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Standard Pacific Lp (SPF)

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Standard Pacific Lp 10-K 2011

Documents found in this filing:

form10-k.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

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

For the fiscal year ended December 31, 2010

¨	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.)

26 Technology Drive, Irvine, California, 92618

(Address of principal executive offices)

(949) 789-1600

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
Common Stock, $0.01 par value (and accompanying Preferred Share Purchase Rights)	New York Stock Exchange
6¼% Senior Notes due 2014 (and related guarantees)	New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x

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 has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

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

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

The aggregate market value of the common equity held by non-affiliates computed by reference to the price at which the common equity was last sold as of the last business day of the registrant’s most recently completed second fiscal quarter was $350,643,759.

As of March 4, 2011, there were 197,388,758 shares of the registrant’s common stock outstanding.

Documents incorporated by reference:

Portions of the registrant’s Definitive Proxy Statement to be filed with the Securities and Exchange Commission in connection with the registrant’s 2011 Annual Meeting of Stockholders are incorporated by reference into Part III hereof.

STANDARD PACIFIC CORP.

INDEX

		Page No.
	PART I

Item 1.	Business	1
Item 1A.	Risk Factors	5
Item 1B.	Unresolved Staff Comments	13
Item 2.	Properties	13
Item 3.	Legal Proceedings	14
Item 4.	Reserved	14

	PART II

Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	15
Item 6.	Selected Financial Data	17
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	39
Item 8.	Financial Statements and Supplementary Data	41
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	81
Item 9A.	Controls and Procedures	81
Item 9B.	Other Information	83

	PART III

Item 10.	Directors, Executive Officers and Corporate Governance	83
Item 11.	Executive Compensation	83
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	83
Item 13.	Certain Relationships and Related Transactions, and Director Independence	83
Item 14.	Principal Accounting Fees and Services	83

	PART IV

Item 15.	Exhibits and Financial Statement Schedules	84

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STANDARD PACIFIC CORP.

PART I

ITEM 1. BUSINESS

We are a geographically diversified builder of single-family attached and detached homes. We construct homes within a wide range of price and size targeting a broad range of homebuyers, with an emphasis on move-up buyers. We have operations in major metropolitan markets in California, Florida, Arizona, Texas, the Carolinas, Colorado and Nevada and have built more than 112,000 homes during our 45-year history.

In 2010, the percentages of our home deliveries by state (excluding deliveries by unconsolidated joint ventures) were as follows:

State		Percentage of Deliveries
California		42%
Florida		17
Carolinas		15
Texas		14
Arizona		7
Colorado		4
Nevada		1
Total		100%

The percentage of our home deliveries by product mix (excluding deliveries by unconsolidated joint ventures) for the year ended December 31, 2010 were as follows:

Product Mix		Percentage of Deliveries
Move-up		62%
Entry-level		33
Luxury		5
Total		100%

In addition to our core homebuilding operations, we have a mortgage banking subsidiary whose primary purpose is to facilitate a smooth closing process for our homebuyers, including through the direct funding of home loans. The loans funded by our mortgage subsidiary are generally sold to large banks in the secondary mortgage market. We also have a title services subsidiary that acts as a title insurance agent performing title examination services for our Texas homebuyers. For business segment financial data, including revenues, total assets, pretax income (loss), income (loss) from investments in unconsolidated joint ventures and impairments, please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” beginning on page 18, as well as Note 3 to our consolidated financial statements beginning on page 54.

Standard Pacific Corp. was incorporated in the State of Delaware in 1991. Through our predecessors, we commenced our homebuilding operations in 1966. Our principal executive offices are located at 26 Technology Drive, Irvine, California 92618. Unless the context otherwise requires, the terms “we,” “us,” “our” and “the Company” refer to Standard Pacific Corp. and its predecessors and subsidiaries.

This annual report on Form 10-K and each of our other quarterly reports on Form 10-Q and current reports on Form 8-K, including any amendments, are available free of charge on our website, www.standardpacifichomes.com, as soon as reasonably practicable after such material is electronically filed with, or furnished to, the Securities and Exchange Commission (“SEC”). The information contained on our website is not incorporated by reference into this report and should

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not be considered part of this report. In addition, the SEC website contains reports, proxy and information statements, and other information about us at www.sec.gov.

Strategy

Our strategy includes the following elements:

·	Concentrate our operations on the construction of single family move-up homes in California and other expected high employment growth markets;

·	Lead our markets in construction quality and customer satisfaction;

·	Acquire land at favorable prices while the homebuilding market is depressed to maximize the potential for growth and profitability as the market recovers;

·	Develop new home designs that drive demand while reducing construction costs and increasing energy efficiency;

·	Emphasize profitability rather than sales;

·	Continually adjust our overhead structure to maintain profitability during the market downturn and to position us for profitability in the future;

·	Obtain the market share necessary in each of our markets to gain access to favorable land opportunities and optimize cost efficiency; and

·	Own or control a 2-3 year land supply when market conditions normalize.

Homebuilding Operations

We currently build homes in 24 markets through a total of 14 operating divisions. At December 31, 2010, we owned or controlled approximately 23,500 lots and had 133 active selling communities (excluding unconsolidated joint ventures).

For the year ended December 31, 2010, approximately 80% of our deliveries were single-family detached dwellings. The remainder of our deliveries were single family attached homes, generally townhomes and condominiums configured with eight or fewer units per building.

Our homes are designed to suit the particular market in which they are located and are available in a variety of models, exterior styles and materials depending upon local preferences. While we have built homes from 1,100 to over 6,000 square feet, our homes typically range in size from approximately 1,500 to 3,500 square feet. The sales prices of our homes generally range from approximately $165,000 to over $1 million. Set forth below are our average selling prices by state (excluding joint ventures) of homes delivered during 2010:

State		Average Selling Price
		(Dollars in thousands)
California		$495
Florida		$193
Carolinas		$230
Texas		$294
Arizona		$202
Colorado		$295
Nevada		$201

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Development and Construction

We customarily acquire unimproved or improved land zoned for residential use. To control larger land parcels, we sometimes form land development joint ventures with third parties which provide us the right to acquire a portion of the lots from the joint venture when developed. If we purchase raw land or partially developed land, we will perform development work on a project in addition to constructing homes. This development work may include negotiating with governmental agencies and local communities to obtain any necessary zoning, environmental and other regulatory approvals and permits, and constructing, as necessary, roads, water, sewer and drainage systems, recreational facilities and other improvements.

We act as a general contractor with our supervisory employees coordinating all development and construction work on a project. The services of independent architectural design, engineering and other consulting firms are generally engaged on a project-by-project basis to assist in project planning and home design, and subcontractors are employed to perform all of the physical development and construction work. Although the construction time for our homes varies from project to project depending on geographic region, the time of year, the size and complexity of the homes, local labor situations, the governmental approval processes, availability of materials and supplies, and other factors, we typically complete the construction of a home in approximately three to six months, with a current average cycle time of approximately four months.

Marketing and Sales

Our homes are marketed by our divisional sales teams through furnished and landscaped model homes, which are typically maintained at each project site. Recognizing that the first step in the homebuying process for nearly 90% of homebuyers is an internet search, we launched our new website, www.standardpacifichomes.com, in January 2011. This website contains robust information about our new homes and communities, promotions and financing alternatives.

Our homes are sold using sales contracts that are usually accompanied by a cash deposit from the homebuyer. Under current market conditions, an increasing number of homebuyers are seeking to buy a completed or close to complete home. For those homes sold prior to construction, homebuyers have the opportunity to purchase various optional amenities and upgrades such as prewiring and electrical options, upgraded flooring, cabinets, finished carpentry and countertops, varied interior and exterior color schemes, additional and upgraded appliances, and some room configurations. Purchasers are typically permitted for a limited time to cancel their contracts if they fail to qualify for financing. In some cases, purchasers are also permitted to cancel their contract if they are unable to sell their existing homes or if certain other conditions are not met. A buyer’s liability for wrongfully terminating a sales contract is typically limited to the forfeiture of the buyer’s cash deposit to the Company, although some states provide for even more limited remedies.

Financing

We typically use both our equity (including internally generated funds from operations and proceeds from public and private equity offerings and proceeds from the exercise of stock options) and debt financing in the form of bank debt and proceeds from our note offerings, to fund land acquisition and development and construction of our properties. To a lesser extent, we use seller financing to fund the acquisition of land and, in some markets, community facility district or other similar assessment district bond financing is used to fund community infrastructure such as roads and sewers.

We also utilize joint ventures and option arrangements with land sellers, other builders, developers and financial entities from time to time as a means of accessing lot positions, expanding our market opportunities, establishing strategic alliances, leveraging our capital base and managing the financial and market risk associated with land holdings. In addition to equity contributions made by us and our partners, our joint ventures typically will obtain secured project specific financing to fund the acquisition of land and development and construction costs. For more detailed discussion of our current joint venture arrangements please see “Off-Balance Sheet Arrangements” beginning on page 31.

Seasonality and Longer Term Cycles

Our homebuilding operations have historically experienced seasonal fluctuations. We typically experience the highest new home order activity in the spring and summer months, although new order activity is highly dependent on the number of active selling communities and the timing of new community openings as well as other market factors. Because it typically takes us three to six months to construct a new home, we typically deliver a greater number of homes in the second half of the calendar year as the prior orders are converted to home deliveries. As a result, our revenues and cash flows (exclusive of

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the timing of land purchases) from homebuilding operations are generally higher in the second half of the calendar year, particularly in the fourth quarter.

Our homebuilding operations have also been subject to longer term business cycles, the severity, duration, beginning and ending of which are difficult to predict. At the high point of our business cycle, the demand for new homes and new home prices are at their peak. Land prices also tend to be at their peak in this phase of the cycle. At the low point in the cycle, the demand for homes is weak and land prices tend to be more favorable. While difficult to accomplish, our goal is to deliver as many homes as possible near the top of the cycle and to make significant investments in land at the bottom of the cycle. We now believe we are at or near the bottom of the current cycle and, as such, plan to make substantial investments in land over the next several years, which is likely to utilize a significant portion of our cash resources.

Sources and Availability of Raw Materials

We, either directly or through our subcontractors, purchase drywall, cement, steel, lumber, insulation and the other building materials necessary to construct a home. While these materials are generally widely available from a variety of sources, from time to time we experience serious material shortages on a localized basis, particularly during periods where the regions in which we operate experience natural disasters that have a significant impact on existing residential and commercial structures. During these periods, the prices for these materials can substantially increase and our construction process can be slowed.

