (47%               | )
|                                                         |  |                                  |   |  |                                 |  |          |   |  |                    |   |  |       |  |       |  |          |   |  |                    |  
|Total Southeast                                          |  | 295                              |   |  | 375                             |  | (21%     | ) |  | (17%               | ) |  | 1,121 |  | 1,378 |  | (19%     | ) |  | (23%               | )
|                                                         |  |                                  |   |  |                                 |  |          |   |  |                    |   |  |       |  |       |  |          |   |  |                    |  
|Consolidated total                                       |  | 921                              |   |  | 1,350                           |  | (32%     | ) |  | (26%               | ) |  | 3,407 |  | 4,695 |  | (27%     | ) |  | (30%               | )
|                                                         |  |                                  |   |  |                                 |  |          |   |  |                    |   |  |       |  |       |  |          |   |  |                    |  
|Unconsolidated joint ventures (3):                       |  |                                  |   |  |                                 |  |          |   |  |                    |   |  |       |  |       |  |          |   |  |                    |  
|Southern California                                      |  | 23                               |   |  | 108                             |  | (79%     | ) |  | (32%               | ) |  | 98    |  | 334   |  | (71%     | ) |  | (36%               | )
|Northern California                                      |  | 24                               |   |  | 22                              |  | 9%       |   |  | 118%               |   |  | 72    |  | 101   |  | (29%     | ) |  | (0%                | )
|Florida                                                  |  | 3                                |   |  |                                |  |         |   |  |                   |   |  | 3     |  |      |  |         |   |  |                   |  
|Illinois                                                 |  | (1                               | ) |  | 3                               |  | (133%    | ) |  | (167%              | ) |  | (2)   |  | 16    |  | (113%    | ) |  | (125%              | )
|                                                         |  |                                  |   |  |                                 |  |          |   |  |                    |   |  |       |  |       |  |          |   |  |                    |  
|Total unconsolidated joint ventures                      |  | 49                               |   |  | 133                             |  | (63%     | ) |  | (13%               | ) |  | 171   |  | 451   |  | (62%     | ) |  | (30%               | )
|                                                         |  |                                  |   |  |                                 |  |          |   |  |                    |   |  |       |  |       |  |          |   |  |                    |  
|Discontinued operations                                  |  | 8                                |   |  | 127                             |  | (94%     | ) |  |                   |   |  | 103   |  | 438   |  | (76%     | ) |  | 104%               |  
|                                                         |  |                                  |   |  |                                 |  |          |   |  |                    |   |  |       |  |       |  |          |   |  |                    |  
|Total (including joint ventures) (3)                     |  | 978                              |   |  | 1,610                           |  | (39%     | ) |  | (22%               | ) |  | 3,681 |  | 5,584 |  | (34%     | ) |  | (26%               | )
|                                                         |  |                                  |   |  |                                 |  |          |   |  |                    |   |  |       |  |       |  |          |   |  |                    |  
|Average number of selling communities during the period: |  |                                  |   |  |                                 |  |          |   |  |                    |   |  |       |  |       |  |          |   |  |                    |  
|Southern California                                      |  | 37                               |   |  | 41                              |  | (10%     | ) |  |                    |   |  | 40    |  | 38    |  | 5%       |   |  |                    |  
|Northern California                                      |  | 23                               |   |  | 26                              |  | (12%     | ) |  |                    |   |  | 26    |  | 25    |  | 4%       |   |  |                    |  
|                                                         |  |                                  |   |  |                                 |  |          |   |  |                    |   |  |       |  |       |  |          |   |  |                    |  
|Total California                                         |  | 60                               |   |  | 67                              |  | (10%     | ) |  |                    |   |  | 66    |  | 63    |  | 5%       |   |  |                    |  
|                                                         |  |                                  |   |  |                                 |  |          |   |  |                    |   |  |       |  |       |  |          |   |  |                    |  
|Arizona (2)                                              |  | 13                               |   |  | 17                              |  | (24%     | ) |  |                    |   |  | 16    |  | 18    |  | (11%     | ) |  |                    |  
|Texas (2)                                                |  | 29                               |   |  | 25                              |  | 16%      |   |  |                    |   |  | 30    |  | 24    |  | 25%      |   |  |                    |  
|Colorado                                                 |  | 8                                |   |  | 11                              |  | (27%     | ) |  |                    |   |  | 8     |  | 12    |  | (33%     | ) |  |                    |  
|Nevada                                                   |  | 2                                |   |  | 4                               |  | (50%     | ) |  |                    |   |  | 3     |  | 4     |  | (25%     | ) |  |                    |  
|                                                         |  |                                  |   |  |                                 |  |          |   |  |                    |   |  |       |  |       |  |          |   |  |                    |  
|Total Southwest                                          |  | 52                               |   |  | 57                              |  | (9%      | ) |  |                    |   |  | 57    |  | 58    |  | (2%      | ) |  |                    |  
|                                                         |  |                                  |   |  |                                 |  |          |   |  |                    |   |  |       |  |       |  |          |   |  |                    |  
|Florida                                                  |  | 45                               |   |  | 47                              |  | (4%      | ) |  |                    |   |  | 46    |  | 46    |  | 0%       |   |  |                    |  
|Carolinas                                                |  | 29                               |   |  | 31                              |  | (6%      | ) |  |                    |   |  | 30    |  | 26    |  | 15%      |   |  |                    |  
|                                                         |  |                                  |   |  |                                 |  |          |   |  |                    |   |  |       |  |       |  |          |   |  |                    |  
|Total Southeast                                          |  | 74                               |   |  | 78                              |  | (5%      | ) |  |                    |   |  | 76    |  | 72    |  | 6%       |   |  |                    |  
|                                                         |  |                                  |   |  |                                 |  |          |   |  |                    |   |  |       |  |       |  |          |   |  |                    |  
|Consolidated total                                       |  | 186                              |   |  | 202                             |  | (8%      | ) |  |                    |   |  | 199   |  | 193   |  | 3%       |   |  |                    |  
|                                                         |  |                                  |   |  |                                 |  |          |   |  |                    |   |  |       |  |       |  |          |   |  |                    |  
|Unconsolidated joint ventures (3):                       |  |                                  |   |  |                                 |  |          |   |  |                    |   |  |       |  |       |  |          |   |  |                    |  
|Southern California                                      |  | 5                                |   |  | 16                              |  | (69%     | ) |  |                    |   |  | 6     |  | 13    |  | (54%     | ) |  |                    |  
|Northern California                                      |  | 4                                |   |  | 8                               |  | (50%     | ) |  |                    |   |  | 5     |  | 7     |  | (29%     | ) |  |                    |  
|Florida                                                  |  | 1                                |   |  |                                |  |         |   |  |                    |   |  |      |  |      |  |         |   |  |                    |  
|Illinois                                                 |  | 1                                |   |  | 2                               |  | (50%     | ) |  |                    |   |  | 1     |  | 2     |  | (50%     | ) |  |                    |  
|                                                         |  |                                  |   |  |                                 |  |          |   |  |                    |   |  |       |  |       |  |          |   |  |                    |  
|Total unconsolidated joint ventures                      |  | 11                               |   |  | 26                              |  | (58%     | ) |  |                    |   |  | 12    |  | 22    |  | (45%     | ) |  |                    |  
|                                                         |  |                                  |   |  |                                 |  |          |   |  |                    |   |  |       |  |       |  |          |   |  |                    |  
|Discontinued operations                                  |  |                                 |   |  | 25                              |  | (100%    | ) |  |                    |   |  | 3     |  | 26    |  | (88%     | ) |  |                    |  
|                                                         |  |                                  |   |  |                                 |  |          |   |  |                    |   |  |       |  |       |  |          |   |  |                    |  
|Total (including joint ventures) (3)                     |  | 197                              |   |  | 253                             |  | (22%     | ) |  |                    |   |  | 214   |  | 241   |  | (11%)    |   |  |                    |  
|                                                         |  |                                  |   |  |                                 |  |          |   |  |                    |   |  |       |  |       |  |          |   |  |                    |  



|(1) | Net new orders are new orders for the purchase of homes during the period, less cancellations during such period of existing contracts for the purchase of homes.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | Arizona and Texas exclude the Tucson and San Antonio divisions, which are classified as discontinued operations.
|--- | ----------------------------------------------------------------------------------------------------------------



|(3) | Numbers presented regarding unconsolidated joint ventures reflect total net new orders and average selling communities of such joint ventures. Our ownership interests in these joint
ventures vary but are generally less than or equal to 50%.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Net new orders companywide (excluding joint ventures and
discontinued operations) for the 2008 third quarter decreased 32% to 921 new homes. Our consolidated cancellation rate for the 2008 third quarter was 26% compared to 35% in the 2007 third quarter and 25% in the 2008 second quarter. Our cancellation
rate as a percentage of beginning backlog for the 2008 third quarter was 22% compared to 28%



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---

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in the year earlier period. This decrease was primarily the result of the significant decline in our backlog levels as well as a decrease in our cancellation
rates as compared to prior year. Our absolute sales absorption rates continued to reflect difficult housing conditions in most of our markets, resulting from reduced housing affordability, and the higher level of homes available for sale in the
marketplace, including elevated levels of foreclosure properties. These conditions have been magnified by the tightening of available mortgage credit for homebuyers, including increased pricing, decreased availability of jumbo loans and the virtual
elimination of Alt-A mortgage products. These and other conditions have resulted in a declining home price environment which has contributed to an erosion of homebuyer confidence, a decrease in the pool of qualified buyers and a
resulting decrease in our new home sales volume. These slower sales trends have continued into October where our orders have been off even more than the sales absorption rates experienced during the 2008 third quarter.

Net new orders in California (excluding joint ventures) for the 2008 third quarter decreased 35% from the 2007 third quarter on a 10% lower community
count. Net new home orders during the quarter were down 39% year-over-year in Southern California on a 10% lower average community count. The decrease was due to weaker overall housing demand despite a slight decrease in the cancellation rate to 31%
in the 2008 third quarter, compared to 37% in the 2007 third quarter and 34% in the 2008 second quarter. Net new orders for the 2008 third quarter were down 26% year-over-year in Northern California on a 12% lower community count. Our cancellation
rate in Northern California of 24% for the 2008 third quarter was down from 34% in the year earlier but up from the 16% cancellation rate experienced in the 2008 second quarter.

Net new orders in the Southwest for the 2008 third quarter were down 37% year-over-year. Net new home orders for the 2008 third quarter were down 33% in
Arizona on a 24% lower average community count. The cancellation rate in Arizona was 19% in the 2008 third quarter, an improvement from 36% in the year earlier period and 23% in the 2008 second quarter. Order activity continued to slide in Texas as
evidenced by the 40% decline in net orders during the 2008 third quarter on a 16% higher average community count which reflected the weaker demand experienced in both the Dallas and Austin markets over the last several quarters. In Colorado, net new
orders for the 2008 third quarter were down 32% on a 27% lower community count, in what has been a challenging market. Orders in our Las Vegas division in Nevada were down 50%, which continues to be one of the weakest housing markets in the country.

In the Southeast, net new orders (excluding joint ventures) decreased 21% during the 2008 third quarter from the year earlier period. Net
new orders in Florida decreased 3% during the 2008 third quarter on a 4% lower community count. All of the Florida markets in which we operate continue to experience erosion in buyer demand and an increased level of available homes on the market,
with South Florida experiencing some of the worst housing market conditions in the country. Our 23% cancellation rate for the 2008 third quarter in Florida was flat with the 2008 second quarter, but was down meaningfully from 49% in the year earlier
period. Net new orders in the Carolinas were off 37% on a 6% lower community count as a result of continued slowing in housing demand in these markets.



