Summary of STANDARD PACIFIC CORP /DE/

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

Results of Operations
                         Selected Financial Information
                                  (Unaudited)

                                                Three Months Ended                    Nine Months Ended
                                                   September 30,                        September 30,
                                              2012               2011              2012              2011
                                                   (Dollars in thousands, except per share amounts)
Homebuilding:
Home sale revenues                         $     317,389     $     241,434     $     812,578     $     589,369
Land sale revenues                                 1,152               359             4,537               468
Total revenues                                   318,541           241,793           817,115           589,837
Cost of home sales                              (253,344 )        (203,188 )        (647,525 )        (486,933 )
Cost of land sales                                (1,092 )            (359 )          (4,458 )            (473 )
Total cost of sales                             (254,436 )        (203,547 )        (651,983 )        (487,406 )
Gross margin                                      64,105            38,246           165,132           102,431
Gross margin percentage                             20.1 %            15.8 %            20.2 %            17.4 %
Selling, general and administrative
expenses                                         (43,121 )         (39,124 )        (122,765 )        (109,828 )
Loss from unconsolidated joint ventures              (39 )            (455 )          (2,707 )          (1,091 )
Interest expense                                  (1,669 )          (4,250 )          (5,816 )         (22,209 )
Other income (expense                                117            (1,948 )           4,708              (679 )
Homebuilding pretax income (loss)                 19,393            (7,531 )          38,552           (31,376 )

Financial Services:
Revenues                                           5,218             3,529            14,249             7,124
Expenses                                          (2,777 )          (2,324 )          (7,952 )          (7,171 )
Other income                                          70                42               217                98
Financial services pretax income                   2,511             1,247             6,514                51

Income (loss) before income taxes                 21,904            (6,284 )          45,066           (31,325 )
Provision for income taxes                          (194 )            (150 )            (570 )            (425 )
Net income (loss)                                 21,710            (6,434 )          44,496           (31,750 )
  Less: Net (income) loss allocated to
preferred shareholder                             (9,100 )           2,780           (18,980 )          13,743
  Less: Net (income) loss allocated to
unvested restricted stock                            (22 )               ?               (31 )               ?
Net income (loss) available to common
stockholders                               $      12,588     $      (3,654 )   $      25,485     $     (18,007 )

Income (Loss) Per Common Share:
Basic                                      $        0.06     $       (0.02 )   $        0.13     $       (0.09 )
Diluted                                    $        0.05     $       (0.02 )   $        0.12     $       (0.09 )

Weighted Average Common Shares
Outstanding:
Basic                                        204,485,294       194,311,129       198,469,130       193,686,614
Diluted                                      235,273,648       194,311,129       210,441,932       193,686,614

Weighted average additional common
shares outstanding
if preferred shares converted to common
shares                                       147,812,786       147,812,786       147,812,786       147,812,786

Total weighted average diluted common
shares outstanding
if preferred shares converted to common
shares                                       383,086,434       342,123,915       358,254,718       341,499,400

Net cash provided by (used in) operating
activities                                 $     (72,418 )   $     (78,464 )   $    (171,136 )   $    (310,577 )
Net cash provided by (used in) investing
activities                                 $     (95,704 )   $       4,254     $    (103,595 )   $      (5,270 )
Net cash provided by (used in) financing
activities                                 $     348,696     $      21,884     $     343,665     $      15,825
Adjusted Homebuilding EBITDA (1)           $      51,523     $      28,350     $     125,101     $      63,046


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(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 and deposit write-offs, (e) gain (loss) on early extinguishment of debt, (f) homebuilding depreciation and amortization, (g) amortization of stock-based compensation, (h) income (loss) from unconsolidated joint ventures and (i) 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 management and 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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(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            Nine Months Ended
                                                September 30,                September 30,
                                             2012          2011           2012           2011
                                                          (Dollars in thousands)

Net cash provided by (used in) operating
activities                                 $ (72,418 )   $ (78,464 )   $ (171,136 )   $ (310,577 )
Add:
Provision for income taxes                       194           150            570            425
Homebuilding interest amortized to cost
of sales and interest expense                 28,747        23,103         75,934         68,188
Less:
Income (loss) from financial services
subsidiary                                     2,441         1,205          6,297            (47 )
Depreciation and amortization from
financial services subsidiary                     32            17             76            593
(Gain) loss on disposal of property and
equipment                                         12           184             15            184
Net changes in operating assets and
liabilities:
Trade and other receivables                    4,681           816         12,143         12,309
Mortgage loans held for sale                  18,119        14,967         14,016         19,737
Inventories-owned                             70,645        67,719        185,832        261,777
Inventories-not owned                          7,191         4,859         10,690         17,659
Other assets                                    (999 )       2,341           (922 )          313
Accounts payable                                 (82 )      (6,027 )        1,371         (5,889 )
Accrued liabilities                           (2,070 )         292          2,991           (166 )
Adjusted Homebuilding EBITDA               $  51,523     $  28,350     $  125,101     $   63,046