Dollar Value of Backlog

The dollar value of our backlog (excluding joint ventures) as of December 31, 2010 was $137.4 million, or 414 homes. We expect all of our backlog at December 31, 2010 to be converted to deliveries and revenues during 2011, net of cancellations.

Competitive Conditions in the Business

The homebuilding industry is fragmented and highly competitive. We compete with numerous other residential construction companies, including large national and regional firms, for customers, land, financing, raw materials, skilled labor and employees. We compete for customers primarily on the basis of customer satisfaction, construction quality, home design and location, reputation, price and the availability of mortgage financing. While we compete with other residential construction companies for customers, we also compete with the resale of existing homes, rental homes, the “short-sale” of almost new homes and foreclosures. The substantial supply of homes available for sale at reduced prices, which may continue or increase, has caused intense price competition, making it more difficult for us to sell our homes and to maintain our profit margins. In addition, because some of our competitors have substantially larger operations and greater financial resources than we do, and as a result may have lower costs of capital, labor, materials and overhead, they may be better positioned to compete more effectively for land and sales.

Government Regulation

For a discussion of the impact of government regulations on our business, including the impact of environmental regulations, please see the risk factors included under the heading “Regulatory Risks” in the Risk Factors section.

Financial Services

Customer Financing

As part of our ongoing operations, we provide mortgage loans to many of our homebuyers through our mortgage financing subsidiary, Standard Pacific Mortgage. Standard Pacific Mortgage’s principal sources of revenue are fees generated from loan originations, net gains on the sale of loans and net interest income earned on loans during the period they are held prior to sale. In addition to being a source of revenues, our mortgage operations benefit our homebuyers and complement our homebuilding operations by offering a dependable source of competitively priced financing, staffed by a team of professionals experienced in the new home purchase process and our sales and escrow procedures.

We sell substantially all of the loans we originate to large banks in the secondary mortgage market, with servicing rights released on a non-recourse basis. These sales are generally subject to our obligation to repay 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 loan purchaser’s underwriting guidelines are not met or there is fraud in connection with the loan. As of December 31, 2010,

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we had been required to repurchase or pay make-whole premiums on 0.29% of the $6.2 billion total dollar value of the loans ($2.2 billion of which represented non-full documentation loans) we originated in the 2004-2010 period, and incurred approximately $5.4 million of related losses ($4.5 million for non-full documentation loans) during this period. However, if loan defaults in general increase, it is possible that we will be required to make a materially higher number of make-whole payments and/or loan repurchases in the future. Further, such make-whole payments could have a higher severity than previously experienced. Under such scenarios, current reserves might prove to be inadequate and we would be required to use additional cash and take additional charges to reflect the higher level of repurchase and make-whole activity.

We 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 third party investors to purchase the mortgage loans while concurrently extending interest rate locks to loan applicants. 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. While preselling these loans reduces our risk, we remain subject to risk relating to purchaser non-performance, particularly during periods of significant market turmoil.

Title Services

In Texas, we act as a title insurance agent performing title examination services for our Texas homebuyers through our title service subsidiary, SPH Title, Inc.

Employees

At December 31, 2010, we had approximately 775 employees, down from approximately 800 employees at the prior year end. Of our employees at the end of 2010, approximately 230 were executive, administrative and clerical personnel, 225 were sales and marketing personnel, 190 were involved in construction and project management, 75 were involved in new home warranty, and 55 worked in the mortgage operations. None of our employees are covered by collective bargaining agreements, although employees of some of the subcontractors that we use are represented by labor unions and may be subject to collective bargaining agreements.

We believe that our relations with our employees and subcontractors are good.

ITEM 1A. RISK FACTORS

The discussion of our business and operations included in this annual report on Form 10-K should be read together with the risk factors set forth below. They describe various risks and uncertainties to which we are or may become subject. These risks and uncertainties, as well as other risks which we cannot foresee at this time, have the potential to affect our business, financial condition, results of operations, cash flows, strategies or prospects in a material and adverse manner.

Market and Economic Risks

Adverse changes in general and local economic conditions have affected and may continue to affect the demand for homes and reduce our earnings.

The residential homebuilding industry is sensitive to changes in economic conditions such as the level of employment, consumer confidence, consumer income, availability of financing and interest rate levels. The national recession, credit market disruption, high unemployment levels, declining home values, the absence of home price stability, and the decreased availability of mortgage financing have, among other factors, resulted in falling consumer confidence, and adversely impacted the homebuilding industry and our operations and financial condition. These conditions may continue or worsen. We can provide no assurance that our strategies to address these challenges will be successful.

We are experiencing a significant and substantial downturn in homebuyer demand. Continuation of this downturn may result in a continuing reduction in our revenues, deterioration of our margins and additional impairments.

We are experiencing a significant and substantial downturn in homebuyer demand. Many of our competitors are selling homes at significantly reduced prices. At the same time we, as well as potential hombuyers who need to sell their existing homes to complete the purchase of a new home, are also competing with the resale of existing homes, rental homes, the “short-sale” of almost new homes and foreclosures. All of these factors have resulted in a substantial increase in the

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supply of homes available for sale at reduced prices, which may continue or increase, making it more difficult for us to sell our homes and to maintain our profit margins.

The market value and availability of land may fluctuate significantly, which could decrease the value of our developed and undeveloped land holdings and limit our ability to develop new communities.

The risk of owning developed and undeveloped land can be substantial for us. Our current strategy includes a plan to invest a substantial portion of our cash in land over the next several years. The successful execution of this strategy will significantly increase the amount of land we hold. The market value of the undeveloped land, buildable lots and housing inventories we hold can fluctuate significantly as a result of changing economic and market conditions. Over the last several years, we have experienced negative economic and market conditions and this has resulted in the impairment of a number of our land positions and write-offs of some of our land option deposits. If economic or market conditions continue to deteriorate, we may have to impair additional land holdings and projects, write down our investments in unconsolidated joint ventures, write off option deposits, sell homes or land at a loss, and/or hold land or homes in inventory longer than planned. In addition, inventory carrying costs can be significant, particularly if inventory must be held for longer than planned, which can trigger asset impairments in a poorly performing project or market. If, as planned, we significantly increase the amount of land we hold over the next several years, we will also materially increase our exposure to the risks associated with owning land, which means that if economic and market conditions continue to deteriorate, this deterioration would have a significantly greater adverse impact on our financial condition.

Our long-term success also depends in part upon the continued availability of suitable land at acceptable prices. The availability of land for purchase at favorable prices depends on a number of factors outside of our control, including the risk of competitive over-bidding of land prices and restrictive governmental regulation. If a sufficient amount of suitable land opportunities do not become available, it could limit our ability to develop new communities, increase land costs and negatively impact our sales and earnings.

We depend on the California market. If conditions in California continue or worsen, our sales and earnings may be negatively impacted.

We generate over 50% of our revenue and a significant amount of our profits from, and hold approximately two-thirds of the dollar value of our real estate inventory in, California. Over the last several years, land values, the demand for new homes and home prices have declined substantially in the state, negatively impacting our profitability and financial position. In addition, the state of California is experiencing severe budget shortfalls and is considering raising taxes and increasing fees to offset the deficit. There can be no assurance that our profitability and financial position will not be further impacted if the challenging conditions in California continue or worsen. If the current weak buyer demand for new homes in California continues or worsens, prices will likely continue to decline, which will continue to harm our profitability.

Customers may be unwilling or unable to purchase our homes at times when mortgage-financing costs are high or when credit is difficult to obtain.

The majority of our homebuyers finance their purchases through Standard Pacific Mortgage or third-party lenders. In general, housing demand is adversely affected by increases in interest rates and by decreases in the availability of mortgage financing. Many lenders have significantly tightened their underwriting standards, are requiring higher credit scores, substantial down payments, increased cash reserves, and have eliminated or significantly limited many subprime and other alternative mortgage products, including “jumbo” loan products, which are important to sales in many of our California markets. The availability of mortgage financing is also affected by changes in liquidity in the secondary mortgage market and the market for mortgage-backed securities, which are directly impacted by the federal government’s decisions regarding its financial support of the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation, the entities that provide liquidity to the secondary market. In addition, the use of seller funded down payment assistance programs was prohibited in late 2008. As a result of these trends, the ability and willingness of prospective buyers to finance home purchases or to sell their existing homes has been adversely affected, which has adversely affected our operating results and profitability. These conditions may continue or worsen.

The homebuilding industry is highly competitive and, with more limited resources than some of our competitors, we may not be able to compete effectively.

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design and location, reputation, price and the availability of mortgage financing. While we compete with other residential construction companies for customers, we also compete with the resale of existing homes, rental homes, the “short-sale” of almost new homes and foreclosures. The substantial supply of homes available for sale at reduced prices, which may continue or increase, has caused intense price competition, making it more difficult for us to sell our homes and to maintain our profit margins. In addition, because some of our competitors have substantially larger operations and greater financial resources than we do, and as a result may have lower costs of capital, labor, materials and overhead, they may be better positioned to compete more effectively for land and sales.

Operational Risks

Our longer-term land acquisition strategy poses significant risks.

From time-to-time, we purchase land parcels with longer-term time horizons when we believe market conditions provide an opportunity to purchase this land at favorable prices. Our current strategy includes a plan to invest a substantial portion of our cash in land during the next several years, including inlarger land parcels with longer holding periods that will require significant development operations. This strategy is subject to a number of risks. It is difficult to accurately forecast development costs and sales prices the longer the time horizon for a project and, with a longer time horizon, there is a greater chance that unanticipated development cost increases, changes in general market conditions and other adverse unanticipated changes could negatively impact the profitability of a project. In addition, larger land parcels are generally undeveloped and typically do not have all (or sometimes any) of the governmental approvals necessary to develop and construct homes. If we are unable to obtain these approvals or obtain approvals that restrict our ability to use the land in ways we do not anticipate, the value of the parcel will be negatively impacted. In addition, the acquisition of land with a longer term development horizon historically has not been a significant focus of our business in many of our markets (other than through our unconsolidated joint ventures) and may therefore be subject to greater execution risk.

We may be unable to obtain suitable bonding for the development of our communities.

We provide bonds to governmental authorities and others to ensure the completion of our projects. If we are unable to provide required surety bonds for our projects, our business operations and revenues could be adversely affected. As a result of market conditions, surety providers have become increasingly reluctant to issue new bonds and some providers are requesting credit enhancements (such as cash deposits or letters of credit) in order to maintain existing bonds or to issue new bonds. If we are unable to obtain required bonds in the future, or are required to provide credit enhancements with respect to our current or future bonds, our liquidity could be negatively impacted.