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|                                     |  |                  |  |       |  |          |  
|------------------------------------ |  | ---------------- |  | ----- |  | -------- | -
|                                     |  | At September 30, | 
|                                     |  | 2008             |  | 2007  |  | % Change |  
|Backlog (in homes):                  |  |                  |  |       |  |          |  
|Southern California                  |  | 230              |  | 645   |  | (64%     | )
|Northern California                  |  | 154              |  | 234   |  | (34%     | )
|                                     |  |                  |  |       |  |          |  
|Total California                     |  | 384              |  | 879   |  | (56%     | )
|                                     |  |                  |  |       |  |          |  
|Arizona (1)                          |  | 140              |  | 269   |  | (48%     | )
|Texas (1)                            |  | 219              |  | 402   |  | (46%     | )
|Colorado                             |  | 103              |  | 192   |  | (46%     | )
|Nevada                               |  | 14               |  | 39    |  | (64%     | )
|                                     |  |                  |  |       |  |          |  
|Total Southwest                      |  | 476              |  | 902   |  | (47%     | )
|                                     |  |                  |  |       |  |          |  
|Florida                              |  | 261              |  | 346   |  | (25%     | )
|Carolinas                            |  | 127              |  | 294   |  | (57%     | )
|                                     |  |                  |  |       |  |          |  
|Total Southeast                      |  | 388              |  | 640   |  | (39%     | )
|                                     |  |                  |  |       |  |          |  
|Consolidated total                   |  | 1,248            |  | 2,421 |  | (48%     | )
|                                     |  |                  |  |       |  |          |  
|Unconsolidated joint ventures (2):   |  |                  |  |       |  |          |  
|Southern California                  |  | 25               |  | 209   |  | (88%     | )
|Northern California                  |  | 20               |  | 62    |  | (68%     | )
|Florida                              |  | 3                |  |      |  |         |  
|Illinois                             |  | 1                |  | 9     |  | (89%     | )
|                                     |  |                  |  |       |  |          |  
|Total unconsolidated joint ventures  |  | 49               |  | 280   |  | (83%     | )
|                                     |  |                  |  |       |  |          |  
|Discontinued operations              |  |                 |  | 166   |  | (100%    | )
|                                     |  |                  |  |       |  |          |  
|Total (including joint ventures) (2) |  | 1,297            |  | 2,867 |  | (55%     | )
|                                     |  |                  |  |       |  |          |  



|(1) | Arizona and Texas exclude the Tucson and San Antonio divisions, which are classified as discontinued operations.
|--- | ----------------------------------------------------------------------------------------------------------------



|(2) | Numbers presented regarding unconsolidated joint ventures reflect total backlog of such joint ventures. Our ownership interests in these joint ventures vary but are generally less
than or equal to 50%.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                               |  |                  |         |      |   |           |  |       |  
|---------------------------------------------- |  | ---------------- | ------- | ---- | - | --------- |  | ----- | -
|                                               |  | At September 30, |        
|                                               |  | 2008             |         | 2007 |   | % Change  | 
|Backlog (estimated dollar value in thousands): |  |                  |         |      |   |           |  |       |  
|Southern California                            |  | $                | 117,962 |      | $ | 419,164   |  | (72%  | )
|Northern California                            |  |                  | 59,928  |      |   | 111,465   |  | (46%  | )
|                                               |  |                  |         |      |   |           |  |       |  
|Total California                               |  |                  | 177,890 |      |   | 530,629   |  | (66%  | )
|                                               |  |                  |         |      |   |           |  |       |  
|Arizona (1)                                    |  |                  | 30,413  |      |   | 76,752    |  | (60%  | )
|Texas (1)                                      |  |                  | 64,950  |      |   | 111,616   |  | (42%  | )
|Colorado                                       |  |                  | 31,609  |      |   | 73,386    |  | (57%  | )
|Nevada                                         |  |                  | 3,408   |      |   | 11,345    |  | (70%  | )
|                                               |  |                  |         |      |   |           |  |       |  
|Total Southwest                                |  |                  | 130,380 |      |   | 273,099   |  | (52%  | )
|                                               |  |                  |         |      |   |           |  |       |  
|Florida                                        |  |                  | 57,880  |      |   | 89,072    |  | (35%  | )
|Carolinas                                      |  |                  | 29,507  |      |   | 73,578    |  | (60%  | )
|                                               |  |                  |         |      |   |           |  |       |  
|Total Southeast                                |  |                  | 87,387  |      |   | 162,650   |  | (46%  | )
|                                               |  |                  |         |      |   |           |  |       |  
|Consolidated total                             |  |                  | 395,657 |      |   | 966,378   |  | (59%  | )
|                                               |  |                  |         |      |   |           |  |       |  
|Unconsolidated joint ventures (2):             |  |                  |         |      |   |           |  |       |  
|Southern California                            |  |                  | 21,924  |      |   | 117,848   |  | (81%  | )
|Northern California                            |  |                  | 11,444  |      |   | 43,168    |  | (73%  | )
|Florida                                        |  |                  | 839     |      |   |          |  |      |  
|Illinois                                       |  |                  | 1,236   |      |   | 7,873     |  | (84%  | )
|                                               |  |                  |         |      |   |           |  |       |  
|Total unconsolidated joint ventures            |  |                  | 35,443  |      |   | 168,889   |  | (79%  | )
|                                               |  |                  |         |      |   |           |  |       |  
|Discontinued operations                        |  |                  |        |      |   | 39,662    |  | (100% | )
|                                               |  |                  |         |      |   |           |  |       |  
|Total (including joint ventures) (2)           |  | $                | 431,100 |      | $ | 1,174,929 |  | (63%  | )
|                                               |  |                  |         |      |   |           |  |       |  



|(1) | Arizona and Texas exclude the Tucson and San Antonio divisions, which are classified as discontinued operations.
|--- | ----------------------------------------------------------------------------------------------------------------



|(2) | Numbers presented regarding unconsolidated joint ventures reflect total backlog of such joint ventures. Our ownership interests in these joint ventures vary but are generally less
than or equal to 50%.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The dollar value of our backlog (excluding joint ventures and discontinued operations) decreased 59%
from the year earlier period to approximately $395.7 million at September 30, 2008, reflecting a slowdown in order activity experienced during 2008 as a result of weaker housing market conditions combined with a shorter average escrow period
from sales contract date to delivery date.



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|                                               |  |                  |  |        |  |          |  
|---------------------------------------------- |  | ---------------- |  | ------ |  | -------- | -
|                                               |  | At September 30, | 
|                                               |  | 2008             |  | 2007   |  | % Change |  
|Building sites owned or controlled:            |  |                  |  |        |  |          |  
|Southern California                            |  | 6,213            |  | 10,227 |  | (39%     | )
|Northern California                            |  | 3,536            |  | 5,588  |  | (37%     | )
|                                               |  |                  |  |        |  |          |  
|Total California                               |  | 9,749            |  | 15,815 |  | (38%     | )
|                                               |  |                  |  |        |  |          |  
|Arizona (1)                                    |  | 2,407            |  | 4,367  |  | (45%     | )
|Texas (1)                                      |  | 2,039            |  | 3,750  |  | (46%     | )
|Colorado                                       |  | 423              |  | 869    |  | (51%     | )
|Nevada                                         |  | 2,335            |  | 2,922  |  | (20%     | )
|                                               |  |                  |  |        |  |          |  
|Total Southwest                                |  | 7,204            |  | 11,908 |  | (40%     | )
|                                               |  |                  |  |        |  |          |  
|Florida                                        |  | 7,696            |  | 10,236 |  | (25%     | )
|Carolinas                                      |  | 2,436            |  | 4,239  |  | (43%     | )
|Illinois                                       |  | 60               |  | 154    |  | (61%     | )
|                                               |  |                  |  |        |  |          |  
|Total Southeast                                |  | 10,192           |  | 14,629 |  | (30%     | )
|                                               |  |                  |  |        |  |          |  
|Discontinued operations                        |  | 6                |  | 4,678  |  | (100%    | )
|                                               |  |                  |  |        |  |          |  
|Total (including joint ventures)               |  | 27,151           |  | 47,030 |  | (42%     | )
|                                               |  |                  |  |        |  |          |  
|Building sites owned                           |  | 19,757           |  | 25,528 |  | (23%     | )
|Building sites optioned or subject to contract |  | 3,401            |  | 6,649  |  | (49%     | )
|Joint venture lots                             |  | 3,987            |  | 10,175 |  | (61%     | )
|                                               |  |                  |  |        |  |          |  
|Total continuing operations                    |  | 27,145           |  | 42,352 |  | (36%     | )
|Discontinued operations                        |  | 6                |  | 4,678  |  | (100%    | )
|                                               |  |                  |  |        |  |          |  
|Total (including joint ventures)               |  | 27,151           |  | 47,030 |  | (42%     | )
|                                               |  |                  |  |        |  |          |  



|(1) | Arizona and Texas exclude the Tucson and San Antonio divisions, which are classified as discontinued operations.
|--- | ----------------------------------------------------------------------------------------------------------------

Total building sites owned and controlled as of September 30, 2008 decreased 42% from the year earlier period, which reflects our efforts to
generate cash, reduce our real estate inventories, and to better align our land supply with the current level of new housing demand. These efforts were furthered by the sale of approximately 6,300 lots since September 30, 2007, including the
sale of substantially all of our Tucson and San Antonio assets, and our decision to abandon various land purchase and lot option contracts.



|                                            |  |                  |  |       |  |          |  
|------------------------------------------- |  | ---------------- |  | ----- |  | -------- | -
|                                            |  | At September 30, | 
|                                            |  | 2008             |  | 2007  |  | % Change |  
|Completed and unsold homes:                 |  |                  |  |       |  |          |  
|Consolidated (1)                            |  | 374              |  | 571   |  | (35%     | )
|Joint ventures (1)                          |  | 17               |  | 23    |  | (26%     | )
|                                            |  |                  |  |       |  |          |  
|Total continuing operations                 |  | 391              |  | 594   |  | (34%     | )
|Discontinued operations                     |  | 2                |  | 79    |  | (97%     | )
|                                            |  |                  |  |       |  |          |  
|Total                                       |  | 393              |  | 673   |  | (42%     | )
|                                            |  |                  |  |       |  |          |  
|Spec homes under construction:              |  |                  |  |       |  |          |  
|Consolidated (1)                            |  | 1,148            |  | 1,334 |  | (14%     | )
|Joint ventures (1)                          |  | 286              |  | 418   |  | (32%     | )
|                                            |  |                  |  |       |  |          |  
|Total continuing operations                 |  | 1,434            |  | 1,752 |  | (18%     | )
|Discontinued operations                     |  |                 |  | 71    |  | (100%    | )
|                                            |  |                  |  |       |  |          |  
|Total                                       |  | 1,434            |  | 1,823 |  | (21%     | )
|                                            |  |                  |  |       |  |          |  
|Homes under construction (including specs): |  |                  |  |       |  |          |  
|Consolidated (1)                            |  | 2,143            |  | 3,280 |  | (35%     | )
|Joint ventures (1)                          |  | 327              |  | 648   |  | (50%     | )
|                                            |  |                  |  |       |  |          |  
|Total continuing operations                 |  | 2,470            |  | 3,928 |  | (37%     | )
|Discontinued operations                     |  |                 |  | 211   |  | (100%    | )
|                                            |  |                  |  |       |  |          |  
|Total                                       |  | 2,470            |  | 4,139 |  | (40%     | )
|                                            |  |                  |  |       |  |          |  



|(1) | Excludes the Tucson and San Antonio divisions, which are classified as discontinued operations.
|--- | -----------------------------------------------------------------------------------------------

The number of completed and unsold homes from continuing operations (excluding joint ventures) as of September 30, 2008 decreased 35% from
September 30, 2007 to 374 homes and decreased 46% from December 31, 2007 as a result of our efforts to move completed spec homes. The number of homes under construction from continuing operations (exclusive of joint ventures) as of
September 30, 2008 decreased



-44-



---

##### Table of Contents

35% from the year earlier period to 2,143 units in response to our increased focus on managing the level of our speculative inventory and our desire to
better match new construction starts with lower sales volume and demand.