Three and Nine Months Ended September 30, 2012 Compared to Three and Nine Months Ended September 30, 2011

Overview

Our 2012 third quarter reflected a continuation of the positive momentum we experienced during the first two quarters and further progress against our strategy. New home deliveries, net new orders, homebuilding revenues and homes in backlog were up 24%, 29%, 32%, and 64%, respectively, as compared to the year earlier period. Net income for the quarter was $21.7 million, or $0.05 per diluted share, compared to a net loss of $6.4 million, or $0.02 per diluted share, in the year earlier period. Homebuilding pretax income for the quarter was $19.4 million compared to a pretax loss of $7.5 million in the year earlier period.

Our improved financial and operating results reflect the continued execution of our strategy, which includes the construction of well built, innovatively designed, and energy efficient homes targeted at the "move-up" homebuyer, our focus on increasing base prices, reducing sales incentives and controlling costs, and the operating leverage inherent in our business.

During the 2012 third quarter, we received approximately $245 million in net proceeds from a convertible senior notes offering and approximately $72 million in net proceeds from a common stock issuance. In October 2012, we amended our undrawn revolving credit facility to, among other things, increase the total aggregate commitment to $350 million. With $474 million of unrestricted homebuilding cash and the availability under the revolving credit facility, we believe we have ample liquidity to continue the progress we have made against our strategy.

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Homebuilding

                                           Three Months Ended            Nine Months Ended
                                              September 30,                September 30,
                                           2012           2011          2012          2011
                                                       (Dollars in thousands)
Homebuilding revenues:
California                                $ 183,177     $ 146,441     $ 445,634     $ 339,088
Southwest                                    61,638        47,342       181,872       130,274
Southeast                                    73,726        48,010       189,609       120,475
Total homebuilding revenues               $ 318,541     $ 241,793     $ 817,115     $ 589,837

Homebuilding pretax income (loss):
California                                $  11,052     $    (364 )   $  27,767     $  (2,898 )
Southwest                                     3,588        (2,592 )       6,568       (10,126 )
Southeast                                     2,212        (3,396 )       2,137        (9,500 )
Corporate                                     2,541        (1,179 )       2,080        (8,852 )
Total homebuilding pretax income (loss)   $  19,393     $  (7,531 )   $  38,552     $ (31,376 )

Homebuilding pretax income for the 2012 third quarter was $19.4 million compared to a pretax loss of $7.5 million in the year earlier period. The improvement in our financial performance was primarily the result of a 31% increase in home sale revenues, a 140 basis point improvement in gross margin from home sales excluding inventory impairments, a $7.2 million decrease in inventory impairment charges, improved SG&A leverage and a $2.6 million decrease in interest expense.

For the nine months ended September 30, 2012, we reported homebuilding pretax income of $38.6 million compared to a pretax loss of $31.4 million in the year earlier period. The improvement in our financial performance was primarily the result of a 38% increase in home sale revenues, a 70 basis point improvement in gross margin from home sales excluding inventory impairment charges, a $16.4 million decrease in interest expense, a $13.2 million decrease in inventory impairment charges and improved SG&A leverage.

Revenues

Home sale revenues increased 31%, from $241.4 million for the 2011 third quarter to $317.4 million for the 2012 third quarter, as a result of a 24% increase in new home deliveries and a 7% increase in our consolidated average home price to $369 thousand. Home sale revenues increased 38%, from $589.4 million for the nine months ended September 30, 2011 to $812.6 million for the nine months ended September 30, 2012, as a result of a 33% increase in new home deliveries and a 4% increase in our consolidated average home price to $351 thousand.