Labor and material shortages and price fluctuations could delay or increase the cost of home construction and reduce our sales and earnings.

The residential construction industry experiences serious labor and material shortages from time to time, including shortages in qualified tradespeople, and supplies of insulation, drywall, cement, steel and lumber. These labor and material shortages can be more severe during periods of strong demand for housing or during periods where the regions in which we operate experience natural disasters that have a significant impact on existing residential and commercial structures. The cost of labor and material may also be adversely affected during periods of shortage or high inflation. From time to time, we have experienced volatile price swings in the cost of labor and materials, including in particular the cost of lumber, cement, steel and drywall. Shortages and price increases could cause delays in and increase our costs of home construction, which in turn could harm our operating results and profitability.

Severe weather and other natural conditions or disasters may disrupt or delay construction.

Severe weather and other natural conditions or disasters, such as earthquakes, landslides, hurricanes, tornadoes, droughts, floods, heavy or prolonged rain or snow, and wildfires can negatively affect our operations by requiring us to delay or halt construction or to perform potentially costly repairs to our projects under construction and to unsold homes. Some scientists believe that the rising level of carbon dioxide in the atmosphere is leading to climate change and that climate change is increasing the frequency and severity of weather related disasters. If true, we may experience increasing negative weather related impacts to our operations in the future.

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We are subject to product liability and warranty claims arising in the ordinary course of business, which can be costly.

As a homebuilder, we are subject to construction defect and home warranty claims arising in the ordinary course of business. These claims are common in the homebuilding industry and can be costly. While we maintain product liability insurance and generally seek to require our subcontractors and design professionals to indemnify us for liabilities arising from their work, there can be no assurance that these insurance rights and indemnities will be collectable or adequate to cover any or all construction defect and warranty claims for which we may be liable. For example, contractual indemnities can be difficult to enforce, we are often responsible for applicable self-insured retentions (particularly in markets where we include our subcontractors on our general liability insurance and are prohibited from seeking indemnity for insured claims), certain claims may not be covered by insurance or may exceed applicable coverage limits, and one or more of our insurance carriers could become insolvent. Additionally, the coverage offered by and availability of product liability insurance for construction defects is limited and costly. There can be no assurance that coverage will not be further restricted, become more costly or even unavailable.

In addition, we conduct a material portion of our business in California, one of the most highly regulated and litigious jurisdictions in the United States, which imposes a ten year, strict liability tail on most construction liability claims. As a result, our potential losses and expenses due to litigation, new laws and regulations may be greater than our competitors who have smaller California operations.

We rely on subcontractors to construct our homes and, in many cases, to obtain, building materials. The failure of our subcontractors to properly construct our homes, or to obtain suitable building materials, may be costly.

We engage subcontractors to perform the actual construction of our homes, and in many cases, to obtain the necessary building materials. Despite our quality control efforts, we may discover that our subcontractors were engaging in improper construction practices or installing defective materials, like Chinese drywall, in our homes. When we discover these issues we repair the homes in accordance with our new home warranty. The cost of satisfying our warranty obligations in these instances may be significant and we may be unable to recover the cost of repair from subcontractors, suppliers and insurers.

We are in the process of repairing homes that we have confirmed contain Chinese drywall. While we believe we have likely identified nearly all of the homes we delivered that contain Chinese drywall, we delivered thousands of homes during the timeframe that defective Chinese drywall is thought to have been delivered to U.S. ports. We have inspected only a fraction of these homes (inspection limited to those communities where we suspected the presence of Chinese drywall) and therefore cannot definitively conclude that additional homes containing Chinese drywall will not be identified. If additional homes containing Chinese drywall are discovered, we may be required to spend amounts in excess of our current reserves on repairs and our financial condition may be negatively impacted. In addition, we have been named as a defendant in multiple lawsuits related to Chinese drywall. These and any additional future claims could also cause us to incur additional significant costs.

Our mortgage subsidiary may become obligated to repurchase loans it has sold in the secondary mortgage market or may become subject to borrower lawsuits.

While our mortgage subsidiary generally sells the loans it originates within a short period of time in the secondary mortgage market on a non-recourse basis, this sale is subject to an obligation to repurchase the loan if, among other things, the purchaser’s underwriting guidelines are not met or there is fraud in connection with the loan. As of December 31, 2010, our mortgage subsidiary had been required to repurchase or pay make-whole premiums on 0.29% of the $6.2 billion total dollar value of the loans it originated in the 2004-2010 period. If loan defaults in general increase, it is possible that our mortgage subsidiary will be required to make a materially higher number of make-whole payments and/or repurchases in the future as the holders of defaulted loans scrutinize loan files to seek reasons to require us to make make-whole payments or repurchases. Further, such make-whole payments could have a higher severity than previously experienced. In such cases our current reserves might prove to be inadequate and we would be required to use additional cash and take additional charges to reflect the higher level of repurchase and make-whole activity, which could harm our financial condition and results of operations.

In addition, a number of homebuyers have initiated lawsuits against builders and lenders claiming, among other things, that builders pressured the homebuyers to make inaccurate statements on loan applications, that the lenders failed to correctly explain the terms of adjustable rate and interest-only loans, and/or that the lender financed home purchases for unsuitable buyers resulting indirectly in a diminution in value of homes purchased by more appropriately qualified buyers. While we have experienced only a small number of such lawsuits to date and are currently unaware of any regulatory investigation into our mortgage operations, if loan defaults increase, the possibility of becoming subject to additional lawsuits and/or regulatory

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investigations becomes more likely. If our mortgage subsidiary becomes the subject of significant borrower lawsuits or regulatory authority action our financial results may be negatively impacted.

We are dependent on the services of key employees and the loss of any substantial number of these individuals or an inability to hire additional personnel could adversely affect us.

Our success is dependent upon our ability to attract and retain skilled employees, including personnel with significant management and leadership skills. Competition for the services of these individuals in many of our operating markets can be intense and will likely increase substantially if and when market conditions improve. If we are unable to attract and retain skilled employees, we may be unable to accomplish the objectives set forth in our business plan.

We may not be able to successfully identify, complete and integrate acquisitions, which could harm our profitability and divert management resources.

We may from time to time acquire other homebuilders or related businesses. Successful acquisitions require us to correctly identify appropriate acquisition candidates and to integrate acquired operations and management with our own. Should we make an error in judgment when identifying an acquisition candidate, should the acquired operations not perform as anticipated, or should we fail to successfully integrate acquired operations and management, we will likely fail to realize the benefits we intended to derive from the acquisition and may suffer other adverse consequences. Acquisitions involve a number of other risks, including the diversion of the attention of our management and corporate staff from operating our existing business, potential charges to earnings in the event of any write-down or write-off of goodwill and other assets recorded in connection with acquisitions and exposure to the acquired company’s pre-existing liabilities. We can give no assurance that we will be able to successfully identify, complete and integrate acquisitions.

Regulatory Risks

We are subject to extensive government regulation, which can increase costs and reduce profitability.

Our homebuilding operations, including land development activities, are subject to extensive federal, state and local regulation, including environmental, building, employment and worker health and safety, zoning and land use regulation. This regulation affects all aspects of the homebuilding process and can substantially delay or increase the costs of homebuilding activities, even on land for which we already have approvals. During the development process, we must obtain the approval of numerous governmental authorities that regulate matters such as:

·	permitted land uses, levels of density and architectural designs;

·	the level of energy efficiency our homes are required to achieve;

·	the installation of utility services, such as water and waste disposal;

·	the dedication of acreage for open space, parks, schools and other community services; and

·	the preservation of habitat for endangered species and wetlands, storm water control and other environmental matters.

The approval process can be lengthy, can be opposed by consumer or environmental groups, and can cause significant delays or permanently halt the development process. Delays or a permanent halt in the development process can cause substantial increases to development costs or cause us to abandon the project and to sell the affected land at a potential loss, which in turn could harm our operating results.

In addition, new housing developments are often subject to various assessments for schools, parks, streets, highways and other public improvements. The costs of these assessments can be substantial and can cause increases in the effective prices of our homes, which in turn could reduce our sales and/or profitability.

Currently, there is a variety of energy related legislation being considered for enactment around the world. For instance, the federal congress is considering an array of energy related initiatives, from carbon “cap and trade” to a federal energy efficiency building code that would increase energy efficiency requirements for new homes between 30 and 50 percent. If all or part of this proposed legislation, or similar legislation, were to be enacted, the cost of home construction could increase significantly, which in turn could reduce our sales and/or profitability.

Much of this proposed legislation is in response to concerns about climate change. As climate change concerns grow, legislation and regulatory activity of this nature is expected to continue and become more onerous. Similarly, energy related initiatives will impact a wide variety of companies throughout the world and because our operations are heavily dependent on

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significant amounts of raw materials, such as lumber, steel, and concrete, these initiatives could have an indirect adverse effect on our operations and profitability to the extent the suppliers of our materials are burdened with expensive cap and trade and similar energy related regulations.

Our mortgage operations are also subject to federal, state, and local regulation, including eligibility requirements for participation in federal loan programs and various consumer protection laws. Our title insurance agency operations are subject to applicable insurance and other laws and regulations. Failure to comply with these requirements can lead to administrative enforcement actions, the loss of required licenses and other required approvals, claims for monetary damages or demands for loan repurchase from investors, and rescission or voiding of the loan by the consumer.

States, cities and counties in which we operate may adopt slow growth initiatives reducing our ability or increasing our costs to build in these areas, which could harm our future sales and earnings.

Several states, cities and counties in which we operate have in the past approved, or approved for inclusion on their ballot, various “slow growth” or “no growth” initiatives and other ballot measures that could negatively impact the land we own as well as the availability of additional land and building opportunities within those localities. Approval of slow or no growth measures would increase the cost of land and reduce our ability to open new home communities and to build and sell homes in the affected markets and would create additional costs and administration requirements, which in turn could harm our future sales and earnings.

Increased regulation of the mortgage industry could harm our future sales and earnings.

The mortgage industry is under intense scrutiny and is facing increasing regulation at the federal, state and local level. Changes in regulation have the potential to negatively impact the full spectrum of mortgage related activity. Potential changes to federal laws and regulations could have the effect of limiting the activities of the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation, the entities that provide liquidity to the secondary mortgage market, which could lead to increases in mortgage interest rates. At the same time, changes to the Federal Housing Administration’s rules to require increased Borrower FICO scores, increased down payment amounts, and potentially limiting the amount of permitted seller concessions, lessen the number of buyers able to finance a new home. All of these regulatory activities reduce the number of potential buyers who qualify for the financing necessary to purchase our homes, which could harm our future sales and earnings.