Financial Services

In the 2008 third quarter, our financial services subsidiary generated a pretax loss of approximately $614,000 compared to a pretax loss of $1.3 million
in the year earlier period. The decrease in pretax loss was driven by a $1.1 million net increase in unrealized gains on loans held for sale, an increase in margins on loans sold during the 2008 third quarter, and a decrease in fixed and variable
personnel expenses due to a reduction in headcount to better align our fixed overhead with lower production levels. These charges were partially offset by a 46% year-over-year decrease in the volume of loans sold during the 2008 third quarter. The
decrease in loan sales was primarily the result of a decrease in new home deliveries in the markets in which our financial services subsidiary operates.

The following table sets forth information regarding loan originations and related credit statistics for our mortgage banking operations (exclusive of our mortgage financing joint ventures):



|                                             |  |                                  |  |     
|-------------------------------------------- |  | -------------------------------- |  | ----
|                                             |  | Three Months Ended September 30,
|                                             |  | 2008                             |  | 2007
|Mortgage Loan Origination Product Mix:       |  |                                  |  |     
|Conforming loans                             |  | 38%                              |  | 59% 
|Jumbo loans                                  |  | 10%                              |  | 28% 
|Government loans                             |  | 51%                              |  | 8%  
|Other loans                                  |  | 1%                               |  | 5%  
|                                             |  |                                  |  |     
|                                             |  | 100%                             |  | 100%
|                                             |  |                                  |  |     
|Loan Type:                                   |  |                                  |  |     
|Fixed                                        |  | 94%                              |  | 80% 
|ARM                                          |  | 6%                               |  | 20% 
|ARM loans 3 5 year initial adjustment period |  | 100%                             |  | 95% 
|Interest only (ARMs)                        |  | 54%                              |  | 85% 
|Credit Quality:                              |  |                                  |  |     
|FICO score 3 700                             |  | 95%                              |  | 85% 
|FICO score between 699 - 620                 |  | 5%                               |  | 14% 
|FICO score < 620 (sub-prime loans)           |  | 0%                               |  | 1%  
|Avg. FICO score                              |  | 729                              |  | 739 
|Other Data:                                  |  |                                  |  |     
|Avg. combined LTV ratio                      |  | 87%                              |  | 84% 
|Full documentation loans                     |  | 97%                              |  | 64% 
|Non-Full documentation loans                 |  | 3%                               |  | 36% 
|Loan Capture Rates                           |  | 83%                              |  | 76% 

Income Taxes

As a result of the continued downturn in the housing market and the uncertainty as to its magnitude and length, we recorded a noncash valuation allowance of $134.1 million, net of the reversal of a portion of the
deferred tax asset valuation allowance discussed below, during the three months ended September 30, 2008 against our net deferred tax assets in accordance with Statement of Financial Accounting Standards No. 109, Accounting for
Income Taxes, resulting in a total valuation allowance of $529.2 million at September 30, 2008. To the extent that we generate eligible taxable income in the future to utilize the tax benefits of the related deferred tax assets, we will
be able to reduce our effective tax rate by reducing the valuation allowance.



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During the three months ended September 30, 2008, we recognized an income tax benefit as a result of
filing a $20.8 million refund claim related to our 2007 federal income tax return, which resulted in the reversal of a portion of the deferred tax asset valuation allowance.

We believe that an ownership change under Internal Revenue Code Section 382 (Section 382) occurred as a result of closing the first
phase of the MatlinPatterson transaction. Accordingly, we may be limited on the use of certain tax attributes that relate to tax periods prior to the ownership change. As such, included in the valuation allowance against our deferred tax asset is a
$39.8 million charge related to the potential Section 382 limitation on our ability to carry 2008 tax losses back to 2006 for refund purposes. We are in the process of evaluating these potential carryback limitations, including soliciting a
private ruling from the IRS to clarify the application of these rules to our specific facts, and to the extent we receive a successful outcome to such request, we may be able to reverse a portion of the current valuation allowance in a subsequent
period.

Discontinued Operations

During the fourth quarter of 2007, we sold substantially all of our Tucson and San Antonio assets. The results of operations of our Tucson and San Antonio divisions have been classified as discontinued operations in
accordance with Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, and prior periods have been reclassified to conform with current year presentation.

Net losses from discontinued operations for the three months ended September 30, 2008 and 2007 were approximately $69,000 and $5.9 million,
respectively. Net losses from discontinued operations for the nine months ended September 30, 2008 and 2007 were approximately $2.0 million and $45.6 million, respectively.

Liquidity and Capital Resources

Our principal uses of cash have been for:



| |  |  | land acquisitions
| | - |  | -----------------



| |  |  | operating expenses
| | - |  | ------------------



| |  |  | joint ventures (including capital contributions, remargin payments, and purchases of assets and partner interests)
| | - |  | ------------------------------------------------------------------------------------------------------------------



| |  |  | construction and development expenditures
| | - |  | -----------------------------------------



| |  |  | principal and interest payments on debt (including market repurchases)
| | - |  | ----------------------------------------------------------------------



| |  |  | market expansion (including acquisitions)
| | - |  | -----------------------------------------



| |  |  | share repurchases
| | - |  | -----------------



| |  |  | dividends to our stockholders
| | - |  | -----------------------------

Cash
requirements have been met by:



| |  |  | internally generated funds
| | - |  | --------------------------



| |  |  | bank revolving credit facility
| | - |  | ------------------------------



| |  |  | land option contracts
| | - |  | ---------------------



| |  |  | land seller notes
| | - |  | -----------------



| |  |  | sales of our equity through public and private offerings
| | - |  | --------------------------------------------------------



| |  |  | proceeds received upon the exercise of employee stock options
| | - |  | -------------------------------------------------------------



| |  |  | public and private note offerings (including convertible notes)
| | - |  | ---------------------------------------------------------------



| |  |  | bank term loans
| | - |  | ---------------



| |  |  | joint venture financings
| | - |  | ------------------------



| |  |  | assessment district bond financings
| | - |  | -----------------------------------



| |  |  | issuance of common stock as acquisition consideration
| | - |  | -----------------------------------------------------



| |  |  | mortgage credit facilities
| | - |  | --------------------------



| |  |  | tax refunds
| | - |  | -----------

For the nine months
ended September 30, 2008, we generated approximately $198.0 million, $16.4 million and $275.2 million in cash flows from operating, investing and financing activities, respectively. These cash flows resulted from, among other things, a $235.6
million tax refund related to our 2007 federal tax return, MatlinPattersons purchase of 381,250 shares of our Senior Preferred Stock for $381.3 million (described below), the settlement of our rights offering for $152.5 million (described
below), our efforts to



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reduce our investment in homebuilding inventories (through a combination of reducing expenditures related to land acquisition and development, reducing
speculative construction starts, reducing investments in joint ventures and selling non-strategic assets) and a reduction in the level of mortgage loans held for sale by us. These cash flows were partially offset by the use of approximately $168.5
million in cash for exiting certain joint ventures (through either paying our partner to assume our interest, purchasing and unwinding joint ventures or accelerating our proportionate share of lot purchases from certain joint ventures) and
approximately $207.6 million in cash for financing activities related primarily to the net repayment of homebuilding and mortgage credit facility debt. The impact of these cash flow activities resulted in a net increase in our homebuilding cash
balance of approximately $492.8 million since December 31, 2007 resulting in a homebuilding cash balance of $712.0 million at September 30, 2008. Based on the substantial cash position as of September 30, 2008, the extinguishment of
debt in connection with the exchange for a warrant (described below), the available borrowing capacity under our revolving credit facility and our operating initiatives to generate cash, we believe our sources of capital are sufficient to meet our
liquidity needs for the foreseeable future.

MatlinPatterson Investment

On May 26, 2008, we entered into an Investment Agreement (the Investment Agreement) with MatlinPatterson. We consummated the following
transactions pursuant to the Investment Agreement:



| |  |  | On June 27, 2008, we issued 381,250 shares of a new series of senior convertible preferred stock (Senior Preferred Stock) to MatlinPatterson for
$381.3 million in cash. Upon obtaining stockholder approval on August 18, 2008, the shares of Senior Preferred Stock automatically converted into shares of Series B junior participating convertible preferred stock (the Series B
Preferred Stock), which are convertible into 125 million shares of our common stock;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | On June 27, 2008, MatlinPatterson exchanged $128.5 million of our senior and senior subordinated notes for a warrant to purchase 272,670 shares of Senior
Preferred Stock at a common stock equivalent exercise price of $4.10 per share (the Warrant), which became excercisable for Series B Preferred Stock following the receipt of stockholder approval on August 18, 2008. The shares of
Series B Preferred Stock issuable upon exercise of the Warrant (assuming MatlinPatterson does not make a cashless exercise) will initially be convertible into 89.4 million shares of our common stock; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We commenced a rights offering (Rights Offering) pursuant to which each holder of our common stock as of the record date of July 28, 2008 was
offered a right (Right) to purchase up to such holders pro rata share of 50 million shares of our common stock at a per share price of $3.05 (equivalent to approximately 0.69 shares of common stock for each Right). The offer
expired August 22, 2008 and rights to purchase approximately 27.2 million shares of common stock were exercised for a total subscription price of $82.9 million. As contemplated by the Investment Agreement, MatlinPatterson purchased from us
(in the form of Series B Preferred Stock), the 22.8 million equivalent shares of common stock not purchased by our existing common stockholders in the Rights Offering for a total subscription price of $69.6 million. In addition, we received
approximately $562,000 for subscription rights associated with borrowed shares related to our share lending facility.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Series B
Preferred Stock

The number of shares of common stock into which our Series B Preferred Stock is convertible is determined by dividing
$1,000 by the applicable conversion price (currently $3.05), subject to customary anti-dilution adjustments, plus cash in lieu of fractional shares. The Series B Preferred Stock ranks pari passu with our common stock and our Series A
Preferred Stock and junior to all of our other equity securities and has no liquidation preference over our common stock. The Series B Preferred Stock will be convertible at the holders option into shares of our common stock provided that no
holder, with its



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affiliates, may beneficially own total voting power of our voting stock in excess of 49%. The Series B Preferred Stock also mandatorily converts into our
common stock upon its sale, transfer or other disposition by MatlinPatterson or its affiliates to an unaffiliated third party. The Series B Preferred Stock votes together with our common stock on all matters upon which holders of our common stock
are entitled to vote. Each share of Series B Preferred Stock is entitled to such number of votes as the number of shares of our common stock into which such share of Series B Preferred Stock is convertible, provided that the aggregate votes
attributable to such shares with respect to any holder of Series B Preferred Stock (including its affiliates) cannot exceed more than 49% of the total voting power of the voting stock of the Company. Shares of Series B Preferred Stock are entitled
to receive only those dividends declared and paid on our common stock.

Revolving Credit Facility and Term Loans

On June 27, 2008, we amended our revolving credit facility, our Term Loan A and our Term Loan B (collectively, the Credit
Facilities) to, among other things, (i) reduce the total commitment under the revolving credit facility from $500 million to $395 million, (ii) pay down the unsecured borrowings under the revolver from $90 million to $55 million and
the unsecured Term Loan A balance from $100 million to $65 million, (iii) reduce the letter of credit sublimit under the revolver from $450 million to $100 million, (iv) agree to make quarterly principal amortization payments under the
Term Loan A and the revolver, of $2.5 million each (subject to increase to $5.0 million upon any future entry by the Company or its subsidiaries into certain types of credit facilities), and (v) agree to secure future revolver borrowings and
letters of credit (other than certain existing borrowings and letters of credit) with certain specified types of collateral (including model homes and other real property assets to be determined) based on specified loan-to-value ratios. In addition,
the commitment under the revolving credit facility will be reduced at the end of each calendar quarter by the face amount of all unsecured letters of credit that mature and are not renewed or are cancelled during such quarter. As of
September 30, 2008, we had approximately $62.5 million and $225.0 million outstanding on our Term Loan A and Term Loan B, respectively, and $52.5 million in borrowings outstanding and $40.8 million in letters of credit outstanding (of which
$36.6 million was unsecured) under our revolving credit facility which had a current commitment amount of $392.3 million.

