STANDARD PACIFIC CORP /DE/ - 10-K Annual Report

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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 (FEE REQUIRED)

For the fiscal year ended December 31, 1997

OR

[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

For the transition period from N/A to
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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 (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)

1565 W. MACARTHUR BLVD., 92626
COSTA MESA, CALIFORNIA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)

Registrant's telephone number, including area code (714) 668-4300

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

TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH
REGISTERED

COMMON STOCK, $.01 PAR VALUE
(AND ACCOMPANYING PREFERRED SHARE NEW YORK STOCK EXCHANGE AND
PURCHASE RIGHTS) PACIFIC STOCK EXCHANGE

10 1/2% SENIOR NOTES DUE 2000 NEW YORK STOCK EXCHANGE
8 1/2% SENIOR NOTES DUE 2007 NEW YORK STOCK EXCHANGE

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

None

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 IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K 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 THE FORM 10-K. [_]

As of March 1, 1998, the aggregate market value of voting stock held by non-
affiliates of the registrant was $438,231,139.

Documents incorporated by reference:

Portions of the Company's Proxy Statement to be filed with the Securities
and Exchange Commission in connection with the Company's 1998 Annual Meeting
of Stockholders are incorporated by reference into Part III hereof.

As of March 1, 1998, there were 29,720,781 shares of common stock
outstanding.

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STANDARD PACIFIC CORP.

PART I

ITEM 1. BUSINESS

Standard Pacific Corp. ("the Company") operates primarily as a
geographically diversified builder of single-family homes for use as primary
residences with operations throughout the major metropolitan markets in
California and Texas. For the year ended December 31, 1997, approximately 79
percent and 21 percent of the Company's home deliveries (including
unconsolidated joint ventures) were in California and Texas, respectively.

The Company was incorporated in the State of Delaware in 1991. Through its
predecessors, Standard Pacific Corp. commenced its homebuilding operations in
1966 with a single tract of land in Orange County, California. As used herein,
"Company" refers to Standard Pacific Corp. and its predecessors.

STRATEGY

The Company believes that its long history of building high quality homes in
California and Texas and its conservative operating strategy have enabled the
Company to successfully weather cyclical downturns and position the Company to
capitalize on the improving California market. The main elements of the
Company's strategy include:

Focus on Broad Move-Up Market. The Company concentrates on the construction
of single-family homes for use as primary residences by move-up buyers. The
Company believes that the market for primary residences is more resistant to
economic downturns than the market for second or vacation homes. The average
selling price of the Company's homes for the year ended December 31, 1997 was
approximately $307,000. Currently, the Company expects to concentrate its
efforts on acquiring land that is suitable for the construction and sale of
homes generally in the price range of $150,000 to $400,000, which represents a
broad market segment in the Company's market areas. The Company also
constructs and sells homes in the $400,000 to $800,000 price range in certain
of its California markets.

Reputation for High Quality, Single-Family Homes. The Company believes that
it has an established reputation for providing high quality homes. The Company
prides itself on its ability to design unique and attractive homes and provide
its customer with a wide selection of options. The Company believes that its
long history of providing high quality homes has resulted in many repeat
buyers and word-of-mouth sales. The Company also uses extensive marketing to
sell its homes, and its homes are generally sold by its own staff of sales
personnel through the use of model homes which are usually maintained at each
project site. The Company also makes extensive use of advertisements in local
newspapers, illustrated brochures, billboards and on-site displays.

Conservative Operating Strategy. The Company customarily acquires unimproved
or improved land zoned for residential use which appears suitable for the
construction of 50 to 300 homes in increments of 10 to 30 homes. The Company
generally purchases land only when it projects commencement of construction
within a relatively short time period. The number of homes built in the first
increment of a project is based upon internal market studies. The timing and
size of subsequent increments depend to a large extent upon sales rates
experienced in the earlier increments. By developing projects in increments,
the Company has been able to respond to local market conditions and control
the number of its completed and unsold homes. Additionally, an increasing
percentage of the Company's lots are controlled through joint ventures. The
Company uses joint ventures for certain land development projects that have
long lead times or are of significant size requiring substantial capital
investments.