Changes to tax laws could make homeownership more expensive.

Current tax laws generally permit significant expenses associated with owning a home, primarily mortgage interest expense and real estate taxes, to be deducted for the purpose of calculating an individual’s federal, and in many cases, state, taxable income. If the federal or state governments were to change applicable tax law to eliminate or reduce these benefits, the after-tax cost of owning a home could increase significantly. This would harm our future sales and earnings.

Also, while difficult to quantify, our 2009 and 2010 home sales were likely positively impacted by federal and state tax credits made available to first-time and other qualifying homebuyers. These tax credits have expired, which could negatively impact home sales and our results of operations.

Financing Risks

We have substantial debt and may incur additional debt; leverage may impair our financial condition and restrict our operations.

We currently have a substantial amount of debt. As of December 31, 2010, the principal amount of our total debt outstanding was approximately $1,344 million, $89 million of which matures prior to 2016 and $1,255 million of which matures between 2016 and 2021. In addition, the instruments governing this debt permit us to incur significant additional debt. Our existing debt and any additional debt we incur could:

·	make it more difficult for us to satisfy our obligations under our existing debt instruments;

·	increase our vulnerability to general adverse economic and industry conditions;

·	limit our ability to obtain additional financing to fund capital expenditures and acquisitions, particularly when the availability of financing in the capital markets is limited;

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·	require a substantial portion of our cash flows from operations for the payment of interest on our debt, reducing our ability to use our cash flows to fund working capital, capital expenditures, acquisitions and other general corporate requirements;

·	limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; and

·	place us at a competitive disadvantage to less leveraged competitors.

We may need additional funds, and if we are unable to obtain these funds, we may not be able to operate our business as planned.

Our operations require significant amounts of cash. Our requirements for additional capital, whether to finance operations or to service or refinance our existing indebtedness, fluctuate as market conditions and our financial performance and operations change. We cannot assure you that we will maintain cash reserves and generate sufficient cash flow from operations in an amount to enable us to service our debt or to fund other liquidity needs. Additionally, while we recently entered into a new $210 million unsecured revolving credit facility designed to provide us with an additional source of liquidity to meet short-term cash needs, there can be no assurance that we will be able to continue to meet the covenants required to allow us to borrow under the facility.

The availability of additional capital, whether from private capital sources (including banks) or the public capital markets, fluctuates as our financial condition and market conditions in general 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. In addition, a weakening of our financial condition or deterioration in our credit ratings could adversely affect our ability to obtain necessary funds. Even if available, additional financing could be costly or have adverse consequences. If additional funds are raised through the incurrence of debt, we will incur increased debt servicing costs and may become subject to additional restrictive financial and other covenants. We can give no assurance as to the terms or availability of additional capital. If we are not successful in obtaining or refinancing capital when needed, it could adversely impact our ability to operate our business effectively, which could reduce our sales and earnings, and adversely impact our financial position.

We may be unable to meet the conditions contained in our debt instruments that must be satisfied to incur additional indebtedness and make restricted payments.

Our debt instruments impose restrictions on our operations, financing, investments and other activities. For example, our outstanding 2016 notes prohibit us from incurring additional debt, except for limited categories of indebtedness (including up to $1.1 billion in bank credit facility debt), if we do not satisfy either a maximum leverage ratio or a minimum interest coverage ratio. The 2016 notes also limit our ability to make restricted payments (including dividends, distributions on stock and contributions to joint ventures), prohibiting such payments unless we satisfy one of the ratio requirements for the incurrence of additional debt and comply with a basket limitation. As of December 31, 2010, we were able to satisfy the conditions necessary to incur additional debt and to make restricted payments. However, there can be no assurance that we will be able to satisfy these conditions in the future. If we are unable to satisfy these conditions in the future, we will be precluded from incurring additional borrowings, subject to certain exceptions, and will be precluded from making restricted payments, other than through funds available from our unrestricted subsidiaries.

We currently have significant amounts invested in unconsolidated joint ventures with independent third parties in which we have less than a controlling interest. These investments are highly illiquid and have significant risks.

We participate in unconsolidated homebuilding and land development joint ventures with independent third parties in which we have less than a controlling interest. At December 31, 2010, we had an aggregate of $73.9 million invested in these joint ventures, which had outstanding borrowings recourse to us of approximately $3.9 million. During 2010, we sold our interest in our only joint venture with nonrecourse borrowings.

While these joint ventures provide us with a means of accessing larger land parcels and lot positions, they are subject to a number of risks, including the following:

Restricted Payment Risk. Certain of our public note indentures prohibit us from making restricted payments, including investments in joint ventures, when we are unable to meet either a leverage condition or an interest coverage condition and when making such a payment will cause us to exceed a basket limitation. As a result, when we are unable to meet at least one of these conditions, payments to satisfy our joint venture obligations must be made through funds available from our unrestricted subsidiaries. If we become unable to fund our

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joint venture obligations this could result in, among other things, defaults under our joint venture operating agreements, loan agreements, and credit enhancements.

·	Entitlement Risk. Certain of our joint ventures acquire parcels of unentitled raw land. If the joint venture is unable to timely obtain entitlements at a reasonable cost, project delay or even project termination may occur resulting in an impairment of the value of our investment.

Development Risk. The projects we build through joint ventures are often larger and have a longer time horizon than the typical project developed by our wholly-owned homebuilding operations. Time delays associated with obtaining entitlements, unforeseen development issues, unanticipated labor and material cost increases, higher carrying costs, and general market deterioration and other changes are more likely to impact larger, long-term projects, all of which may negatively impact the profitability of these ventures and our proportionate share of income.

Financing Risk. There are a limited number of sources willing to provide acquisition, development and construction financing to land development and homebuilding joint ventures. Due to current market conditions, it may be difficult or impossible to obtain financing for our joint ventures on commercially reasonable terms, or to refinance existing borrowings as such borrowings mature. As a result, we may be required to expend corporate funds to 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 another third party lender. In addition, our ability to expend such funds to or for the joint venture may be limited if we do not meet the restricted payment condition discussed above.

Contribution Risk. Under credit enhancements that we typically provide with respect to joint venture borrowings, we and our partners could be required to make additional unanticipated investments in these joint ventures, either in the form of capital contributions or loan repayments, to reduce such outstanding borrowings. We may have to make additional contributions that exceed our proportional share of capital if our partners fail to contribute any or all of their share. While in most instances we would be able to exercise remedies available under the applicable joint venture documentation if a partner fails to contribute its proportional share of capital, our partner’s financial condition may preclude any meaningful cash recovery on the obligation.

·	Completion Risk. We often sign a completion agreement in connection with obtaining financing for our joint ventures. Under such agreements, we may be compelled to complete a project even if we no longer have an economic interest in the property.

Illiquid Investment Risk. We lack a controlling interest in our joint ventures and therefore are generally unable to compel our joint ventures to sell assets, return invested capital, require additional capital contributions or take any other action without the vote of at least one or more of our venture partners. This means that, absent partner agreement, we will be unable to liquidate our joint venture investments to generate cash.

Partner Dispute. If we have a dispute with one of our joint venture partners and are unable to resolve it, a buy-sell provision in the applicable joint venture agreement could be triggered or we may otherwise pursue a negotiated settlement involving the unwinding of the venture. In either case, we may sell our interest to our partner or purchase our partner’s interest. If we sell our interest, we will forgo the profit we would have otherwise earned with respect to the joint venture project and may be required to forfeit our invested capital and/or pay our partner to release us from our joint venture obligations. If we are required to purchase our partner’s interest, we will be required to fund this purchase, as well as the completion of the project, with corporate level capital and to consolidate the joint venture project onto our balance sheet, which could, among other things, adversely impact our liquidity, our leverage and other financial conditions or covenants.

Consolidation Risk. The accounting rules for joint ventures are complex and the decision as to whether it is proper to consolidate a joint venture onto our balance sheet is fact intensive. If the facts concerning an unconsolidated joint venture were to change and a triggering event under applicable accounting rules were to occur, we might be required to consolidate previously unconsolidated joint ventures onto our balance sheet which could adversely impact our leverage and other financial conditions or covenants.

At times, such as now, when we are pursuing a longer-term land acquisition strategy, we become directly subject to some of these risks, including those discussed above related to entitlement, development, financing, completion and illiquid investment. Increasing our direct exposure to these types of risks could have a material adverse effect on our financial position or results or operations.

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Other Risks

Our principal stockholder has the ability to exercise significant influence over the composition of our Board of Directors and matters requiring stockholder approval.

As of December 31, 2010, MP CA Homes LLC held 49% of the voting power of our voting stock. Pursuant to the stockholders' agreement that we entered into with MP CA Homes LLC on June 27, 2008, MP CA Homes LLC is entitled to designate a number of directors to serve on our Board of Directors as is proportionate to the total voting power of its voting stock (up to one less than a majority), and is entitled to designate at least one MP CA Homes LLC designated director to each committee of the board (subject to limited exceptions), giving MP CA Homes LLC the ability to exercise significant influence on the composition and actions of our Board of Directors and its committees. In addition, this large voting block may have a significant or decisive effect on the approval or disapproval of matters requiring approval of our stockholders, including any amendment to our certificate of incorporation, any proposed merger, consolidation or sale of all or substantially all of our assets and other corporate transactions. The interests of MP CA Homes LLC in these other matters may not always coincide with the interests of our other stockholders. In addition, the ownership of such a large block of our voting power and the right to designate directors by MP CA Homes LLC may discourage someone from making a significant equity investment in us, even if we needed the investment to operate our business, or could be a significant factor in delaying or preventing a change of control transaction that other stockholders may deem to be in their best interests.

We may not be able to realize the benefit of our net deferred tax asset.

As of December 31, 2010, we had a deferred tax asset of approximately $516 million (excluding a $9 million deferred tax asset related to an interest rate swap that was terminated during the 2010 fourth quarter) that is potentially available to offset taxable income in future periods. The $516 million deferred tax asset has been fully reserved against by a corresponding deferred tax asset valuation allowance of the same amount. Our ability to realize the benefit, if any, of our deferred tax asset is dependent, among other things, upon the interplay between applicable tax laws (including Internal Revenue Code Section 382 (“Section 382”) discussed below), our ability to generate taxable income in the future, and the timing of our disposition of assets that contain unrealized built-in losses.