Prior to
amending the Credit Facilities, we were not in compliance with our consolidated tangible net worth and leverage covenants contained in such facilities and were operating under a waiver extended by our bank group. In connection with the amendments to
the Credit Facilities, the financial covenants contained in such facilities were modified to eliminate covenants relating to consolidated tangible net worth, leverage, unsold land and minimum interest coverage. The borrowing base covenant and
limitations on joint venture investments were also eliminated. The amended Credit Facilities contain a new liquidity test requiring us to maintain either a minimum ratio of cash flow from operations to consolidated home building interest incurred or
a minimum cash interest reserve equal to our last four fiscal quarters actual interest incurred and also prohibit, subject to various exceptions, the repurchase of capital stock, payment of dividends, the early repayment of debt and the
incurrence of debt. The limitation on incurring new debt contains a number of exceptions including $270 million to $500 million of ACI debt (dependent on whether we have fully secured the revolving credit facility and Term Loan A borrowings),
non-recourse indebtedness, subordinated debt, and up to $400 million of new senior unsecured debt having a maturity of at least 180 days after the maturity dates of the revolving credit facility and Term Loan A. The financial covenants, including
elimination of the borrowing base, and certain other provisions of our $225 million Term Loan B were automatically amended to match those of the revolver and Term Loan A as of the effective time of the amendments of the Credit Facilities. Also, in
connection with the amendments to the Credit Facilities, certain waivers previously granted under the facilities were permanently extended.



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Our covenant compliance for the Credit Facilities at September 30, 2008 is set forth in the table
below:



|                                                                               |  |                             |  |                                          |     
|------------------------------------------------------------------------------ |  | --------------------------- |  | ---------------------------------------- | ----
|Covenant                                                                       |  | Actual atSeptember 30, 2008 |  | CovenantRequirement atSeptember 30, 2008
|Cash Flow Coverage Ratio:                                                      |  |                             |  |                                          |     
|Cash Flow from Operations to Consolidated Homebuilding Interest Incurred Ratio |  | 4.59                        |  | 3                                        | 1.75

While we were in compliance with the cash flow coverage ratio covenant as of September 30,
2008, we may be unable to meet this ratio in the future. Assuming we were unable to satisfy this ratio as of September 30, 2008, we would have been required to deposit approximately $127.1 million of cash in a restricted cash account with our
agent bank.

Senior and Senior Subordinated Notes

In addition to our Credit Facilities, as of September 30, 2008, we had $1,174.2 million of senior and senior subordinated notes outstanding (the Notes). The Notes contain certain restrictive
covenants, including a limitation on additional indebtedness and a limitation on restricted payments. Under the limitation on additional indebtedness, we are permitted to incur specified categories of indebtedness but are prohibited, aside from
those exceptions, from incurring further indebtedness if we do not satisfy either a leverage condition or an interest coverage condition. While, as of September 30, 2008, we satisfied the leverage condition, we may be unable to satisfy this
condition in the near term. As a result, our ability to incur further indebtedness may be limited. Exceptions to this limitation include new borrowings of up to $550 million under bank credit facilities (including our revolving credit facility),
subject to available borrowing sources, and indebtedness incurred for the purpose of refinancing or repaying existing indebtedness. We believe that these exceptions and our homebuilding cash balance of $712.0 million at September 30, 2008,
which includes cash held in our unrestricted subsidiaries, provide us with substantial resources and alternatives to fund our cash needs.

Under the limitation on restricted payments, we are also prohibited from making restricted payments, which include investments in joint ventures, if we do not satisfy either the leverage condition or interest coverage condition. Our ability
to make restricted payments is also subject to a basket limitation. Investments in joint ventures (and other restricted payments) may continue to be made, however, from funds held in our unrestricted subsidiaries. Based on current estimated funding
requirements, we believe that the funds in our unrestricted subsidiaries are sufficient to fund our future joint venture investment obligations.

Our leverage and interest coverage conditions contained in our 51/8% Senior Notes due 2009 (our most restrictive series of Notes based on the leverage ratio condition as of September 30, 2008) are set forth in the table
below:



|                                                      |  |                             |  |                                           |      |    
|----------------------------------------------------- |  | --------------------------- |  | ----------------------------------------- | ---- | ---
|Covenant and Other Requirements                       |  | Actual atSeptember 30, 2008 |  | CovenantRequirements atSeptember 30, 2008 |     
|Total Leverage Ratio:                                 |  |                             |  |                                           |      |    
|Indebtedness to Consolidated Tangible Net Worth Ratio |  | 2.12                        |  | £                                         | 2.25 | (1)
|Interest Coverage Ratio:                              |  |                             |  |                                           |      |    
|EBITDA to Consolidated Interest Incurred              |  | 0.51                        |  | 3                                         | 2.00 |    



|(1) | The leverage ratio condition under the indenture governing our 9 1/4% Senior Subordinated Notes due 2012 is £2.50.
|--- | ------------------------------------------------------------------------------------------------------------------

During the nine months ended September 30, 2008, we repurchased and simultaneously retired
approximately $22.5 million of our 61/2% Senior Notes due 2008 through open market purchases. In connection with these open
market purchases, we recognized a $1.1 million gain from the early



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extinguishment of debt as the notes were purchased at a discount to their par value. At September 30, 2008, our remaining balance of the 61/2% Senior Notes due 2008 was $103.5 million. This amount was repaid in full on October 1, 2008, upon the maturity of these
notes.

On May 22, 2008, we obtained the written consent of a majority
of the holders of our 91/4% Senior Subordinated Notes due 2012 to modify certain provisions to be consistent with the analogous,
less restrictive provisions applicable to our 73/4% Senior Notes due 2013. Among other things, the definitions of consolidated
tangible net worth and restricted investment, as well as the limitation on restricted payments, were amended.

In conjunction with the Investment Agreement, MatlinPatterson exchanged $128.5 million of senior
and senior subordinated notes (consisting of $25.5 million of 51/8% Senior Notes due 2009, $2.0 million of 61/2% Senior Notes due 2010, $21.6 million of 6% Senior Subordinated Convertible Notes due 2012 and $79.5 million of 91/4% Senior Subordinated Notes due 2012) for the Warrant to purchase 272,670 shares of Series B Preferred Stock at a common stock
equivalent exercise price of $4.10 per share. In connection with this exchange, we recognized a loss of $9.1 million during the nine months ended September 30, 2008 related to the extinguishment of the debt which was included in other income
(expense) in the accompanying condensed consolidated statements of operations.

Senior Subordinated Convertible Notes

We have $78.5 million of 6% Senior Subordinated Convertible Notes (the Convertible Notes) due on October 1, 2012. In
connection with these notes we entered into a convertible note hedge transaction designed to reduce equity dilution associated with the potential conversion of the Convertible Notes to our common stock. In connection with the Rights Offering, the
conversion rate applicable to our 6% Convertible Senior Subordinated Notes due 2012 was adjusted to 119.5312 shares (equivalent to a conversion price of $8.37) of our common stock per $1,000 principal amount of the notes. The conversion rate prior
to such adjustment was 114.2857 shares (equivalent to an initial conversion price of $8.75 per share), of the Companys common stock per $1,000 principal amount of the notes. The new conversion rate is subject to further adjustments as provided
in the indenture governing the notes.

To facilitate transactions by which investors in the Convertible Notes may hedge their investments
in such Convertible Notes, we entered into a share lending facility with an affiliate of one of the underwriters in the Convertible Notes offering, under which we agreed to loan to the share borrower 7,839,809 shares of our common stock for a period
beginning on the date we entered into the share lending facility and ending on October 1, 2012, or, if earlier, the date as of which we have notified the share borrower of our intention to terminate the facility after the entire principal
amount of the Convertible Notes ceases to be outstanding as a result of conversion, repurchase or redemption, or earlier in certain circumstances.

Joint Venture Loans

As described more particularly under the heading Off-Balance Sheet Arrangements beginning
on page 53, in connection with our land development and homebuilding joint ventures we typically obtain secured acquisition, development and construction financing, which reduces the use of funds from corporate financing sources. However, as market
conditions have deteriorated we have been required to expend corporate funds for previously unanticipated obligations associated with these joint ventures. From time to time, we may be required to utilize corporate financing sources with respect to
certain of these joint ventures to:



| |  |  | satisfy margin calls with respect to our loan-to-value maintenance obligations;
| | - |  | -------------------------------------------------------------------------------



| |  |  | satisfy the margin calls of non-performing partners on their loan-to-value maintenance obligations;
| | - |  | ---------------------------------------------------------------------------------------------------



| |  |  | satisfy indemnification obligations with respect to surety bonds;
| | - |  | -----------------------------------------------------------------



| |  |  | buy-out non-performing partner's ownership interests and satisfy outstanding joint venture debt;
| | - |  | ------------------------------------------------------------------------------------------------



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| |  |  | fund payments to joint venture partners and lenders to obtain releases from joint ventures that we elect to exit;
| | - |  | -----------------------------------------------------------------------------------------------------------------



| |  |  | fund cost overruns associated with completion obligations; and
| | - |  | --------------------------------------------------------------



| |  |  | finance acquisition and development and/or construction costs following termination or step-down of joint venture financing that the joint venture is unable to
restructure, extend, or refinance with a third party lender.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

To the extent we utilize corporate financing sources to
satisfy these potential joint venture obligations, such use reduces the amount of capital we otherwise have available for planned corporate expenditures. In addition, if we are unable to satisfy the conditions required to make restricted payments
contained in our senior and senior subordinated notes, we will be required to utilize corporate funds held in our unrestricted subsidiaries to fund such obligations, which will reduce our ability to utilize those funds to satisfy other obligations
that would otherwise be considered restricted payments.

At September 30, 2008, our unconsolidated joint ventures had borrowings
outstanding that totaled approximately $512.2 million and equity that totaled approximately $392.4 million.

Other Financing Sources

Trust Deed and Other Notes Payable. From time to time, we use purchase money mortgage financing to finance land acquisitions. We also use community
development district (CDD), community facilities district or other similar assessment district bond financings from time to time to finance land development and infrastructure costs. Subject to certain exceptions, we generally are not
responsible for the repayment of these assessment district bonds. At September 30, 2008, we had approximately $71.5 million outstanding in trust deed and other notes payable, including $38.6 million in secured debt that was assumed in
connection with unwinding one joint venture during the 2008 second quarter and $3.8 million related to CDD bonds.

Mortgage Credit
Facilities. During the three months ended September 30, 2008, our mortgage financing subsidiary utilized four mortgage credit facilities to fund its operations with commitments aggregating $148 million and with maturity dates ranging from
January to June 2009. Two of the mortgage credit facilities with an aggregate borrowing capacity totaling $80 million are uncommitted (meaning that the lender has discretion to refuse to fund requests) and require that Standard Pacific
Mortgage maintain cash collateral accounts aggregating $4.0 million. At September 30, 2008, we had approximately $65.1 million advanced under the four mortgage credit facilities and as of and for the three and nine months ended
September 30, 2008, we were in compliance with the financial and other covenants contained in these facilities, except that we did not satisfy the profitability covenant contained in the $60 million facility for the three month period ended
September 30, 2008. On October 7, 2008, we obtained a permanent waiver for this noncompliance.

Surety Bonds. Surety
bonds serve as a source of liquidity for the Company because they are used in lieu of cash deposits and letters of credit that would otherwise be required by governmental entities and other third parties to ensure our completion of the
infrastructure of our projects. At September 30, 2008, we had approximately $306.1 million in surety bonds outstanding from continuing operations (exclusive of surety bonds related to our joint ventures), with respect to which we had an
estimated $135.2 million remaining in cost to complete. As a result of the recent deterioration in market conditions, surety providers have become increasingly reluctant to issue new bonds and some have asked for security with respect to outstanding
bonds. If we are unable to obtain required bonds in the future, or are required to provide security for existing bonds, our liquidity would be negatively impacted.

Tax Refunds. For the taxable year ended December 31, 2007, we generated a tax refund of $256.4 million related to federal net operating loss (NOL) carrybacks of which $235.6 million was
collected in February 2008 and $20.8 million remains to be collected. In addition, for the 2008 taxable year, we have



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generated a tax refund through the nine months ended September 30, 2008 of approximately $66.2 million, net of potential Section 382 limitations.
As of September 30, 2008, we had a federal income tax receivable of approximately $87.0 million, which is included in homebuilding other assets.