                                  Three Months Ended September
                                              30,                 Nine Months Ended September 30,
                                                           %                                  %
                                   2012        2011      Change     2012         2011       Change
New homes delivered:
  California                           363        295       23%         904          696       30%
  Arizona                               66         37       78%         176          115       53%
  Texas                                107        113      (5%)         368          285       29%
  Colorado                              33         25       32%          80           69       16%
  Nevada                                ?           2    (100%)           9           12     (25%)
    Total Southwest                    206        177       16%         633          481       32%
  Florida                              151        120       26%         411          293       40%
  Carolinas                            141        105       34%         370          276       34%
    Total Southeast                    292        225       30%         781          569       37%
      Consolidated total               861        697       24%       2,318        1,746       33%
  Unconsolidated joint
  ventures (1)                          14         13        8%          28           27        4%
      Total (including joint
      ventures) (1)                    875        710       23%       2,346        1,773       32%


____________________

(1) Numbers presented regarding unconsolidated joint ventures reflect total deliveries of such joint ventures.

The increase in new home deliveries (exclusive of joint ventures) was driven primarily by a 62% increase in the number of homes in backlog at the beginning of the quarter as compared to the year earlier period.

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                                     Three Months Ended September 30,      Nine Months Ended September 30,
                                                                   %                                    %
                                       2012           2011       Change      2012          2011       Change
Average selling prices of homes                              (Dollars in thousands)
delivered:
   California                       $       505    $      496        2%   $      489    $      487        0%
   Arizona                                  204           195        5%          206           204        1%
   Texas                                    328           281       17%          307           290        6%
   Colorado                                 399           307       30%          386           308       25%
   Nevada                                    ?            192       ?            192           194      (1%)
      Total Southwest                       299           265       13%          287           270        6%
   Florida                                  256           202       27%          244           200       22%
   Carolinas                                241           226        7%          238           225        6%
      Total Southeast                       249           213       17%          241           212       14%
         Consolidated                       369           346        7%          351           338        4%
   Unconsolidated joint ventures
   (1)                                      450           356       26%          443           409        8%
         Total (including joint
         ventures) (1)              $       370    $      347        7%   $      352    $      339        4%


____________________

(1) Numbers presented regarding unconsolidated joint ventures reflect total average selling prices of such joint ventures.

Our consolidated average home price (excluding joint ventures) for the 2012 third quarter was up 7% to $369 thousand compared to the year earlier period. This reflects general price increases within most of our markets and a product mix shift to more move-up homes across our geographies.

Gross Margin

Our 2012 third quarter gross margin percentage from home sales increased to 20.2% compared to 15.8% in the 2011 third quarter which was negatively impacted by $7.2 million of housing inventory impairment charges. Excluding these charges, our 2011 third quarter adjusted gross margin percentage from home sales was 18.8%. The year over year increase in our gross margin percentage from home sales, excluding impairment charges, was primarily attributable to a mix shift to more deliveries from higher margin communities, price increases in certain communities with higher sales absorption, and improved margins from speculative homes sold and delivered during the quarter. For the first nine months of 2012, our gross margin percentage from home sales was 20.3% versus 17.4% (19.6% excluding inventory impairment charges) for the prior year period.

The table set forth below reconciles our homebuilding gross margin and gross margin percentage for the three and nine months ended September 30, 2011 to gross margin and gross margin percentage from home sales, excluding housing inventory impairment charges (a non-GAAP measure). There were no impairment charges during the nine months ended September 30, 2012.

                                   Three Months                Nine Months
                                       Ended                      Ended
                                   September 30,    Gross     September 30,    Gross
                                       2011        Margin %       2011        Margin %
                                                 (Dollars in thousands)

Home sale revenues                 $     241,434              $     589,369
Less: Cost of home sales               (203,188)                  (486,933)
Gross margin from home sales              38,246      15.8%         102,436      17.4%
Add: Inventory impairment                  7,230                     13,189
charges
Gross margin from home sales, as   $      45,476              $     115,625
adjusted                                              18.8%                      19.6%


____________________

We believe that the measure described above, which excludes inventory impairment charges, is useful to our management and investors as it provides a perspective on the underlying operating performance of the business by isolating our results from home sales and excluding impairment charges and provides comparability with information presented by the Company's peer group. However, it should be noted that such measure is not a GAAP financial measure and other companies in the homebuilding industry may calculate this measure differently. Due to the significance of the GAAP components excluded, such measure should not be considered in isolation or as an alternative to operating performance measures prescribed by GAAP.

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SG&A Expenses

Our 2012 third quarter SG&A expenses (including Corporate G&A) were $43.1 million compared to $39.1 million for the prior year period, down 260 basis points as a percentage of home sale revenues to 13.6%, compared to 16.2% for the 2011 third quarter. The improvement in our SG&A rate was primarily the result of a 31% increase in home sale revenues and the operating leverage inherent in our business.