Section 382 contains rules that limit the ability of a company that undergoes an ownership change to utilize net operating loss carryforwards and built-in losses after the ownership change. We underwent a change in ownership for purposes of Section 382 following completion of MP CA Homes LLC’s initial investment in the Company on June 27, 2008. As of December 31, 2010, approximately $142 million of our deferred tax asset represented unrealized built-in losses related primarily to inventory impairment charges. Future realization of this $142 million of unrealized built-in losses may be limited under Section 382 depending on, among other things, when, and at what price, we dispose of the underlying assets. As of December 31, 2010, approximately $328 million of our gross net operating loss carryforwards (or approximately $136 million on a tax effected basis) were subject to a gross annual deduction limitation. The gross annual deduction limitation for federal and state income tax purposes is approximately $15.6 million each, which is generally realized over a 20 year period commencing on the date of the ownership change. Assets with certain tax attributes sold five years after the original ownership change (June 27, 2013) are not subject to the Section 382 limitation. Significant judgment is required in determining the future realization of these potential deductions, and as a result, actual results may differ materially from our estimates.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

We lease office facilities for our homebuilding and mortgage operations. We lease our corporate headquarters, which is located in Irvine, California. The lease on this facility, which also includes space for our Orange County division, consists of approximately 26,000 square feet and expires in July 2012. We lease approximately 28 other properties for our other division offices and design centers. For information about land owned or controlled by us for use in our homebuilding activities, please refer to Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” on page 26.

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ITEM 3. LEGAL PROCEEDINGS

Chinese Drywall

Like many other homebuilders, we have determined that some of our subcontractors installed drywall manufactured in China in our homes. Reports have indicated that certain Chinese drywall, thought to be delivered to the United States primarily during 2005 and 2006, may emit various sulfur-based gases that, among other things, have the potential to corrode non-ferrous metals (copper, silver, etc.). We have conducted an internal review in an attempt to determine how many of the homes that we constructed may be impacted. To date, it appears that a subset of homes with drywall dates from February 2006 through February 2007 in five of our Florida communities contain some high-sulfur Chinese drywall. We have inspected all but about four of the homes that we believe are likely to be impacted in these communities based on their location and drywall installation dates. Approximately 170 have been confirmed (including 14 Company owned homes), and we are still seeking access to the four remaining homes to complete our investigation. We have also received complaints from two other homeowners outside of these five communities who have thus far refused to let us inspect their homes. If we were to locate high sulfur drywall outside of these communities or drywall installation dates, we would broaden the scope of our investigation. We have notified homeowners of the results of our inspections, and have offered to make comprehensive repairs, including removing and replacing all drywall and wiring. We have entered into approximately 127 settlement agreements to repair homes that we sold, and have commenced the repair process on at least 140 homes, including those owned by the Company. We intend to continue to negotiate additional settlements as we make repairs and will work through the group as quickly and efficiently as possible. Although we are encouraging homeowners to allow us to make repairs rather than engaging in litigation, approximately 77 homeowners have joined a federal class action lawsuit or filed suit in state court, seeking property and, in some cases, bodily injury damages. Over 50 of these already have agreed to allow us to make repairs. We plan to vigorously defend litigation involving Chinese drywall, while seeking to make repairs wherever possible.

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 that any of such claims and actions will have a material adverse effect upon our results of operations or financial position.

ITEM 4. RESERVED

Executive Officers of the Registrant

Our executive officers’ ages, positions and brief accounts of their business experience as of March 4, 2011, are set forth below.

Name	Age	Position
Kenneth L. Campbell	54	Chief Executive Officer, President, and Director
Scott D. Stowell	53	Chief Operating Officer
John M. Stephens	42	Senior Vice President and Chief Financial Officer
John P. Babel	40	Senior Vice President, General Counsel and Secretary
Wendy L. Marlett	47	Chief Marketing Officer and Executive Vice President

Kenneth L. Campbell has served as Chief Executive Officer and President since December 2008 and as a Director of the Company since July 2008. From July 2007 to May 2009, Mr. Campbell served as a partner of MatlinPatterson Global Advisers, LLC, a private equity firm and an affiliate of our largest shareholder. From May 2006 to May 2007, Mr. Campbell served as Chief Executive Officer and Director of Ormet Corporation, a U.S. producer of aluminum. Prior to that, Mr. Campbell served as Chief Financial Officer of RailWorks Corporation, a provider of track and transit systems construction and maintenance services, from December 2003 to May 2006. Before joining MatlinPatterson, Mr. Campbell spent a period of over twenty years serving in various restructuring roles at companies with significant operational and/or financial difficulties.

Scott D. Stowell has served as Chief Operating Officer since May 2007. From September 2002 to May 2007, Mr. Stowell served as President of our Southern California Region. From April 1996 until September 2002, Mr. Stowell served as President of our Orange County division. Mr. Stowell joined the Company in 1986 as a project manager.

John M. Stephens has served as Senior Vice President since May 2007 and as our Chief Financial Officer since February 2009. From November 1996 until February 2009, Mr. Stephens served as our Corporate Controller and as Vice President from October 2002 through May 2007. In addition, Mr. Stephens served as Treasurer from May 2001 until October

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2002 and as Assistant Treasurer from December 1997 until May 2001. Prior to joining the Company, Mr. Stephens was an audit manager with an international accounting firm.

John P. Babel has served as Senior Vice President, General Counsel and Secretary since February 2009. From October 2002 until February 2009, Mr. Babel served as our Associate General Counsel, as Senior Vice President from October 2008 to February 2009, and as Vice President from February 2005 through October 2008. Prior to joining the Company, Mr. Babel was a corporate lawyer with the international law firm of Gibson, Dunn & Crutcher LLP.

Wendy L. Marlett has served as Chief Marketing Officer and Executive Vice President since September 2010. In this newly created position, Ms. Marlett leads all of the Company's sales, marketing and communications functions across our operations. Prior to joining the Company, Ms. Marlett was Senior Vice President of sales, marketing and communications at KB Home, where she held progressive roles since 1995 and was a recognized innovator in marketing and brand management.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES>

Our shares of common stock are listed on the New York Stock Exchange under the symbol “SPF.” The following table sets forth, for the fiscal quarters indicated, the reported high and low intra-day sales prices per share of our common stock as reported on the New York Stock Exchange Composite Tape and the common dividends paid per share.

		Year Ended December 31,
	2010						2009
	High		Low		Dividend		High		Low		Dividend
Quarter Ended
March 31	$	5.18	$	3.47	$	―	$	2.07	$	0.65	$	―
June 30		7.10		3.31		―		2.74		0.85		―
September 30		4.30		2.95		―		4.59		1.86		―
December 31		4.75		3.37		―		3.83		2.84		―

For further information on our dividend policy, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.”

As of March 4, 2011, the number of record holders of our common stock was 611.

We did not repurchase any shares during the three months ended December 31, 2010.

On December 21, 2010, MatlinPatterson exercised its warrant in full for $187.5 million in cash and was issued 89.4 million shares of the Company’s common stock. In issuing the 89.4 million shares of common stock to MatlinPatterson, the Company relied upon the exemption from registration provided by Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”) and Rule 506 of Regulation D promulgated thereunder. The issuance was exempt from registration because it was a private sale made without general solicitation or advertising exclusively to one “accredited investor” as defined in Rule 501 of Regulation D. The certificate issued for the unregistered securities contains a legend stating that the securities have not been registered under the Securities Act and setting forth the restrictions on the transferability and the sale of the securities.

For a description of securities authorized for issuance under the Company’s equity compensation plans, see Note 15 to the consolidated financial statements set forth in “Financial Statements and Supplementary Data.”

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The following graph shows a five-year comparison of cumulative total returns to stockholders of the Company, as compared with the Standard & Poor’s 500 Composite Stock Index and the Dow Jones Industry Group-U.S. Home Construction Index. The graph assumes reinvestment of all dividends.

Comparison of Five-Year Cumulative Total Stockholders’ Return

Among Standard Pacific Corp., The Standard & Poor’s 500 Composite Stock Index and

the Dow Jones Industry Group-U.S. Home Construction Index

The above graph is based upon common stock and index prices calculated as of year-end for each of the last five calendar years. The Company’s common stock closing price on December 31, 2010 was $4.60 per share. On March 4, 2011 the Company’s common stock closed at $3.85 per share. The stock price performance of the Company’s common stock depicted in the graph above represents past performance only and is not necessarily indicative of future performance.

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ITEM 6. SELECTED FINANCIAL DATA

The following should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this Form 10-K.

				Year Ended December 31,
				2010		2009		2008		2007		2006
				(Dollars in thousands, except per share amounts)
Revenues:
	Homebuilding (1)			$	912,418	$	1,166,397	$	1,535,616	$	2,888,833	$	3,740,470
	Financial Services				12,456		13,145		13,587		16,677		24,866
		Total revenues from continuing operations		$	924,874	$	1,179,542	$	1,549,203	$	2,905,510	$	3,765,336

Pretax income (loss):
	Homebuilding (1)(2)			$	(14,001)	$	(111,068)	$	(1,237,840)	$	(846,586)	$	220,812
	Financial Services				1,720		1,586		1,016		2,293		8,211
			Pretax income (loss) from continuing operations	$	(12,281)	$	(109,482)	$	(1,236,824)	$	(844,293)	$	229,023
Net income (loss):
	Income (loss) from continuing operations			$	(11,724)	$	(13,217)	$	(1,231,329)	$	(695,290)	$	146,093
	Income (loss) from discontinued operations				―		(569)		(2,286)		(72,090)		(22,400)
			Net income (loss)	$	(11,724)	$	(13,786)	$	(1,233,615)	$	(767,380)	$	123,693

Basic earnings (loss) per common share:
	Continuing operations			$	(0.05)	$	(0.06)	$	(9.12)	$	(9.63)	$	2.01
	Discontinued operations				―		―		(0.02)		(1.00)		(0.31)
		Basic earnings (loss) per common share		$	(0.05)	$	(0.06)	$	(9.14)	$	(10.63)	$	1.70

Diluted earnings (loss) per common share:
	Continuing operations			$	(0.05)	$	(0.06)	$	(9.12)	$	(9.63)	$	1.97
	Discontinued operations				―		―		(0.02)		(1.00)		(0.30)
		Diluted earnings (loss) per common share		$	(0.05)	$	(0.06)	$	(9.14)	$	(10.63)	$	1.67

Weighted average common shares outstanding: (3)
	Basic				105,202,857		95,623,851		81,439,248		72,157,394		72,644,368
	Diluted				105,202,857		95,623,851		81,439,248		72,157,394		74,213,185

Weighted average additional common shares outstanding
if preferred shares converted to common shares: (4)					147,812,786		147,812,786		53,523,829		―		―

Balance Sheet and Other Financial Data:
	Homebuilding cash (including restricted cash)			$	748,754	$	602,222	$	626,379	$	219,141	$	17,356
	Total assets			$	2,133,123	$	1,861,011	$	2,252,488	$	3,401,904	$	4,502,941
	Homebuilding debt (5)			$	1,320,254	$	1,158,626	$	1,486,437	$	1,747,730	$	1,953,880
	Financial services debt			$	30,344	$	40,995	$	63,655	$	164,172	$	250,907
	Stockholders' equity			$	621,862	$	435,798	$	407,941	$	1,034,279	$	1,764,370
	Stockholders' equity per common share (6)			$	3.23	$	4.30	$	4.40	$	15.95	$	27.39
	Pro forma stockholders' equity per common share (7)			$	1.83	$	1.75	$	1.70	$	15.95	$	27.39
	Cash dividends declared per common share			$	―	$	―	$	―	$	0.12	$	0.16

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

(2)

The 2010, 2009, 2008, 2007 and 2006 homebuilding pretax income (loss) includes pretax impairment charges and deposit write-offs totaling $2.4 million, $71.1 million, $1,153.5 million, $984.6 million and $334.9 million, respectively. (Please see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations” and Notes 2, 4 and 13 of the accompanying Consolidated Financial Statements for further discussion).