We believe that an ownership change under Section 382 occurred as a result of closing the first phase of the MatlinPatterson transaction. Accordingly, we may be limited in the use of certain tax attributes that
are attributed to tax periods prior to the ownership change, which may potentially decrease the amount of federal taxes previously paid that are available for NOL carrybacks for the taxable year ended December 31, 2008. We are in the process of
evaluating these potential carryback limitations, including soliciting a private ruling from the IRS to clarify the application of these rules to our specific facts, and to the extent we receive a successful outcome to such request, we may be able
to reverse a portion of the current valuation allowance and the federal tax receivable for the taxable year ended December 31, 2008 may increase.

Availability of Additional Liquidity

The availability of additional capital, whether from private capital sources
(including banks) or the public capital markets, fluctuates as market conditions change. There may be times when the private capital markets and the public debt or equity markets lack sufficient liquidity or when our securities cannot be sold at
attractive prices, in which case we would not be able to access capital from these sources. Based on current market conditions and our financial condition (including our likely near-term inability to satisfy the conditions contained in our public
note indentures that are required to be satisfied to permit us to incur additional indebtedness), our ability to effectively access these liquidity sources is significantly limited. In addition, a further weakening of our financial condition or
strength, including in particular a material increase in our leverage or a further decrease in our profitability or cash flows, could adversely affect our ability to obtain necessary funds, result in a credit rating downgrade or change in outlook,
or otherwise increase our cost of borrowing. During 2007 and 2008, the three credit rating agencies downgraded our corporate and debt ratings and/or changed their outlook to negative due to deterioration in our financial condition, coupled with the
wide-spread decline in the general homebuilding market. It is possible that additional downgrades could occur for us if our financial condition and/or the outlook for the homebuilding industry deteriorate further.

Dividends

We paid no dividends to our stockholders
during the nine months ended September 30, 2008. Common stock dividends are paid at the discretion of our Board of Directors and are dependent upon various factors, including our earnings, our financial condition and liquidity, our capital
requirements, and applicable legal and contractual restrictions. Additionally, our revolving credit facility, public note indentures, and senior term loans impose restrictions on our ability to pay dividends. Subject to limited exceptions, we are
prohibited by the terms of our revolving credit facility, senior term loans and public note indentures from paying dividends (other than dividends paid in the form of capital stock or through an accretion to the liquidation preference of any capital
stock).

Stock Repurchase Program

On
July 26, 2006, our Board of Directors authorized a $50 million stock repurchase plan. Through August 5, 2008, no shares have been repurchased under the stock repurchase plan and we have suspended further repurchases under the plan until we
reach our leverage and liquidity goals and the outlook for the housing market improves. In connection with the vesting of restricted stock grants made under our equity incentive plans, we repurchased an aggregate of approximately 215,531 shares from
our executive officers to fund vesting-related tax obligations totaling approximately $726,000. We are currently prohibited by the terms of our revolving credit facility, senior term loans, and public note indentures from repurchasing capital stock
for cash.



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Leverage

Our adjusted homebuilding leverage ratio (as measured by adjusted net homebuilding debt, which reflects the offset of homebuilding cash and excludes indebtedness of our financial services subsidiary and liabilities from inventories not
owned, to adjusted total book capitalization) was 53% at September 30, 2008. Our leverage level has been negatively impacted over the last two years due to the reduction in our equity base as a result of the significant level of impairments
incurred by us. The impact of these impairments on our leverage has been offset in part by the equity raised in the transactions contemplated by the Investment Agreement. Our leverage and debt levels, including usage of our revolving credit
facility, can be impacted quarter-to-quarter by seasonal cash flow factors, as well as other factors, such as the timing and magnitude of deliveries, land purchases, joint venture funding requirements, acquisitions of other homebuilders, the
consolidation of joint ventures into our condensed consolidated financial statements, changes in demand for new homes (including an increase in our cancellation rate), and inventory and goodwill impairment charges, land deposit write-offs and
deferred tax valuation allowance charges. Excluding the impact and timing of recording impairments, historically, our leverage increases during the first three quarters of the year and reaches a low at year end.

Off-Balance Sheet Arrangements

Land Purchase and Option
Agreements

We are subject to customary obligations associated with entering into contracts for the purchase of land and improved
homesites. These purchase contracts typically require a cash deposit or delivery of a letter of credit, and the purchase of properties under these contracts is generally contingent upon satisfaction of certain requirements by the sellers, including
obtaining applicable property and development entitlements. We also utilize option contracts with land sellers and third-party financial entities as a method of acquiring land in staged takedowns, to help us manage the financial and market risk
associated with land holdings, and to reduce the use of funds from our corporate financing sources. Option contracts generally require a non-refundable deposit for the right to acquire lots over a specified period of time at predetermined prices. We
generally have the right at our discretion to terminate our obligations under both purchase contracts and option contracts by forfeiting our cash deposit or by repaying amounts drawn under our letter of credit with no further financial
responsibility to the land seller. Also, in a few instances where we have entered into option contracts with third party financial entities, we have generally entered into construction agreements that do not terminate if we elect not to exercise our
option. In these instances, we are generally obligated to complete land development improvements on the optioned property at a predetermined cost (paid by the option provider) and are responsible for all cost overruns. In some instances, we may also
expend funds for due diligence, development and construction activities with respect to these contracts prior to purchase, which we would have to write off should we not purchase the land. At September 30, 2008, we had cash deposits and letters
of credit outstanding of approximately $24.9 million and capitalized preacquisition and other development and construction costs of approximately $15.2 million relating to land purchase and option contracts having a total remaining purchase price of
approximately $261.5 million. Approximately $59.6 million of the remaining purchase price is included in inventories not owned in the accompanying condensed consolidated balance sheets.

Our utilization of option contracts is dependent on, among other things, the availability of land sellers willing to enter into option takedown
arrangements, the availability of capital to financial intermediaries, general housing market conditions, and geographic preferences. Options may be more difficult to procure from land sellers in strong housing markets and are more prevalent in
certain geographic regions.

For the three months ended September 30, 2008 and 2007, we incurred pretax charges (net of recoveries) of
approximately $8.9 million and $6.5 million, respectively, related to the write-offs of option deposits and capitalized preacquisition costs for abandoned projects. For the nine months ended September 30, 2008 and 2007, we incurred pretax
charges (net of recoveries) of approximately $17.1 million and $10.7 million, respectively, related to the write-offs of option deposits and capitalized preacquisition costs for abandoned projects. These charges were included in other income
(expense) in the accompanying



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condensed consolidated statements of operations. We continue to evaluate the terms of open land option and purchase contracts in light of slower housing
market conditions and may write-off additional option deposits and capitalized preacquisition costs in the future, particularly in those instances where land sellers or third party financial entities are unwilling to renegotiate significant contract
terms.

Land Development and Homebuilding Joint Ventures

We enter into land development and homebuilding joint ventures from time to time as a means of:



| |  |  | accessing lot positions
| | - |  | -----------------------



| |  |  | establishing strategic alliances
| | - |  | --------------------------------



| |  |  | leveraging our capital base
| | - |  | ---------------------------



| |  |  | expanding our market opportunities
| | - |  | ----------------------------------



| |  |  | managing the financial and market risk associated with land holdings
| | - |  | --------------------------------------------------------------------

These joint ventures typically obtain secured acquisition, development and construction financing, which reduce the use of funds from our corporate
financing sources. While over the long term we plan to continue using these types of arrangements from time to time to finance the development of properties, we have significantly reduced our participation in joint ventures and the use of this type
of financing during the current downturn. At September 30, 2008, our unconsolidated joint ventures had borrowings outstanding that totaled approximately $512.2 million and equity that totaled $392.4 million, compared to $1,028.1 million in
joint venture indebtedness and $944.0 million in equity as of September 30, 2007.

While we are generally not required to record our
unconsolidated joint venture borrowings on our consolidated balance sheets in accordance with U.S. generally accepted accounting principles, our potential future obligations to our joint venture partners and joint venture lenders include:



| |  |  | capital calls related to credit enhancements
| | - |  | --------------------------------------------



| |  |  | planned and unplanned capital contributions
| | - |  | -------------------------------------------



| |  |  | capital calls related to surety indemnities
| | - |  | -------------------------------------------



| |  |  | buy-sell obligations
| | - |  | --------------------



| |  |  | land development and construction completion obligations
| | - |  | --------------------------------------------------------



| |  |  | land takedown obligations
| | - |  | -------------------------



| |  |  | capital calls related to environmental indemnities
| | - |  | --------------------------------------------------



| |  |  | joint venture exit costs, including loan payoffs
| | - |  | ------------------------------------------------

Credit Enhancements. We and our joint venture partners generally provide credit enhancements in connection with joint venture borrowings in the form of loan-to-value maintenance agreements, which require us to
repay the ventures borrowings to the extent such borrowings plus, in certain circumstances, construction completion costs, exceed a specified percentage of the value of the property securing the loan. Typically, we share these obligations with
our other partners, and in some instances, these obligations are subject to limitations on the amount that we could be required to pay down. At September 30, 2008, approximately $245.0 million of our unconsolidated joint venture borrowings were
subject to these credit enhancements by us (of which $16.6 million we would be solely responsible for and $228.4 million of which we would be jointly and severally responsible with our partners, either directly under the credit enhancement or
through contribution provisions in the applicable joint venture document).

Additional Capital Contributions and Consolidation. Many
of our joint venture agreements require that we and our joint venture partners make additional capital contributions, including contributions for planned development and construction costs, cost overruns, joint venture loan remargin obligations and
scheduled principal reduction payments. If our joint venture partners fail to make their required capital contributions, in addition to making our own required capital contribution, we may find it necessary to make an additional capital contribution
equal to the amount the partner was required to contribute. While making capital contributions on behalf of our partners may allow us to exercise various remedies under our joint venture operating agreements (including diluting our partners
equity interest and/or profit distribution percentage), making these contributions could also result in our being required to consolidate the operations of the applicable joint venture into our condensed consolidated financial statements which may
negatively impact our leverage covenants. Also, if we have a dispute with one of our joint venture partners and are



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unable to resolve it, the buy-sell provision in the applicable joint venture agreement may be triggered or we may enter into a negotiated settlement. In such
an instance, we may be required to either sell our interest to our partner or purchase our partners interest. If we are required to purchase our partners interest, we will be required to fund this purchase (including satisfying any joint
venture indebtedness), as well as to complete the joint venture project, utilizing corporate financing sources. If we sell our interest to our partner, we may be required to make a payment to induce our partner to release us from our venture
obligations. Based on current market conditions, it is likely that we and our joint venture partners will be required to make additional capital contributions to certain of our joint ventures. The need for additional capital contributions, whether
from us or our joint venture partners, could also result in disagreements that lead to buy-sell provisions being triggered in the future. If we are required to fund these contributions on behalf of our partners, such action would also potentially
require the consolidation of the impacted ventures into our condensed consolidated financial statements.

Land Development and
Construction Completion Agreements. We and our joint venture partners are generally obligated to the project lenders to complete land development improvements and the construction of planned homes if the joint venture does not perform the
required development and construction. Provided that we and the other joint venture partners are in compliance with these completion obligations, the project lenders would be obligated to fund these improvements through any financing commitments
available under the applicable joint venture development and construction loans, with any completion costs in excess of the funding commitments being borne directly by us and our joint venture partners.

Land Takedown Obligations.Our land development joint ventures in some cases require us to purchase lots from the venture at pre-agreed to times
and prices. As market conditions deteriorate, the required purchase terms of these lots may become uneconomic.

Environmental
Indemnities. We and our joint venture partners have from time to time provided unsecured environmental indemnities to joint venture project lenders. In each case, we have performed due diligence on potential environmental risks. These
indemnities obligate us and, in certain instances, our joint venture partners, to reimburse the project lenders for claims related to environmental matters for which they are held responsible.