For the nine months ended September 30, 2012, our SG&A expenses (including Corporate G&A) were $122.8 million compared to $109.8 million for the prior year period, down 350 basis points as a percentage of home sale revenues to 15.1%, compared to 18.6% for the prior year period. The improvement in our SG&A rate was primarily the result of a 38% increase in home sale revenues and the operating leverage inherent in our business. Additionally, our SG&A expenses for the nine months ended September 30, 2011 included $3.4 million of restructuring, severance and other charges, whereas 2012 included no such charges.

Interest Expense

For the three and nine months ended September 30, 2012, we expensed $1.7 million and $5.8 million, respectively, of interest costs related to the portion of our debt in excess of our qualified assets. For the three and nine months ended September 30, 2011, we expensed $4.3 million and $22.2 million, respectively, of interest costs. The decline in our year-over-year interest expense was primarily the result of an increase in the amount of qualified assets we owned during the 2012 periods compared to the prior year periods. To the extent our debt exceeds our qualified assets in the future, we will continue to be required to expense a portion of the interest related to such debt.

Operating Data

                                            Three Months Ended September 30,           Nine Months Ended September 30,
                                                                          %                                         %
                                                                      Absorption                                Absorption
                                          2012     2011    % Change   Change (1)    2012     2011    % Change   Change (1)
Net new orders (2):
      California                            417      286        46%          52%    1,169      831        41%          38%
      Arizona                                61       57         7%         114%      237      136        74%         124%
      Texas                                 132      117        13%          13%      424      376        13%          18%
      Colorado                               45       24        88%          34%      113       75        51%          26%
      Nevada                                 ?         4     (100%)           ?         6        7      (14%)           ?
               Total Southwest              238      202        18%          32%      780      594        31%          43%
      Florida                               174      154        13%          13%      568      411        38%          34%
      Carolinas                             160      122        31%          20%      514      344        49%          20%
               Total Southeast              334      276        21%          16%    1,082      755        43%          27%
               Consolidated total           989      764        29%          32%    3,031    2,180        39%          34%
      Unconsolidated joint ventures
      (3)                                    18        7       157%         671%       42       23        83%         174%
               Total (including joint
               ventures)                  1,007      771        31%          35%    3,073    2,203        39%          35%


____________________

(1) Represents the percentage change of net new orders per average number of selling communities during the period.

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

(3) Numbers presented regarding unconsolidated joint ventures reflect total net new orders of such joint ventures.

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                                               Three Months Ended           Nine Months Ended
                                                 September 30,                September 30,
                                            2012     2011    % Change    2012     2011    % Change
Average number of selling communities
during the period:
    California                                 50       52       (4%)       51       50         2%
    Arizona                                     5       10      (50%)        7        9      (22%)
    Texas                                      22       22          ?       20       21       (5%)
    Colorado                                    7        5        40%        6        5        20%
    Nevada                                      ?        1     (100%)        ?        1     (100%)
         Total Southwest                       34       38      (11%)       33       36       (8%)
    Florida                                    38       38          ?       37       36         3%
    Carolinas                                  34       31        10%       35       28        25%
         Total Southeast                       72       69         4%       72       64        13%
         Consolidated total                   156      159       (2%)      156      150         4%
    Unconsolidated joint ventures (1)           1        3      (67%)        2        3      (33%)
         Total (including joint               157      162       (3%)      158      153         3%
         ventures)


____________________

(1) Numbers presented regarding unconsolidated joint ventures reflect total average selling communities of such joint ventures.

Net new orders (excluding joint ventures) for the 2012 third quarter increased 29%, to 989 new homes, from the prior year period on a 2% decrease in the number of our average active selling communities. Our cancellation rate for the three months ended September 30, 2012 was 14%, compared to 16% for the 2011 third quarter and 11% for the 2012 second quarter. Our cancellation rate (excluding cancellations from current quarter sales) for homes in beginning backlog was 7% and 10%, respectively, for the 2012 and 2011 third quarter. Our monthly sales absorption rate for the 2012 third quarter was 2.1 per community, up from 1.6 per community for the 2011 third quarter, but down from 2.4 per community for the 2012 second quarter. The decrease in sales absorption rate from the 2012 second to third quarter is consistent with the seasonality we typically experience in our business. Although sales absorption rates improved during the 2012 third quarter as compared to the prior year period, they still remained low relative to historical rates, driven by a housing supply/demand imbalance, low consumer confidence and high unemployment. These conditions continue to be impacted by the continued stringent underwriting standards for mortgage loans and negative home equity for many prospective homebuyers who are looking to sell their existing homes.

. . .