Strong Land Position. The Company has been operating in California for over
30 years and has established an excellent reputation with land owners. The
Company believes that its long standing relationships with land owners and
developers in California give the Company a competitive edge in securing
quality land

1

positions at competitive prices. In order to ensure an adequate supply of land
for future homebuilding activities, the Company generally attempts to maintain
an inventory of building sites sufficient for construction of homes over a
period of approximately three to five years. The Company believes that its
9,016 owned or controlled building sites at December 31, 1997, in addition to
any land sites for which the Company may enter into negotiations, will be
sufficient for its operations over this period.

Geographic Diversification. The Company has focused its California
homebuilding activities in Orange, Riverside, San Bernardino, San Diego and
Ventura Counties in southern California, and in the San Francisco Bay area of
northern California. Additionally, the Company has projects in the Houston,
Dallas and Austin markets in Texas. The Company's policy of diversifying among
different geographic areas has enabled it to reduce the impact of adverse
local economic conditions. Additionally, the Company believes that it has
significant opportunities to expand in its existing markets and to enter new
geographic markets.

Control of Overhead and Operating Expenses. Throughout its history, the
Company has sought to minimize overhead expenses in order to be more flexible
in responding to the cyclical nature of its business. The Company strives to
control its overhead costs by centralizing certain of its administrative
functions and by limiting the number of middle level management positions.

Experienced Management and Decentralized Operations. The Company's senior
corporate and division operating managers average over 20 years of experience
in the homebuilding business. Each division is run by a local manager. One of
the essential criteria in the selection of a divisional manager is the
individual's in-depth familiarity with the geographic areas within which the
division operates. The decisions regarding selection of parcels of land for
purchase and development are made in conjunction with the officers of the
Company, and thereafter, each manager conducts the operations of the division
relatively autonomously as a separate profit center.

2

OPERATIONS

The Company currently conducts activities in California and Texas through a
total of six geographic divisions, with 99 projects under development or held
for future development at December 31, 1997.

The table below sets forth certain information for each division and for the
Company as a whole for the periods indicated.

YEAR ENDED AS OF
DECEMBER 31, 1997 DECEMBER 31, 1997(1)
------------------ -------------------------------------------------
TOTAL NUMBER
NUMBER OF BUILDING HOMES
AVERAGE OF PROJECTS PROJECTS SITES UNDER
HOME HELD FOR IN SALES OWNED OR CONSTRUC- PRESOLD
HOMES SELLING DEVELOPMENT STAGE CONTROLLED TION HOMES
DELIVERED PRICE (2) (3) (4) (5) (6)
--------- -------- ----------- -------- ---------- --------- -------

Orange County........... 456 $385,596 21 9 2,212 150 83
San Diego County........ 137 304,081 9 4 874 120 93
Ventura County.......... 256 255,395 8 5 513 136 94
San Francisco Bay area.. 628 345,531 30 10 2,880 172 151
Houston................. 168 142,159 8 7 472 53 52
Dallas/Austin........... 234 234,021 17 13 1,298 55 66
----- -------- --- --- ----- --- ---
Total Consolidated...... 1,879 307,265 93 48 8,249 686 539
Unconsolidated Joint
Ventures--California... 67 364,585 6 3 767 22 27
----- -------- --- --- ----- --- ---
Totals for and as of the
year ended December 31,
1997................... 1,946 $309,239 99 51 9,016 708 566
===== ======== === === ===== === ===
Totals for and as of the
year ended December 31,
1996................... 1,623 $261,681 77 53 6,527 599 485
===== ======== === === ===== === ===

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(1) Includes as of December 31, 1997, 102 model homes and 116 completed and
unsold homes, and as of December 31, 1996, 135 model homes and 206
completed and unsold homes.
(2) The total number of projects held for development as of the end of each
period shown includes projects with homes in the sales stage, under
construction and projects in various stages of planning.
(3) The number of projects in the sales stage includes projects where the
sales office has opened and/or the Company has begun to enter into sales
contracts for the sale of its homes.
(4) Includes homes reflected in Homes Under Construction and Presold Homes.
(5) Includes certain homes reflected in Presold Homes.
(6) See "--Marketing and Sales" for information concerning cancellation rates
and contractual arrangements under which homes are presold.