Surety Indemnities. We and our joint venture partners have also agreed to indemnify third party surety providers with respect to performance bonds
issued on behalf of certain of our joint ventures. If a joint venture does not perform its obligations, the surety bond could be called. If these surety bonds are called and the joint venture fails to reimburse the surety, we and our joint venture
partners would be obligated to indemnify the surety. These surety indemnity arrangements are generally joint and several obligations with our joint venture partners. At September 30, 2008, our joint ventures had approximately $34.6 million of
surety bonds outstanding subject to these indemnity arrangements by us and our partners.

Recent Developments Related to our Joint
Ventures. As of September 30, 2008, we held membership interests in 33 homebuilding and land development joint ventures (excluding discontinued operations), of which 20 were active and 13 were inactive or winding down. Of the 20 active
homebuilding and land development joint ventures (excluding discontinued operations), 10 had project specific financing as of September 30, 2008. The following table reflects certain financial and other information related to select
homebuilding and land development joint ventures, including our 10 largest joint ventures based on total assets as of September 30, 2008, representing over approximately 90% of the assets and debt of our unconsolidated joint ventures.



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|                                                           |  |            |           |                    |         |                          |         |         |                             |         |                                   |        |         |                                |  |        |  |     |     |  |    
|---------------------------------------------------------- |  | ---------- | --------- | ------------------ | ------- | ------------------------ | ------- | ------- | --------------------------- | ------- | --------------------------------- | ------ | ------- | ------------------------------ |  | ------ |  | --- | --- |  | ---
|                                                           |  |            |           |                    |         | As of September 30, 2008
|                                                           |  | YearFormed |           | Location           |         | Total Joint Venture      |         |         | Debt-to-TotalCapitalization |         | Loan-to-ValueMaintenanceAgreement |        |         | ConstructionCompletionGuaranty
|Joint Venture Name                                         |  |            |           | Assets             |         | Debt                     |         | Equity  |                             |         |                                   |       
|                                                           |  |            |           |                    |         | (Dollars in thousands)  
|Homebuilding:                                              |  |            |           |                    |         |                          |         |         |                             |         |                                   |        |         |                                |  |        |  |     |     |  |    
|Walnut Acquisition                                         |  | 2004       |           | Pasadena, CA       |         | $                        | 42,417  |         | $                           | 47,916  |                                   | $      | (6,325  | )                              |  | 115.2% |  | Yes |     |  | Yes
|LB/L - Duc II Scally Ranch                                 |  | 2002       |           | AmericanCanyon, CA |         |                          | 32,141  |         |                             | 27,511  |                                   |        | (1,495  | )                              |  | 105.7% |  | Yes |     |  | Yes
|Chatelaine II Ventures                                     |  | 2004       |           | Los Angeles, CA    |         |                          | 26,259  |         |                             | 24,947  |                                   |        | (10     | )                              |  | 100.0% |  | Yes |     |  | Yes
|Sanctuary Club                                             |  | 2006       |           | Chicago, IL        |         |                          | 23,441  |         |                             | 19,342  |                                   |        | 1,911   |                                |  | 91.0%  |  | Yes |     |  | Yes
|                                                           |  |            |           |                    |         |                          |         |         |                             |         |                                   |        |         |                                |  |        |  |     |     |  |    
|Subtotal select homebuilding joint ventures                |  |            | 124,258   |                    |         | 119,716                  |         |         | (5,919                      | )       |                                   | 105.2% |         |                                |  |        | 
|                                                           |  |            |           |                    |         |                          |         |         |                             |         |                                   |        |         |                                |  |        |  |     |     |  |    
|Land Development:                                          |  |            |           |                    |         |                          |         |         |                             |         |                                   |        |         |                                |  |        | 
|Black Mountain Ranch                                       |  | 2003       |           | San Diego, CA      |         |                          | 115,670 |         |                             | 36,726  |                                   |        | 49,210  |                                |  | 42.7%  |  | Yes |     |  | Yes
|Menifee Development                                        |  | 2002       |           | Menifee, CA        |         |                          | 45,899  |         |                             | 36,146  |                                   |        | 1,863   |                                |  | 95.1%  |  | Yes |     |  | Yes
|November 2005                                              |  |            |           |                    |         |                          |         |         |                             |         |                                   |        |         |                                |  |        |  |     |     |  |    
|Land Investors                                             |  | 2005       |           | Las Vegas, NV      |         |                          | 474,984 |         |                             | 224,224 |                                   |        | 195,354 |                                |  | 53.4%  |  | No  | (3) |  | No 
|Riverpark Legacy                                           |  | 2004       |           | Oxnard, CA         |         |                          | 59,835  |         |                             |        |                                   |        | 54,450  |                                |  | 0.0%   |  | N/A |     |  | N/A
|Talega Associates (1)                                      |  | 1997       |           | San Clemente, CA   |         |                          | 76,745  |         |                             | 50,025  |                                   |        | 23,102  |                                |  | 68.4%  |  | Yes |     |  | Yes
|Centennial Founders                                        |  | 2000       |           | Valencia, CA       |         |                          | 44,430  |         |                             |        |                                   |        | 44,107  |                                |  | 0.0%   |  | N/A |     |  | N/A
|                                                           |  |            |           |                    |         |                          |         |         |                             |         |                                   |        |         |                                |  |        |  |     |     |  |    
|Subtotal select land development joint ventures            |  |            | 817,563   |                    |         | 347,121                  |         |         | 368,086                     |         |                                   | 48.5%  |         |                                |  |        | 
|                                                           |  |            |           |                    |         |                          |         |         |                             |         |                                   |        |         |                                |  |        |  |     |     |  |    
|Subtotal of select joint ventures                          |  |            |           |                    | 941,821 |                          |         | 466,837 |                             |         | 362,167                           |        |         | 56.3%                          |  |        |  |     |    
|                                                           |  |            |           |                    |         |                          |         |         |                             |         |                                   |        |         |                                |  |        |  |     |     |  |    
|Other homebuilding and land development joint ventures (2) |  |            | 66,498    |                    |         | 21,984                   |         |         | 31,331                      |         |                                   | 41.2%  |         |                                |  |        | 
|Discontinued operations (4)                                |  |            |           |                    | 24,568  |                          |         | 23,363  |                             |         | (1,106                            | )      |         | 105.0%                         |  |        |  |     |    
|                                                           |  |            |           |                    |         |                          |         |         |                             |         |                                   |        |         |                                |  |        |  |     |     |  |    
|Total homebuilding and land development joint ventures     |  | $          | 1,032,887 |                    | $       | 512,184                  |         | $       | 392,392                     |         |                                   | 56.6%  |         |                                |  |        | 
|                                                           |  |            |           |                    |         |                          |         |         |                             |         |                                   |        |         |                                |  |        |  |     |     |  |    



|(1) | This predominantly land development joint venture, originally consisting of approximately 3,800 lots, also includes two homebuilding projects with an aggregate of approximately 150
lots.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | Represents approximately 23 unconsolidated homebuilding and land development joint ventures (excluding discontinued operations), of which 10 have ongoing homebuilding or land
development activities and 13 are either inactive or winding down.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | As of September 30, 2008, we were obligated to purchase approximately $21.9 million of lots from this joint venture pursuant to a take-down schedule beginning in the 2008
fourth quarter.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(4) | Reflects discontinued operations related to our Tucson operation.
|--- | -----------------------------------------------------------------

The ability of certain of these joint ventures to comply with the covenants contained in their joint venture loan documents (such as loan-to-value requirements, takedown schedules, sales hurdles, and construction and completion deadlines)
have been impacted by the recent market downturn. The following lists a number of recent developments regarding our joint ventures.



| |  |  | Loan-to-Value Maintenance Related Payments.During the nine months ended September 30, 2008, we made $20.7 million of loan remargin payments related to
three of our Southern California and Arizona joint ventures.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Renegotiation/Loan Extension.At any point in time we are generally in the process of financing, refinancing, renegotiating or extending one or more of our
joint venture loans. This action may be required, for example, in the case of an expired maturity date or a failure to comply with the loans covenants. There can be no assurance that we will be able to successfully finance, refinance,
renegotiate or extend, on terms we deem acceptable, all of the joint venture loans that we are currently in the process of negotiating. If we were unsuccessful in these efforts, we could be required to repay one or more of these loans from corporate
liquidity sources.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Purchases and Consolidation. Purchasing a joint ventures assets and paying off its debt increases our leverage and absolute consolidated debt levels.
During the nine months ended September 30, 2008, we purchased and unwound two Southern California joint ventures for approximately $53.0 million and assumed $47.7 million of joint venture indebtedness related to one joint venture.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Joint Ventures Exited and Acceleration of Joint Venture Lot Purchases. During the nine months ended September 30, 2008, we and our joint venture partner
unwound one Southern California joint venture, whereby each partner purchased their proportionate share of the lots from the joint venture. In addition, we accelerated the takedown of substantially all of the lots from one Southern
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | California joint venture and one Arizona joint venture. In connection with these lot purchases, we accelerated the take-down of 1,186 lots from these joint
ventures for approximately $112.3 million. During the three months ended September 30, 2008, we exited two Northern California joint ventures for a combined payment of approximately $3.3 million.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Restriction on Investments in Joint Ventures.As described above under the heading Senior and Senior Subordinated Notes, the limitation on
restricted payments contained in our public note indentures currently prohibits us from making additional investments in joint ventures (including, without limitation, remargin payments, loan pay-offs, and additional capital contributions), except
through the use of funds held by our unrestricted subsidiaries. We believe the funds held in our unrestricted subsidiaries are sufficient to satisfy our joint venture obligations for the foreseeable future.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Recent Accounting Pronouncements

In February 2007,
the FASB issued Statement of Financial Accounting Standards No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (SFAS 159), which includes amendments to FASB Statement No. 115,
Accounting for Certain Investments in Debt and Equity Securities. SFAS 159 permits entities to measure financial instruments and certain related items at their fair value at specified election dates. SFAS 159 is effective for financial
statements issued for fiscal years beginning after November 15, 2007. We have elected not to implement SFAS 159 as of January 1, 2008, however, we will continue to evaluate for possible future implementation for new financial instruments.

In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (SFAS 141R). SFAS 141R
broadens the guidance of SFAS 141, extending its applicability to all transactions and other events in which one entity obtains control over one or more other businesses. It broadens the fair value measurement and recognition of assets acquired,
liabilities assumed, and interests transferred as a result of business combinations. SFAS 141R expands on required disclosures to improve the statement users abilities to evaluate the nature and financial effects of business combinations. SFAS
141R is effective for our fiscal year beginning January 1, 2009. We do not believe adopting SFAS 141R will have a material impact on our financial condition or results of operations.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statementsan amendment of ARB
No. 51 (SFAS 160). SFAS 160 requires that a noncontrolling interest in a subsidiary be reported as equity and the amount of consolidated net income specifically attributable to the noncontrolling interest be identified in the
consolidated financial statements. It also calls for consistency in the manner of reporting changes in the parents ownership interest and requires fair value measurement of any noncontrolling equity investment retained in a deconsolidation.
SFAS 160 is effective for our fiscal year beginning January 1, 2009. Upon adoption on January 1, 2009, the amount remaining in minority interests will be classified as a separate component in stockholders equity. We do not believe
adopting SFAS 160 will have a material impact on our financial condition or results of operations.

In March 2008, the FASB issued SFAS
No. 161, Disclosures about Derivative Instruments and Hedging Activities (SFAS 161). SFAS 161 changes the disclosure requirements for derivative instruments and hedging activities accounted for under FASB issued SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS 133). Under SFAS 161, entities will be required to provide enhanced disclosures about (a) how and why an entity uses derivative
instruments, (b) how derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entitys financial
position, financial performance, and cash flows. SFAS 161 is effective for our fiscal year beginning January 1, 2009.