(3)

Basic and diluted weighted average common shares outstanding for 2010 include the weighted average common shares outstanding related to the issuance of 89.4 million shares of our common stock to MP CA Homes LLC, an affiliate of MatlinPatterson Global Advisers LLC, on December 21, 2010 in connection with the exercise of a warrant. (Please see Note 10.b. of the accompanying Consolidated Financial Statements for further discussion).

(4)

In 2008, we issued 147.8 million equivalent shares of common stock (in the form of preferred stock) in connection with the Investment Agreement with MP CA Homes LLC. If the preferred stock was converted to common stock, the total weighted average common shares outstanding as of December 31, 2010, 2009 and 2008 would have been 253.0 million, 243.4 million and 135.0 million, respectively.

(5)	Homebuilding debt includes the indebtedness related to liabilities from inventories not owned of $0, $1.9 million, $0, $11.4 million and $13.4 million, as of December 31, 2010, 2009, 2008, 2007 and 2006, respectively.

(6)

At December 31, 2010, 2009, 2008 and 2007, common shares outstanding exclude 3.9 million, 3.9 million, 7.8 million and 7.8 million shares, respectively, issued under a share lending facility related to our 6% convertible senior subordinated notes issued September 28, 2007 and 147.8 million common equivalent shares issued during the year ended December 31, 2008 in the form of preferred stock to MP CA Homes LLC, an affiliate of MatlinPatterson Global Advisers LLC.

(7)

At December 31, 2010, 2009 and 2008, pro forma common shares outstanding include 147.8 million preferred shares outstanding on an if-converted basis. In addition, at December 31, 2010, 2009, 2008 and 2007, pro forma common shares outstanding exclude 3.9 million, 3.9 million, 7.8 million and 7.8 million shares, respectively, issued under a share lending facility related to our 6% convertible senior subordinated notes.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with the section “Selected Financial Data” and our consolidated financial statements and the related notes included elsewhere in this Form 10-K.

Results of Operations

Selected Financial Information

				Year Ended December 31,
				2010		2009		2008
				(Dollars in thousands, except per share amounts)
Homebuilding:
	Home sale revenues			$	908,562	$	1,060,502	$	1,521,640
	Land sale revenues				3,856		105,895		13,976
		Total revenues			912,418		1,166,397		1,535,616
	Cost of home sales				(707,006)		(907,058)		(2,107,758)
	Cost of land sales				(3,568)		(117,517)		(124,786)
		Total cost of sales			(710,574)		(1,024,575)		(2,232,544)
			Gross margin		201,844		141,822		(696,928)
			Gross margin percentage		22.1%		12.2%		(45.4%)
	Selling, general and administrative expenses				(150,542)		(191,488)		(305,480)
	Income (loss) from unconsolidated joint ventures				1,166		(4,717)		(151,729)
	Interest expense				(40,174)		(47,458)		(10,380)
	Gain (loss) on early extinguishment of debt				(30,028)		(6,931)		(15,695)
	Other income (expense)				3,733		(2,296)		(57,628)
			Homebuilding pretax loss		(14,001)		(111,068)		(1,237,840)
Financial Services:
	Revenues				12,456		13,145		13,587
	Expenses				(10,878)		(11,817)		(13,659)
	Income from unconsolidated joint ventures				―		119		854
	Other income				142		139		234
			Financial services pretax income		1,720		1,586		1,016
Loss from continuing operations before income taxes					(12,281)		(109,482)		(1,236,824)
Benefit for income taxes					557		96,265		5,495
Loss from continuing operations					(11,724)		(13,217)		(1,231,329)
Loss from discontinued operations, net of income taxes					―		(569)		(2,286)
Net loss					(11,724)		(13,786)		(1,233,615)
Less: Net loss allocated to preferred shareholder					6,849		8,371		489,229
Net loss available to common stockholders				$	(4,875)	$	(5,415)	$	(744,386)

Basic loss per common share:
	Continuing operations			$	(0.05)	$	(0.06)	$	(9.12)
	Discontinued operations				―		―		(0.02)
		Basic loss per common share		$	(0.05)	$	(0.06)	$	(9.14)
Diluted loss per common share:
	Continuing operations			$	(0.05)	$	(0.06)	$	(9.12)
	Discontinued operations				―		―		(0.02)
		Diluted loss per common share		$	(0.05)	$	(0.06)	$	(9.14)
Weighted average common shares outstanding:
	Basic				105,202,857		95,623,851		81,439,248
	Diluted				105,202,857		95,623,851		81,439,248

Weighted average additional common shares outstanding if preferred shares converted to common shares: (1)					147,812,786		147,812,786		53,523,829

Net cash provided by (used in) operating activities				$	(80,958)	$	419,830	$	263,151
Net cash provided by (used in) investing activities				$	(33,455)	$	(27,301)	$	(11,579)
Net cash provided by (used in) financing activities				$	250,225	$	(422,815)	$	142,712

Adjusted Homebuilding EBITDA (2)				$	131,576	$	116,252	$	43,885

(1)

In 2008, we issued 147.8 million equivalent shares of common stock (in the form of preferred stock) in connection with the Investment Agreement with MP CA Homes LLC, an affiliate of MatlinPatterson Global Advisers LLC. If the preferred stock was converted to common stock, the total weighted average common shares outstanding as of December 31, 2010, 2009 and 2008 would have been 253.0 million, 243.4 million and 135.0 million, respectively.

(2)

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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Selected Financial Information (continued)

(2)

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.

			Year Ended December 31,
			2010		2009		2008
				(Dollars in thousands)

Net cash provided by (used in) operating activities			$	(80,958)	$	419,830	$	263,151
Add:
	Benefit for income taxes			(557)		(96,563)		(6,795)
	Homebuilding interest amortized to cost of sales and interest expense			100,739		134,293		94,452
	Excess tax benefits from share-based payment arrangements			27		297		―
Less:
	Income (loss) from financial services subsidiary			1,578		1,328		(72)
	Depreciation and amortization from financial services subsidiary			934		678		783
	(Gain) loss on disposal of property and equipment			(37)		2,611		2,792
Net changes in operating assets and liabilities:
		Trade and other receivables		(6,541)		(8,440)		(6,408)
		Mortgage loans held for sale		(12,165)		(24,718)		(91,380)
		Inventories-owned		148,706		(326,062)		(34,567)
		Inventories-not owned		27,861		2,805		(1,049)
		Deferred income taxes, net of valuation allowance		―		96,562		(129,873)
		Other assets		(111,496)		(118,265)		(142,834)
		Accounts payable		6,592		18,554		57,949
		Accrued liabilities		61,843		22,576		44,742
Adjusted Homebuilding EBITDA			$	131,576	$	116,252	$	43,885

Overview

Our operations continue to be impacted by weak housing demand in substantially all of our markets, driven by a housing supply/demand imbalance (including as a result of record foreclosures), low consumer confidence and high unemployment. New home deliveries, net new orders and backlog decreased during 2010 compared to the prior year. Despite these factors, our financial results improved during 2010. The improvements in our operating performance were driven primarily by higher gross margins, lower inventory impairments and lower selling, general and administrative (“SG&A”) expenses. These improvements were partially offset by an increase in loss on the early extinguishment of debt as a result of our significant 2010 refinancing activities. We were successful in reducing the principal amount of our homebuilding debt maturing prior to September 2016 from over $900 million as of December 31, 2009 to less than $90 million as of December 31, 2010. Our 2010 refinancing activities, combined with $187.5 million in proceeds from a 2010 fourth quarter warrant exercise provides us with a substantial amount of capital and liquidity to continue our land acquisition strategy.

For the year ended December 31, 2010, we reported a net loss of $11.7 million, or $0.05 per diluted share, compared to a net loss of $13.8 million, or $0.06 per diluted share, in 2009. The 2009 net loss included a $96.6 million tax benefit primarily related to the carryback of net operating losses. The net loss incurred during fiscal 2010 included a $30.0 million charge related to the early extinguishment of debt and $2.4 million of asset impairment charges and deposit write-offs. The net loss incurred during fiscal 2009 included $71.1 million of asset impairment charges and deposit write-offs, $22.6 million of restructuring charges and a $6.9 million charge related to the early extinguishment of debt. Our results for the year ended December 31, 2008 included asset impairment charges and deposit write-offs totaling $1,153.5 million, $25.1 million of restructuring charges and a $15.7 million charge related to the early extinguishment of debt.

We ended 2010 with $748.8 million of homebuilding cash (including $28.2 million of restricted cash). Net cash used in operating activities during 2010 was $81.0 million compared to $419.8 million of net cash generated by operating activities during 2009. The decrease in net cash flows from operating activities for 2010 as compared to the prior year period was driven primarily by a $190.2 million increase in cash land purchases and a $254.0 million decrease in homebuilding revenues. The decline in homebuilding revenues was primarily attributable to a 24% decline in new home deliveries and a $102.0 million decrease in land sale revenues. Cash flows from financing activities for 2010 included approximately $187.5 million of proceeds related to the issuance of common stock in connection with the exercise of a warrant and $84.6 million related to new net debt issuances. Additionally, the principal amount of our consolidated homebuilding debt increased by approximately $153.2 million in 2010, driven primarily by the issuance of $975 million of senior notes and $32.8 million of

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secured project debt, offset by the repayment of $767.0 million principal amount of senior and senior subordinated notes and $83.6 million of secured project debt and other notes payable.