Each division is run by a local manager. One of the essential criteria in
the selection of a divisional manager is the person's in-depth familiarity
with the geographic areas within which the division operates. The decisions
regarding selection of parcels of land for purchase and development are made
in conjunction with the officers of the Company, and thereafter, each manager
conducts the operations of the division relatively autonomously as a separate
profit center.

Substantially all of the Company's homes sold are single-family detached
dwellings, although during the past few years approximately 5 percent to 10
percent have been townhouses or condominiums generally attached in varying
configurations of two, three, four and six dwelling units.

The Company's homes are designed to suit the particular area of the country
in which they are located and are available in a variety of models, exterior
styles and materials depending upon local preferences. Homes built by the
Company are targeted for occupancy as primary residences. While the homes
built by the Company

3

typically range in size from approximately 1,800 to 2,800 square feet and
typically include three or four bedrooms, two or three baths, a living room,
kitchen, dining room, family room and a two or three-car garage, the Company
also has built single-family attached and detached homes ranging from 1,100 to
5,500 square feet. For the years ended December 31, 1997, 1996 and 1995, the
average selling prices of the Company's homes, including sales of the
unconsolidated joint ventures, were $309,239, $261,681, and $271,936,
respectively.

LAND ACQUISITION, DEVELOPMENT AND CONSTRUCTION

In considering the purchase of land for the development of a project, the
Company reviews such factors as proximity to existing developed areas;
population growth patterns; availability of existing community services such
as water, gas, electricity and sewers; school districts; employment growth
rates; the expected absorption rate for new housing; environmental condition
of the land; transportation availability and the estimated costs of
development. Generally, if all requisite governmental agency approvals are not
in place, the Company enters into a conditional agreement to purchase a parcel
of land, making only a nominal deposit on the property. The general policy of
the Company is to complete a purchase of land only when it can reasonably
project commencement of construction within a relatively short period of time.
Closing of the land purchase is, therefore, generally made contingent upon
satisfaction of conditions relating to the property and to the Company's being
able to obtain all requisite approvals from governmental agencies within a
certain period of time. The Company customarily acquires unimproved or
improved land zoned for residential use which appears suitable for the
construction of 50 to 300 homes, which construction is accomplished in smaller
sized increments. The number of homes built in the first increment of a
project is based upon the Company's internal market studies. The timing and
size of subsequent increments depends on the sales rates of earlier
increments. The Company's development work on a project includes obtaining any
necessary zoning, environmental and other regulatory approvals, and
constructing, as necessary, roads, sewer and drainage systems, recreational
facilities and other improvements.

The Company typically uses both its equity (internally generated funds) and
unsecured financing in the form of bank debt and other unsecured debt to fund
land acquisitions. The Company also uses purchase money trust deeds to finance
the acquisition of land. Generally, with the exception of joint ventures,
specific project financing is not used.

The Company has entered into joint venture arrangements to develop certain
parcels of land. During 1993, the Company's Orange County division entered
into a joint venture agreement to develop and deliver 469 homes. For the years
ended December 31, 1997, 1996, 1995 and 1994, the Company delivered 15, 151,
195 and 108 homes, respectively, through this unconsolidated joint venture. In
1995, the Company's Orange County division entered into a joint venture
arrangement to develop 209 lots in the city of Orange, California. The Company
will purchase all 209 lots for the construction and sale of homes.
Additionally, in 1996 the Company's Orange County division entered into
another joint venture to develop and deliver approximately 800 homes in
Fullerton and Brea, California. During 1997 and 1996, the Company delivered 52
and three new homes, respectively, from this unconsolidated joint venture. In
the first half of 1997, the Company's northern California division entered
into a joint venture to develop approximately 700 lots in Gilroy, California.
Fifty percent of these lots will be sold to the Company for the construction
and sale of homes. The Company has made an investment of approximately $9.4
million in this joint venture.