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In May 2008, the FASB issued APB No. 14-1, Accounting for Convertible Debt Instruments That
May Be Settled in Cash upon Conversion (Including Partial Cash Settlement) (FSP 14-1). This FSP would require bifurcation of a component of convertible debt instruments, classification of that component in stockholders
equity, and then accretion of the resulting discount on the debt to result in interest expense equal to the issuers nonconvertible debt borrowing rate. Early adoption is not permitted and retroactive application is required for all
periods presented. FSP 14-1 is effective for our fiscal year beginning January 1, 2009. Upon adoption on January 1, 2009, approximately $25 million of our Senior Subordinated Convertible Notes due in 2012 will be classified in
stockholders equity, and the remaining principal amount of the notes will be accreted to its redemption value, approximately $78.5 million, through interest expense over the remaining term of these notes.

On August 27, 2008, the SEC announced that it will issue for comment a proposed roadmap regarding the potential use of International Financial
Reporting Standards (IFRS) for the preparation of financial statements by U.S. registrants. IFRS are standards and interpretations adopted by the International Accounting Standards Board. Under the proposed roadmap, we anticipate that we
would be required to prepare financial statements in accordance with IFRS in fiscal 2014, including comparative information also prepared under IFRS for fiscal 2013 and fiscal 2012. We are currently assessing the potential impact of IFRS on our
financial statements and will continue to follow the proposed roadmap for future developments.



|ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|------- | ----------------------------------------------------------

We are exposed to market risks related to fluctuations in interest rates on our rate-locked loan commitments, mortgage loans held for sale and outstanding variable rate debt. Other than interest rate swaps used to manage our exposure to
changes in interest rates on our variable rate-based term loans and forward sale commitments of mortgage-backed securities entered into by our financial services subsidiary for the purpose of hedging interest rate risk as described below, we did not
utilize swaps, forward or option contracts on interest rates, foreign currencies or commodities, or other types of derivative financial instruments as of or during the nine months ended September 30, 2008. We do not enter into or hold
derivatives for trading or speculative purposes. You should be aware that many of the statements contained in this section are forward looking and should be read in conjunction with our disclosures under the heading Forward-Looking
Statements.

We have interest rate swap agreements that effectively fixed our 3-month LIBOR rates for our term loans through their
scheduled maturity dates. The swap agreements have been designated as cash flow hedges and as of September 30, 2008, the estimated fair value of the swaps represented a liability of $17.8 million and were included in accrued liabilities in our
condensed consolidated balance sheets.

As part of our ongoing operations, we provide mortgage loans to our homebuyers through our
financial services subsidiary, Standard Pacific Mortgage, and our mortgage financing joint venture, SPH Home Mortgage. Our mortgage financing joint venture, and for a portion of its loan originations, Standard Pacific Mortgage, manage the interest
rate risk associated with making loan commitments and holding loans for sale by preselling loans. Preselling loans consists of obtaining commitments (subject to certain conditions) from investors to purchase the mortgage loans while concurrently
extending interest rate locks to loan applicants. In the case of our mortgage financing joint venture, these loans are presold and promptly transferred to our financial institution partner or third party investors. In the case of Standard Pacific
Mortgage, these loans are presold to third party investors. Before completing the sale to these investors, Standard Pacific Mortgage finances these loans under its mortgage credit facilities for a short period of time (typically for 15 to 30 days),
while the investors complete their administrative review of the applicable loan documents. Due to the frequency of these loan sales and the commitments from third party investors, we have decided not to hedge the interest rate risk associated with
these presold loans. However, these commitments may not fully protect Standard Pacific Mortgage from losses relating to changes in interest rates or loan programs or purchaser non-performance, particularly during periods of significant market
turmoil. As of September 30, 2008, Standard Pacific Mortgage held approximately $9.5 million in closed mortgage loans held for sale and mortgage loans in process that were presold to third party investors subject to completion of the
investors administrative review of the applicable loan documents.



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Standard Pacific Mortgage also originates a significant portion of its mortgage loans on a non-presold
basis. The loans originated on a non-presold basis are substantially "conforming" or "government" loans, which are loans eligible for sale to, or guarantee by, a government sponsored enterprise, such as Fannie Mae, Freddie Mac,
the Federal Housing Administration or the Veterans Administration. When originating on a non-presold basis, Standard Pacific Mortgage locks interest rates with its customers and funds loans prior to obtaining purchase commitments from
third party investors, thereby creating interest rate risk. To hedge this interest rate risk, Standard Pacific Mortgage enters into forward sale commitments of mortgage-backed securities. Loans originated in this manner are typically held by
Standard Pacific Mortgage and financed under its mortgage credit facilities for 15 to 45 days before the loans are sold to third party investors. Standard Pacific Mortgage utilizes the services of a third party advisory firm to assist with the
execution of its hedging strategy for loans originated on a non-presold basis. While this hedging strategy is designed to assist Standard Pacific Mortgage in mitigating risk associated with originating loans on a non-presold basis, these instruments
involve elements of market risk that could result in losses on loans originated in this manner. In addition, volatility in mortgage interest rates can also increase the costs associated with this hedging program and therefore, adversely impact
margins on loan sales. As of September 30, 2008, Standard Pacific Mortgage had approximately $112.1 million of closed mortgage loans held for sale and loans in process that were or are expected to be originated on a non-presold basis, all of
which were hedged by forward sale commitments of mortgage-backed securities prior to entering into sale transactions with third party investors.



|ITEM 4. | CONTROLS AND PROCEDURES
|------- | -----------------------

Conclusion Regarding the Effectiveness
of Disclosure Controls and Procedures

As of the end of the period covered by this Quarterly Report on Form 10-Q, we carried out an
evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as such
term is defined in Exchange Act Rules 13a-15(e) and 15d-15(e), including controls and procedures to timely alert management to material information relating to Standard Pacific Corp. and subsidiaries required to be included in our periodic SEC
filings. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures are effective.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control
over financial reporting that occurred during our most recently completed fiscal quarter that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.



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FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. In addition,
other statements we may make from time to time, such as press releases, oral statements made by Company officials and other reports we file with the Securities and Exchange Commission, may also contain such forward-looking statements. These
statements, which represent our expectations or beliefs regarding future events, may include, but are not limited to, statements regarding:



| |  |  | our emphasis on generating positive cash flow, strengthening our balance sheet and improving our liquidity;
| | - |  | -----------------------------------------------------------------------------------------------------------



| |  |  | reducing homebuilding inventories;
| | - |  | ----------------------------------



| |  |  | the potential need to further reduce home prices or adjust discounts and the potential for additional impairments and further deposit and capitalized preacquisition
cost write-offs;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | a slowdown in demand and a decline in new home orders;
| | - |  | ------------------------------------------------------



| |  |  | housing market conditions in the geographic markets in which we operate;
| | - |  | ------------------------------------------------------------------------



| |  |  | sales orders, our backlog of homes and the estimated sales value of our backlog;
| | - |  | --------------------------------------------------------------------------------



| |  |  | the strength of our brand and our employees;
| | - |  | --------------------------------------------



| |  |  | the cancellation rate for sales orders;
| | - |  | ---------------------------------------



| |  |  | our intent to continue to utilize joint venture vehicles;
| | - |  | ---------------------------------------------------------



| |  |  | the likelihood that we will be required to make remargin payments with respect to joint venture borrowings (including on behalf of our partners) and their potential
effect on our liquidity and leverage;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the likelihood that we will be required to complete lot takedowns on uneconomic terms;
| | - |  | --------------------------------------------------------------------------------------



| |  |  | the potential need for additional capital contributions to joint ventures or that buy-sell provisions may be triggered and the potential effect on our liquidity and
leverage;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the sufficiency of our capital resources and ability to access additional capital, including the sufficiency of unrestricted funds available to satisfy joint
venture obligations and make other restricted payments;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | intensified efforts to manage cash flows, including slowing construction starts and reducing outlays for new land purchases;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------



| |  |  | managements focus on controlling leverage, our historical leverage trends and the seasonal nature of borrowings;
| | - |  | -----------------------------------------------------------------------------------------------------------------



| |  |  | the potential for additional rating downgrades;
| | - |  | -----------------------------------------------



| |  |  | our exposure to loss with respect to land under purchase contract and optioned property;
| | - |  | ----------------------------------------------------------------------------------------



| |  |  | the extent of our liability for VIE obligations and the estimates we utilize in making VIE determinations;
| | - |  | ----------------------------------------------------------------------------------------------------------



| |  |  | estimated remaining cost to complete the infrastructure of our projects;
| | - |  | ------------------------------------------------------------------------



| |  |  | future warranty costs;
| | - |  | ----------------------



| |  |  | litigation related costs;
| | - |  | -------------------------



| |  |  | our intention to have substantially exited the Tucson and San Antonio markets;
| | - |  | ------------------------------------------------------------------------------



| |  |  | our ability to comply with the covenants contained in our revolving credit facility and other debt instruments and our ability to obtain a waiver of any
non-compliance;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our plans with respect to stock repurchases;
| | - |  | --------------------------------------------



| |  |  | our ability to renegotiate, restructure or extend joint venture loans on acceptable terms;
| | - |  | ------------------------------------------------------------------------------------------



| |  |  | the estimated fair value of our swap agreements;
| | - |  | ------------------------------------------------



| |  |  | the market risk associated with loans originated by Standard Pacific Mortgage, Inc. on a pre-sold basis;
| | - |  | --------------------------------------------------------------------------------------------------------



| |  |  | the effectiveness and adequacy of our disclosure and internal controls;
| | - |  | -----------------------------------------------------------------------



| |  |  | our inability to obtain surety bonds, the need to provide security to obtain surety bonds, and the impact on our liquidity;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------



| |  |  | our ability to receive a successful outcome to our request for an IRS private letter ruling;
| | - |  | --------------------------------------------------------------------------------------------



| |  |  | our accounting treatment of stock-based compensation and the potential value of and expense related to stock option grants; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------



| |  |  | the impact of recent accounting pronouncements.
| | - |  | -----------------------------------------------



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Forward-looking statements are based on our current expectations or beliefs regarding future events or
circumstances, and you should not place undue reliance on these statements. Such statements involve known and unknown risks, uncertainties, assumptions and other factorsmany of which are out of our control and difficult to forecastthat
may cause actual results to differ materially from those that may be described or implied. Such factors include, but are not limited to, the following:



| |  |  | local and general economic and market conditions, including consumer confidence, employment rates, interest rates, housing affordability, the cost and availability
of mortgage financing, and stock market, home and land valuations;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the supply and pricing of homes available for sale in the new and resale markets;
| | - |  | ---------------------------------------------------------------------------------



| |  |  | the impact on economic conditions of terrorist attacks or the outbreak or escalation of armed conflict;
| | - |  | -------------------------------------------------------------------------------------------------------



| |  |  | the cost and availability of suitable undeveloped land, building materials and labor;
| | - |  | -------------------------------------------------------------------------------------



| |  |  | the cost and availability of construction financing and corporate debt and equity capital;
| | - |  | ------------------------------------------------------------------------------------------



| |  |  | our significant amount of debt and the impact of restrictive covenants in our credit agreements, public notes and private term loans and our ability to comply with
these covenants;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | potential adverse market and lender reaction to our financial condition and results of operations;
| | - |  | --------------------------------------------------------------------------------------------------



| |  |  | a negative change in our credit rating or outlook;
| | - |  | --------------------------------------------------



| |  |  | the demand for single-family homes;
| | - |  | -----------------------------------



| |  |  | cancellations of purchase contracts by homebuyers;
| | - |  | --------------------------------------------------



| |  |  | the cyclical and competitive nature of our business;
| | - |  | ----------------------------------------------------



| |  |  | governmental regulation, including the impact of slow growth, no growth, or similar initiatives;
| | - |  | ----------------------------------------------------------------------------------------------------



| |  |  | delays in the land entitlement and other approval processes, development, construction, or the opening of new home communities;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------



| |  |  | adverse weather conditions and natural disasters;
| | - |  | -------------------------------------------------



| |  |  | environmental matters;
| | - |  | ----------------------



| |  |  | risks relating to our mortgage financing operations, including hedging activities;
| | - |  | ----------------------------------------------------------------------------------



| |  |  | future business decisions and our ability to successfully implement our operational, growth and other strategies;
| | - |  | -----------------------------------------------------------------------------------------------------------------



| |  |  | risks relating to our unconsolidated joint ventures, including restricted payment, entitlement, development, contribution, completion, financing (including
remargining), investment, partner dispute and consolidation risk;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | risks relating to acquisitions;
| | - |  | -------------------------------



| |  |  | litigation and warranty claims; and
| | - |  | -----------------------------------



| |  |  | other risks discussed in this report and our other filings with the Securities and Exchange Commission, including in our most recent Annual Report on Form 10-K and
subsequent Form 10-Qs.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Except as required by law, we assume no, and hereby disclaim any, obligation to update any
of the foregoing or any other forward-looking statements. We nonetheless reserve the right to make such updates from time to time by press release, periodic report or other method of public disclosure without the need for specific reference to this
report. No such update shall be deemed to indicate that other statements not addressed by such update remain correct or create an obligation to provide any other updates.