Homebuilding

			Year Ended December 31,
			2010		2009		2008
				(Dollars in thousands)
Homebuilding revenues:
	California		$	546,946	$	665,414	$	796,737
	Southwest (1)			187,609		238,249		416,749
	Southeast			177,863		262,734		322,130
		Total homebuilding revenues	$	912,418	$	1,166,397	$	1,535,616

Homebuilding pretax income (loss):
	California		$	39,594	$	(16,817)	$	(724,047)
	Southwest (1)			(5,103)		(28,950)		(257,031)
	Southeast			(8,902)		(30,880)		(222,586)
	Corporate			(39,590)		(34,421)		(34,176)
		Total homebuilding pretax income (loss)	$	(14,001)	$	(111,068)	$	(1,237,840)

Homebuilding impairment charges and deposit write-offs:
	California		$	―	$	43,313	$	690,890
	Southwest (1)			331		16,426		252,877
	Southeast			2,058		11,342		209,763
		Total homebuilding impairment charges and deposit write-offs	$	2,389	$	71,081	$	1,153,530

Homebuilding impairment charges and deposit write-offs by type:
	Deposit write-offs		$	100	$	2,490	$	25,649
	Inventory impairments			1,818		60,450		943,094
	Joint venture impairments			471		8,141		149,265
	Goodwill impairments			―		―		35,522
		Total homebuilding impairment charges and deposit write-offs	$	2,389	$	71,081	$	1,153,530

				As of December 31,
				2010		2009		2008
					(Dollars in thousands)
Total Assets:
	California			$	819,376	$	671,887	$	810,619
	Southwest (1)				233,120		210,058		299,039
	Southeast				237,635		181,931		275,893
	Corporate				786,791		730,046		777,256
		Total homebuilding			2,076,922		1,793,922		2,162,807
	Financial services				56,201		67,089		88,464
	Discontinued operations				―		―		1,217
			Total Assets	$	2,133,123	$	1,861,011	$	2,252,488

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

For 2010, we reported a homebuilding pretax loss of $14.0 million compared to a pretax loss of $111.1 million in 2009. This improvement was primarily the result of a $68.7 million decrease in impairment charges and deposit write-offs, a $40.9 million decrease in our SG&A expenses (which included approximately $19.1 million in restructuring charges related to severance and facilities reductions in 2009 compared to $0 in 2010) and a $7.3 million decrease in non-capitalized interest expense during 2010. These decreases were partially offset by a $23.1 million increase in loss on early extinguishment of debt. Our homebuilding operations for the year ended December 31, 2010 included $2.4 million of asset impairment charges and deposit write-offs, which are detailed in the table above. Inventory impairment charges are included in cost of sales, joint venture charges are included in loss from unconsolidated joint ventures and deposit write-offs are included in other income (expense).

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For 2009, we generated a homebuilding pretax loss of $111.1 million compared to a pretax loss of $1,237.8 million in 2008. This improvement was primarily the result of a $1,082.4 million decrease in impairment charges, a $114.0 million decrease in our SG&A expenses and an $8.8 million decrease in loss on early extinguishment of debt. These decreases were partially offset by a $37.1 million increase in non-capitalized interest expense during 2009. Our homebuilding operations for the year ended December 31, 2009 included $71.1 million of impairment charges and deposit write-offs. Goodwill impairment charges are included in other income (expense).

Homebuilding revenues for 2010 decreased 22% from 2009 as a result of a 24% decrease in new home deliveries and a $102.0 million year-over-year decrease in land sale revenues. These decreases were partially offset by a 12% increase in our consolidated average home price to $343,000. Homebuilding revenues for 2009 decreased 24% from 2008 as a result of a 25% decrease in new home deliveries and a 7% decrease in our consolidated average home price to $306,000. The decreases were partially offset by a $91.9 million year-over-year increase in land sale revenues, which included $80.8 million from the sale of two podium projects in Southern California.

			Year Ended December 31,
			2010	% Change	2009	% Change	2008
New homes delivered:
	California		1,102	(18%)	1,344	(19%)	1,668
	Arizona		196	(35%)	303	(44%)	540
	Texas (1)		368	(12%)	419	(38%)	677
	Colorado		115	(22%)	147	(36%)	229
	Nevada		22	47%	15	(76%)	62
		Total Southwest	701	(21%)	884	(41%)	1,508
	Florida		446	(44%)	797	(10%)	883
	Carolinas		397	(10%)	440	(20%)	548
		Total Southeast	843	(32%)	1,237	(14%)	1,431
		Consolidated total	2,646	(24%)	3,465	(25%)	4,607
	Unconsolidated joint ventures (2)		54	(52%)	112	(59%)	270
	Discontinued operations (including joint ventures) (2)		―	(100%)	4	(97%)	148
		Total (including joint ventures) (2)	2,700	(25%)	3,581	(29%)	5,025

(1)	Texas excludes our San Antonio division, which was 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) decreased 24% in 2010 as compared to the prior year. The decline in our 2010 deliveries was driven largely by a 26% decrease in net new orders during 2010. New home deliveries for 2009 were down 25% from 2008. The decline in our 2009 deliveries reflected a 50% decrease in homes in our 2009 beginning backlog and a 27% decrease in the number of average active selling communities in 2009. This decrease was partially offset by the increased number of speculative homes that we sold and delivered during fiscal 2009.

				Year Ended December 31,
				2010		% Change	2009		% Change	2008
Average selling prices of homes delivered:
	California			$	495,000	14%	$	434,000	(9%)	$	475,000
	Arizona				202,000	(4%)		211,000	(7%)		228,000
	Texas (1)				294,000	4%		282,000	1%		280,000
	Colorado				295,000	(3%)		305,000	(12%)		348,000
	Nevada				201,000	(11%)		225,000	(21%)		285,000
		Total Southwest			266,000	2%		260,000	(4%)		272,000
	Florida				193,000	2%		190,000	(9%)		209,000
	Carolinas				230,000	6%		218,000	(11%)		246,000
		Total Southeast			210,000	5%		200,000	(10%)		223,000
		Consolidated total			343,000	12%		306,000	(7%)		330,000
	Unconsolidated joint ventures (2)				465,000	(10%)		517,000	(2%)		525,000
	Discontinued operations (including joint ventures) (2)				―	―		201,000	15%		175,000
			Total (including joint ventures) (2)	$	346,000	11%	$	313,000	(7%)	$	336,000

(1)	Texas excludes our San Antonio division, which was 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%.

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During 2010, our consolidated average home price (excluding joint ventures and discontinued operations) increased 12% to $343,000 as compared to $306,000 for 2009. The increase in our consolidated average home price during 2010 was largely due to the delivery of a higher percentage of homes in California at higher prices and a reduction in deliveries in Florida and Arizona. The 14% higher average home price in California reflected the delivery of more higher priced homes in Southern California, including a decrease in the number of deliveries from our lower priced podium projects that were virtually all delivered as of the end of 2009.

During 2009, our consolidated average home price (excluding joint ventures and discontinued operations) declined 7% primarily due to general price declines and higher incentives required to sell homes as compared to 2008 and was partially offset by a slight mix shift to more California deliveries. In addition, the 9% drop in our average home price in California in 2009 was also impacted by an increase in the number of deliveries from our lower priced podium projects in Southern California compared to 2008, which represented 13% and 2% of our deliveries in 2009 and 2008, respectively.

Gross Margin

Our 2010 homebuilding gross margin percentage (including land sales) was up year-over-year to 22.1% from 12.2% in 2009. The 2010 gross margin reflected $1.8 million of inventory impairment charges related to three projects located in Texas, the Carolinas and Florida. The operating margin (defined as gross margin less direct selling and marketing costs) used to calculate land residual values and related fair values for our projects impaired during the year ended December 31, 2010 was 6% and discount rates were generally in the 20% to 30% range. Excluding housing inventory impairment charges and land sales, our 2010 gross margin percentage from home sales would have been 22.4% versus 18.8% in 2009 (please see the table set forth below reconciling this non-GAAP measure to our gross margin from home sales). The 360 basis point increase in the adjusted gross margin percentage was primarily the result of lower direct construction costs and higher margins in substantially all of our markets.

Our 2009 homebuilding gross margin percentage (including land sales) was up year-over-year to 12.2% from a negative 45.4% in 2008. The 2009 gross margin reflected $60.5 million of inventory impairment charges related to 27 projects, of which $46.1 million represented housing inventory impairment charges, $8.9 million related to the sale of two finished podium projects in Southern California and $5.5 million related to land or lots that have been or are intended to be sold. These impairments related primarily to projects located in California and Florida, and to a lesser degree, in Arizona, Colorado, Nevada, the Carolinas and Texas (please see Note 4.a. of the accompanying consolidated financial statements for further discussion). The operating margins used to calculate land residual values and related fair values for the majority of our projects during the year ended December 31, 2009 were generally in the 8% to 12% range and discount rates were generally in the 15% to 25% range. Excluding the housing inventory impairment charges and land sales, our 2009 gross margin percentage from home sales would have been 18.8% versus 15.9% in 2008 (please see the table set forth below reconciling this non-GAAP measure to our gross margin from home sales). The 290 basis point increase in the adjusted gross margin percentage was driven primarily by higher gross margins in California, Arizona and Colorado and lower direct construction costs company-wide as a result of value engineering and the rebidding of contracts.

The table set forth below reconciles our homebuilding gross margin and gross margin percentage for the years ended December 31, 2010, 2009 and 2008 to gross margin and gross margin percentage from home sales, excluding housing inventory impairment charges and land sales:

		Year Ended December 31,
	2010		Gross Margin %	2009		Gross Margin %	2008		Gross Margin %
	(Dollars in thousands)

Homebuilding gross margin	$	201,844	22.1%	$	141,822	12.2%	$	(696,928)	(45.4%)
Less: Land sale revenues		(3,856)			(105,895)			(13,976)
Add: Cost of land sales		3,568			117,517			124,786
Gross margin from home sales		201,556	22.2%		153,444	14.5%		(586,118)	(38.5%)
Add: Housing inventory impairment charges		1,818			46,063			827,611
Gross margin from home sales, as adjusted	$	203,374	22.4%	$	199,507	18.8%	$	241,493	15.9%

We believe that the measure described above, which excludes housing inventory impairment charges, is useful to management and investors as it provides perspective on the underlying operating performance of the business by excluding these charges and provides comparability with 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, this measure should not be considered in isolation or as an alternative to operating performance measures prescribed by GAAP.