During 1997, the Company entered into a joint venture with affiliates of
Catellus Development Corporation and Starwood Capital Group L.L.C. to acquire
and develop a 3,470-acre masterplanned community located in south Orange
County (the "Talega Joint Venture"). The Talega Joint Venture plans to develop
and deliver in phases finished lots for up to approximately 4,500 attached and
detached homes, as well as a championship golf course, certain community
amenities and commercial and industrial components. As a one-third participant
in this long-term project, the Company is obligated to invest up to $20.0
million in the project and will receive certain rights of first offer
entitling the Company to purchase up to 1,000 finished lots from the joint
venture for construction and sale of homes by the Company. As of December 31,
1997, the Company had made investments of approximately $10.9 million in this
joint venture.

4

The Company essentially functions as a general contractor with its
supervisory employees coordinating all work on the project. The services of
independent architectural, design, engineering and other consulting firms are
engaged to assist in project planning, and subcontractors are employed to
perform all of the physical development and construction work on the project.
The Company does not have long-term contractual commitments with any of its
subcontractors, consultants or suppliers of materials. However, because of its
market presence and long-term relationships, the Company has generally been
able to obtain sufficient materials and commitments from subcontractors and
consultants during times of market shortages. These types of agreements are
generally entered into on an increment-by-increment basis at a fixed price
after competitive bidding. The Company believes that the low fixed labor
expense resulting from conducting its operations in this manner has been
instrumental in enabling it to retain the necessary flexibility to react to
increases or decreases in demand for housing.

Although the construction time for the Company's homes varies from project
to project depending on the time of year, local labor situations, certain
governmental approval processes, availability of materials and supplies and
other factors, the Company can typically complete the construction phase of an
increment within one of its projects in approximately four to six months.

MARKETING AND SALES

The Company's homes are generally sold by its own staff of sales personnel.
Furnished and landscaped model homes are usually maintained at each project
site. Homebuyers are afforded the opportunity to select, at additional costs,
various optional amenities such as prewiring options, upgraded flooring,
cabinets and counter tops, varied interior and exterior color schemes,
additional appliances and some room configurations. The Company makes
extensive use of advertisements in local newspapers, illustrated brochures,
billboards and on-site displays.

The Company's homes are typically sold during construction using sales
contracts which are usually accompanied by a cash deposit, although some of
the Company's homes are sold after completion of construction. In some cases,
purchasers are permitted to cancel these contracts if they are unable to sell
their existing homes or fail to qualify for financing and under certain other
circumstances. During each of the years ended December 31, 1997, 1996 and
1995, the Company experienced cancellation rates of 22 percent, 24 percent and
25 percent, respectively. Although cancellations can delay the delivery of the
Company's homes, they have not, during the last few years, had a material
negative impact on sales, operations or liquidity because of the Company's
policy of closely monitoring the progress of prospective buyers in obtaining
financing and monitoring and adjusting its start plan to better match the
level of demand for its homes. Sales are recorded after construction is
completed, required down payments are received and title passes. At December
31, 1997, 1996 and 1995, the Company had an inventory of completed and unsold
homes of 116, 206 and 239, respectively.

FINANCING

Home purchase financing from local lending institutions generally averages
80 percent or more of the purchase price of the homes. During periods of high
mortgage rates or difficult economic times, the Company may assist its
homebuyers by "buying-down" the interest rates on mortgage loans or
subsidizing all or a part of the homebuyers' up front financing fees. The
amounts of such "buy-downs" or subsidies is dependent upon prevailing market
conditions and interest rate levels. During the past few years the amount of
such "buy-downs" has not been significant due to the generally low level of
mortgage interest rates.

The Company recently formed Family Lending Services, Inc. ("Family Lending
Services"), which will operate as a mortgage banking subsidiary of the
Company, offering mortgage financing to the Company's home buyers and others.
Family Lending Services is in the process of obtaining required regulatory
approvals and mortgage warehouse financing and is currently expected to begin
offering mortgage financing to home buyers in the second quarter of 1998.

5

CERTAIN FACTORS AFFECTING THE COMPANY'S OPERATIONS

Set forth below are certain matters that may affect the Company.