PART II. OTHER INFORMATION



|ITEM 1. | LEGAL PROCEEDINGS
|------- | -----------------

Patel v. Parnes

On August 16, 2007, Plaintiff Vinod Patel filed a Complaint in the United States District Court for the Central District of California, titled
Patel v. Parnes, Case No. CV07-05364 MMM (SHx). The Complaint named Andrew Parnes, Standard Pacifics Chief Financial Officer, as a defendant. On December 3, 2007, the Court appointed Pinellas Park Retirement System,
Plumbers Local No. 98 Defined Benefit Pension Fund, and the City of Pontiac General Employees Retirement System as Lead Plaintiffs. On or about



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January 23, 2008, Lead Plaintiffs filed a Consolidated Class Action Complaint for Violations of Federal Securities Laws. The Consolidated Complaint
named Andrew Parnes and Stephen Scarborough, Standard Pacifics former Chief Executive Officer, President and Chairman of the Board, as defendants. The Consolidated Complaint did not name the Company as a defendant. In the
Consolidated Complaint, Plaintiffs sought to certify a class of all persons who purchased the publicly traded securities of Standard Pacific between October 27, 2005 and August 2, 2007. Plaintiffs alleged that the price of Standard
Pacifics common stock was artificially inflated during this period because Mr. Parnes and Mr. Scarborough provided false and misleading earnings and sales guidance to the public that lacked a reasonable basis due to the adverse
impact of rising interest rates, slowing housing markets and other macro-economic factors affecting Standard Pacific. Plaintiffs asserted claims against Mr. Parnes and Mr. Scarborough for violations of Sections 10(b) and 20(a) of the
Securities Exchange Act of 1934, and against Mr. Parnes for violation of Section 20A of the Securities Exchange Act of 1934.

Mr. Scarborough and Mr. Parnes filed a motion to dismiss the case on March 10, 2008. On May 19, 2008, the Court granted the motion, and dismissed the Consolidated Complaint with leave to amend. In its
May 19, 2008 order, the Court allowed Lead Plaintiffs until July 3, 2008 to file an amended complaint. On July 3, 2008, Lead Plaintiffs filed a Notice of Intent Not to File an Amended Complaint. Therefore, on August 11,
2008, the Court dismissed the action with prejudice.

Scarborough v. Standard Pacific Corp.

On September 9, 2008, former Standard Pacific Chief Executive Officer, President and Chairman Stephen J. Scarborough initiated an arbitration
proceeding in JAMS in Orange County, California alleging that by not paying him benefits of approximately $23 million in connection with the termination of his employment in March 2008 the Company violated the terms of his Change in Control
Agreement with the Company. Mr. Scarborough further alleges that the termination of his employment was wrongful and that his claims are not barred by the separation agreement he signed in March 2008 inasmuch as he asserts that he was
fraudulently induced to sign that agreement. The Company believes these claims are without merit and has filed a response to the complaint, denying all of the material allegations and setting forth a number of affirmative defenses. No date has
been set for a hearing on this claim.

Kartozian v. Standard Pacific Corp.

On October 2, 2008, former Standard Pacific Senior Vice President Jari Kartozian initiated an arbitration proceeding in JAMS in Orange County,
California alleging that by not paying her approximately $1.2 million in connection with the termination of her employment in May 2008 the Company violated the terms of her Change in Control Agreement with the Company. Ms. Kartozian further
alleges that she was the victim of age discrimination and that her termination of employment amounted to a wrongful termination in violation of public policy. Ms. Kartozian asserts that her claims are not barred by the separation agreement she
signed in May 2008 inasmuch as she was fraudulently induced to sign that agreement. The Company believes these claims are without merit and intends to file a response to the complaint within the next several weeks. No date has been set for a hearing
on this claim.

In addition, various other claims and actions that we consider normal to our business have been asserted and are pending
against us. We do not believe these claims and actions will have a material adverse effect upon our results of operations or financial position.



|ITEM 1A. | RISK FACTORS
|-------- | ------------

Please see the risk factors contained
in our quarterly report on Form 10-Q for the quarter ended June 30, 2008, which replaced in their entirety those risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2007, as updated in our
quarterly report on Form 10-Q for the quarter ended March 31, 2008.



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|ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|------- | -----------------------------------------------------------

As described more fully in our current Report on Form 8-K filed with the Securities and Exchange Commission on September 4, 2008, we issued 69,579 shares of Series B Preferred Stock to MP CA Homes, LLC on September 3, 2008.

During the three months ended September 30, 2008, we repurchased the following shares from executive officers and directors to
satisfy tax withholding obligations that arose upon the vesting of performance share awards and restricted stock (dollars in thousands, except per share amounts):



|                                        |  |                                    |  |                            |      |                                                                                  |   |                                                                                    |   |       
|--------------------------------------- |  | ---------------------------------- |  | -------------------------- | ---- | -------------------------------------------------------------------------------- | - | ---------------------------------------------------------------------------------- | - | ------
|Period                                  |  | Total Numberof SharesPurchased (1) |  | AveragePrice Paidper Share |      | Total Number ofShares Purchasedas Part of PubliclyAnnounced Plansor Programs (1) |   | Approximate DollarValue of Shares thatMay Yet bePurchased Under thePlan or
Program
|July 1, 2008 to July 31, 2008           |  |                                   |  | $                          |     |                                                                                  |  |                                                                                    | $ | 50,000
|August 1, 2008 to August 31, 2008       |  | 151,086                            |  |                            | 3.04 |                                                                                  |  |                                                                                    |   | 50,000
|September 1, 2008 to September 30, 2008 |  |                                   |  |                            |     |                                                                                  |  |                                                                                    |   | 50,000
|                                        |  |                                    |  |                            |      |                                                                                  |   |                                                                                    |   |       
|Total                                   |  | 151,086                            |  |                            |      |                                                                                  |  |                                                                                    |   |       
|                                        |  |                                    |  |                            |      |                                                                                  |   |                                                                                    |   |       



|(1) | In July 2006 we announced that our Board of Directors had authorized a $50 million stock repurchase plan. The repurchase plan has no stated expiration date. During the quarter ended
September 30, 2008 and from October 1, 2008 through November 5, 2008, no shares were repurchased under this plan.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|ITEM 3. | DEFAULTS UPON SENIOR SECURITIES
|------- | -------------------------------

Not applicable.



|ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
|------- | ---------------------------------------------------

At a Special
Meeting of Stockholders held on August 18, 2008, Standard Pacifics stockholders approved the following matters:



| | 1. | The conversion of shares of our outstanding Senior Convertible Preferred Stock into Series B Preferred Stock, the issuance of Series B Preferred Stock upon the exercise of the
Warrant issued to MatlinPatterson and the issuance of common stock upon the conversion of the Series B Preferred Stock;
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 2. | The adoption of our Amended and Restated Certificate of Incorporation, which, among other things, (i) increased the total number of shares of capital stock that we are
authorized to issue from 210,000,000 shares to 610,000,000 shares, (ii) declassified our Board of Directors, (iii) removed provisions providing for a supermajority vote in connection with certain actions, (iv) renounced, pursuant to
Section 122(17) of the Delaware General Corporation Law, any interest or expectancy of ours in business opportunities presented to directors and stockholders affiliated with MatlinPatterson, and (v) removed the prohibition on the ability
of our stockholders to act by written consent for so long as MatlinPatterson and its affiliates hold at least 40% of our voting securities; and
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 3. | An amendment to our 2008 Equity Incentive Plan to increase the number of shares available for issuance under the plan by 19,023,543.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------



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Voting at the meeting was as follows:



|                                                                   |  |               |  |                   |  |               |  |                
|------------------------------------------------------------------ |  | ------------- |  | ----------------- |  | ------------- |  | ---------------
|Matter                                                             |  | Votes CastFor |  | Votes CastAgainst |  | VotesWithheld |  | BrokerNon-Votes
|Conversion of Senior Preferred Stock into Series B Preferred Stock |  | 36,076,577    |  | 1,658,353         |  | 124,891       |  | 31,340,003     
|Amended and Restated Certificate of Incorporation                  |  | 69,208,434    |  | 2,898,747         |  | 224,453       |  | 14,157,290     
|2008 Equity Incentive Plan Amendment                               |  | 51,741,814    |  | 3,138,869         |  | 268,238       |  | 31,340,003     



|ITEM 5. | OTHER INFORMATION
|------- | -----------------

Not applicable.



|ITEM 6. | EXHIBITS
|------- | --------



|     |  |                                                                                                                                                                                                                                                                          
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1  |  | Amended and Restated Certificate of Incorporation of the Registrant, incorporated by reference to Exhibit 3.1 to the Registrants Current Report on Form 8-K filed with the Securities and
Exchange Commission on August 19, 2008.                                       
|     | 
|3.2  |  | Certificate of Designations of Series A Junior Participating Cumulative Preferred Stock of the Registrant, incorporated by reference to Exhibit 3.2 to the Registrants Current Report on
Form 8-K filed with the Securities and Exchange Commission on August 19, 2008. 
|     | 
|3.3  |  | Certificate of Designations of Series B Junior Participating Convertible Preferred Stock of the Registrant, incorporated by reference to Exhibit 3.3 to the Registrants Current Report on
Form 8-K filed with the Securities and Exchange Commission on August 19, 2008.
|     | 
|3.4  |  | Amended and Restated Bylaws of the Registrant, incorporated by reference to Exhibit 3.1 to the Registrants Current Report on Form 8-K filed with the Securities and Exchange Commission on
August 4, 2008.                                                              
|     | 
|10.1 |  | Severance Agreement, dated September 2, 2008, between the Registrant and Jeffrey V. Peterson, incorporated by reference to Exhibit 10.1 to the Registrants Current Report on Form 8-K filed
with the Securities and Exchange Commission on September 3, 2008.           
|     | 
|10.2 |  | 2008 Equity Incentive Plan, incorporated by reference to Exhibit 10.1 to the Registrants Current Report on Form 8-K filed with the Securities and Exchange Commission on August 19, 2008.                                                                               
|     | 
|31.1 |  | Certification of the CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                      
|     | 
|31.2 |  | Certification of the CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                      
|     | 
|32.1 |  | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                  



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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



|                        |  |  |  |                        |  |                         |  |                                                               
|----------------------- |  |  |  | ---------------------- |  | ----------------------- |  | --------------------------------------------------------------
|                        |  |  |  | STANDARD PACIFIC CORP.
|                        |  |  |  | (Registrant)          
|                        |  |  | 
|Dated: November 6, 2008 |  |  |  | By:                    |  | /s/ JEFFREY V. PETERSON
|                        |  |  |  |                        |  |                         |  | Jeffrey V. Peterson                                           
|                        |  |  |  |                        |  |                         |  | Chairman of the Board of Directors,                           
|                        |  |  |  |                        |  |                         |  | Chief Executive Officer and President                         
|                        |  |  | 
|Dated: November 6, 2008 |  |  |  | By:                    |  | /s/ ANDREW H. PARNES   
|                        |  |  |  |                        |  |                         |  | Andrew H. Parnes                                              
|                        |  |  |  |                        |  |                         |  | Executive Vice President  Finance and Chief
Financial Officer



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