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Restructuring Activities

Our operations have been impacted by weak housing demand in substantially all of our markets. As a result, during 2008 we initiated a restructuring plan designed to reduce ongoing overhead costs and improve operating efficiencies through the consolidation of selected divisional offices, the disposal of related property and equipment, and a reduction in our workforce. We did not incur any restructuring charges during 2010. During 2009 and 2008 we incurred homebuilding restructuring charges of $22.1 million and $24.2 million, respectively. We believe that our restructuring activities were substantially complete as of December 31, 2009. However, until market conditions stabilize, we may incur additional restructuring charges for employee severance, lease termination and other exit costs. We estimate that employee severance and lease terminations actions taken during 2009 and 2008 will result in gross annual savings of approximately $75 million, primarily related to SG&A expenses. For further information about our restructuring activities, including costs paid and costs remaining to be paid, please see Note 2.j. in the accompanying consolidated financial statements beginning on page 48.

SG&A Expenses

Our 2010 SG&A expenses (including corporate G&A) were $150.5 million compared to $191.5 million for the prior year. Our SG&A expenses for 2010 did not include any restructuring charges, whereas 2009 included $19.1 million of restructuring charges. The lower SG&A expenses were due primarily to lower commissions, advertising, insurance, personnel and facilities costs, which were partially offset by higher incentive compensation expense related to higher Adjusted Homebuilding EBITDA for 2010 as compared to 2009. Our 2010 SG&A rate from home sales was 16.6% versus 16.3% (excluding restructuring charges) for 2009 (please see the table set forth below reconciling this non-GAAP measure to our SG&A expenses). The 30 basis point increase in our adjusted SG&A rate was primarily due to a 14% decrease in home sale revenues.

Our 2009 SG&A expenses (including corporate G&A) were $191.5 million compared to $305.5 million for 2008. Our SG&A expenses for 2009 and 2008 included $19.1 million and $19.2 million, respectively, of restructuring charges. Excluding restructuring charges, our 2009 SG&A rate was 16.3% versus 18.8% for 2008, despite a 30% decrease in home sale revenues (please see the table set forth below reconciling this non-GAAP measure to our SG&A expenses). The 250 basis point decrease in our adjusted SG&A rate was primarily due to our focus on reducing our SG&A expenses and was driven primarily by reductions in personnel costs and advertising and marketing expenses, offset in part by an increase in incentive and stock based compensation.

The table set forth below reconciles our SG&A expense and SG&A rate as a percentage of home sale revenues for the years ended December 31, 2010, 2009 and 2008 to our SG&A expense and SG&A rate, excluding restructuring charges:

	Year Ended December 31,
	2010		SG&A % (from home saes)	2009		SG&A % (from home sales)	2008		SG&A % (from home sales)
	(Dollars in thousands)

Selling, general and administrative expenses	$	150,542	16.6%	$	191,488	18.1%	$	305,480	20.1%
Less: Restructuring charges		―	―		(19,125)	(1.8%)		(19,179)	(1.3%)
Selling, general and administrative expenses,
excluding restructuring charges	$	150,542	16.6%	$	172,363	16.3%	$	286,301	18.8%

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

Unconsolidated Joint Ventures

We recognized $1.2 million of income from unconsolidated joint ventures during 2010 compared to a loss of $4.7 million and $151.7 million in 2009 and 2008, respectively. Income from unconsolidated joint ventures for 2010 included $1.9 million of income from the delivery of 49 homes from a Northern California homebuilding joint venture, partially offset by a $0.5 million charge related to our share of a joint venture inventory impairment for a Florida homebuilding joint venture. The 2009 loss included $11.4 million in losses related to our North Las Vegas joint venture, which was offset in part by approximately $3.7 million of income from a Southern California land development joint venture and $2.9 million in income from the delivery of 112 homes from six joint ventures. The 2008 loss reflected a $149.3 million pretax charge related to our

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share of joint venture impairments related to 20 projects located primarily in California and our North Las Vegas joint venture.

Interest Expense

We expensed $40.2 million, $47.5 million and $10.4 million of interest costs during 2010, 2009 and 2008, respectively, related to the portion of our debt in excess of our qualified assets in accordance with ASC Topic 835, Interest. The decline in our 2010 interest expense compared to 2009 was primarily the result of increased land purchases made during 2010 that resulted in a higher level of qualified assets. The increase in interest expense from 2008 to 2009 was primarily the result of our debt exceeding our qualified assets beginning in the second half of 2008. To the extent our debt exceeds our qualified assets in the future, we will expense a portion of the interest related to such debt.

Gain (Loss) on Early Extinguishment of Debt

During 2010, we recognized a $30.0 million loss on early extinguishment of debt. The loss consisted of a $29.0 million loss associated with the early extinguishment of substantially all of our remaining senior and senior subordinated public notes due 2010, 2011, 2012, 2013, 2014 and 2015. Approximately $26.4 million of these losses were cash charges related to tender premiums and other related costs and $2.6 million related primarily to the write-off of deferred debt issuance costs. In addition, we recognized a $1.0 million noncash loss in connection with the early extinguishment of $6.0 million of our convertible senior subordinated notes due 2012. The loss on this transaction primarily represented the derecognition of a portion of the debt that was classified as stockholders’ equity in accordance with ASC Topic 470, Debt.

During 2009 we recognized a loss on early extinguishment of debt of $6.9 million. We recorded a $7.3 million loss related to the amendment of our revolving credit facility and the amendment and termination of our Term Loan A facility, which included the write-off of unamortized deferred debt issuance costs and the unwind of the ineffective portion of the Term Loan A interest rate swap. In addition, we recorded a $3.5 million loss (including the write-off of unamortized debt issuance costs) related to the repurchase through a tender offer of approximately $258.8 million in principal amount of senior notes due 2010, 2011 and 2013, and a $1.5 million loss (including the write-off of unamortized debt issuance costs) related to the exchange of $32.8 million of our 2012 convertible senior subordinated notes for 7.6 million shares of our common stock. These losses were partially offset by a $5.4 million gain related to the early redemption of $24.5 million of our 2010 senior notes and $4.4 million of our 2011 senior notes.

Other Income (Expense)

Other income (expense) for 2010 included $2.1 million of interest income and a $1.5 million recovery of a land deposit that had been previously written off. Other income (expense) for 2009 included $2.5 million of deposit write-offs and $2.0 million of fixed asset write-offs related to restructuring activities, which was partially offset by $2.3 million of interest income.

			Year Ended December 31,
			2010	% Change	2009	% Change	2008
Net new orders (1):
	California		974	(28%)	1,358	(9%)	1,495
	Arizona		185	(32%)	274	(35%)	422
	Texas (2)		358	(10%)	398	(21%)	506
	Colorado		91	(26%)	123	(33%)	184
	Nevada		30	173%	11	(70%)	37
		Total Southwest	664	(18%)	806	(30%)	1,149
	Florida		435	(40%)	728	(10%)	810
	Carolinas		388	(14%)	451	(8%)	492
		Total Southeast	823	(30%)	1,179	(9%)	1,302
		Consolidated total	2,461	(26%)	3,343	(15%)	3,946
	Unconsolidated joint ventures (3)		50	(71%)	174	(12%)	197
	Discontinued operations		―	(100%)	3	(97%)	105
		Total (including joint ventures) (3)	2,511	(29%)	3,520	(17%)	4,248

(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)	Texas excludes our San Antonio division, which was classified as discontinued operations.

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

Table of Contents

			Year Ended December 31,
			2010	% Change	2009	% Change	2008
Average number of selling communities during the year:
	California		46	(8%)	50	(21%)	63
	Arizona		9	13%	8	(47%)	15
	Texas (1)		17	(11%)	19	(34%)	29
	Colorado		5	(17%)	6	(25%)	8
	Nevada		1	(50%)	2	(33%)	3
		Total Southwest	32	(9%)	35	(36%)	55
	Florida		26	(16%)	31	(31%)	45
	Carolinas		26	8%	24	(17%)	29
		Total Southeast	52	(5%)	55	(26%)	74
		Consolidated total	130	(7%)	140	(27%)	192
	Unconsolidated joint ventures (2)		3	(57%)	7	(42%)	12
	Discontinued operations		―	―	―	(100%)	2
		Total (including joint ventures) (2)	133	(10%)	147	(29%)	206

(1)	Texas excludes our San Antonio division, which was classified as discontinued operations.

(2)	Numbers presented regarding unconsolidated joint ventures reflect total 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 (excluding joint ventures and discontinued operations) for 2010 decreased 26% to 2,461 new homes on a 7% decrease in the number of average active selling communities from 140 in 2009 to 130 in 2010. Our monthly sales absorption rate was 1.6 per community for 2010, down from 2.0 per community for 2009. During the 2010 fourth quarter our monthly sales absorption rate was 1.1 per community, down from 1.5 per community for the 2009 fourth quarter, and down from 1.4 per community for the 2010 third quarter. The decrease in our sales absorption rate for 2010 as compared to 2009 was due to sales decreases in substantially all of our markets on a per community basis. The slower absorption rates reflected weaker demand in all of our markets, driven by a housing supply/demand imbalance, low consumer confidence, high unemployment and the elimination of the federal homebuyer tax credit in the 2010 second quarter. These conditions have been magnified by the tightening of available mortgage credit for homebuyers. Our consolidated cancellation rate for 2010 was flat compared to 2009 at 18%, and was 23% for the 2010 fourth quarter compared to 21% for the 2009 fourth quarter.

Net new orders (excluding joint ventures and discontinued operations) for 2009 decreased 15% to 3,343 new homes on a 27% decrease in the number of average active selling communities from 192 in 2008 to 140 in 2009. Our monthly sales absorption rate was 2.0 per community for 2009, up from 1.7 per community for 2008. The increase in our sales absorption rate in 2009 was favorably impacted by Federal and California homebuyer tax credits that were enacted during the 2009 first quarter. Our consolidated cancellation rate for 2009 was 18% compared to 26% in 2008.

		Year Ended December 31,
		2010			2009			2008

Backlog ($ in thousands):		Homes	Dollar Value		Homes	Dollar Value		Homes	Dollar Value
	California	119	$	60,440	247	$	117,536	154	$	69,522
	Arizona	36		7,988	47		9,686	76		17,083
	Texas (1)	99		30,456	109		33,708	130		38,782
	Colorado	30		9,313	54		15,587	78		24,017
	Nevada	8		1,628	―		―	4

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