Land Acquisition and Inventory Risks. The development, construction and sale
of homes are subject to various risks including, among other things, the
continued availability of suitable undeveloped land at reasonable prices and
adverse local market conditions resulting from changes in economic conditions
or competitive over-building. In the early 1990's and as a result of the
national and California recessions which began in 1990, the Company recorded
aggregate writedowns of approximately $8.8 million on several of the Company's
California projects to value the remaining homes in these projects at
estimated net realizable values in order to provide for reserves to cover
potential price concessions. At December 31, 1995, and as a result of
continued adverse trends experienced in some of the Company's markets,
particularly in San Diego, coupled with the adoption of FAS 121, the Company
recorded a $46.5 million noncash pretax charge against operations. FAS 121
required a change in the method of valuing long-lived assets, including assets
such as the Company's real estate holdings. See Note 2 of the Notes to the
Company's consolidated financial statements included elsewhere in this
Form 10- K.

Although the Company believes that it has acquired a sufficient number of
lots to provide for its home construction activities for the near term, no
assurances can be given that the Company will be able to sell the homes it
produces on a profitable basis.

Economic Conditions and Interest Rates. The Company's business is highly
cyclical and is affected by national, world and local economic conditions and
events and the effect such conditions and events have on the markets it serves
in California and Texas and in particular by the level of mortgage interest
rates and consumer confidence in those regions. The Company cannot predict
whether interest rates will be at levels attractive to prospective homebuyers.
If interest rates increase, and in particular mortgage interest rates, the
Company's operating results could be adversely impacted. The recent downturn
and continued uncertainty in Asian financial markets, including the
devaluation of various Asian currencies, could have an adverse impact on the
California and Texas economies and the demand for homes in those states.

Dependence on California Market. The Company presently conducts most of its
business in California. There have been periods of time in California where
economic growth has slowed and the average sales price of homes in certain
areas in California in which the Company does business have declined. There
can be no assurance that home sales prices will not decline in the future.

In past years, several cities and counties in California in which the
Company has delivered a significant number of homes have approved the
inclusion of "slow growth" initiatives and other election ballot measures
which could impact the affordability and availability of homes and land within
those localities. Although some of these initiatives have been defeated, the
Company believes that if, in the future, similar initiatives are introduced
and approved, future residential construction by the Company could be
negatively impacted.

Competition. The homebuilding industry is highly competitive, with
homebuilders competing for customers, desirable properties, financing, raw
materials and skilled labor. In each of the areas in which it operates, the
Company competes in terms of location, design, quality, price and available
mortgage financing with numerous other residential construction firms,
including large national and regional firms, some of which have greater
financial resources than the Company. In addition, the Company competes with
resales of existing residential housing by individuals, financial institutions
and others. The Company also competes with rental properties in certain
markets.

Regulatory and Environmental Matters. The housing industry is subject to
environmental, building, worker health and safety, zoning and real estate
regulations by various Federal, state and local authorities. The environmental
laws that apply to a given homebuilding site depend upon the site's location,
its environmental condition and the present and former uses of the site, as
well as adjoining properties. Environmental laws and

6

conditions may result in delays, may cause the Company to incur substantial
compliance and other costs, and can prohibit or severely restrict homebuilding
activity in certain environmentally sensitive regions or areas. In addition,
certain new developments, particularly in southern California, are subject to
various assessments for schools, parks, streets and highways and other public
improvements, the costs of which can be substantial. By raising the price of
the Company's homes to its customers, an increase in such assessments could
have a negative impact on the Company's sales.

In developing a project, the Company must obtain the approval of numerous
governmental authorities regulating such matters as permitted land uses and
levels of density, the installation of utility services, such as water and
waste disposal, and the dedication of acreage for open space, parks, schools
and other community purposes. Furthermore, changes in prevailing local
circumstances or applicable law may require additional approvals or
modifications of approvals previously obtained, including environmental,
zoning and other entitlement issues and may cause delays in the development
process. Prior to acquiring a parcel of land, the Company may utilize deposit
arrangements which allow the Company ample time to perform proper diligence
and investigate and resolve necessary issues.

Risk of Material and Labor Shortages. The Company is not presently
experiencing any serious material or labor shortages; however, the residential
construction industry in the past has, from time to time, experienced serious
material and labor shortages, including shortages in insulation, drywall,
certain carpentry work and cement and fluctuating lumber prices and supply.
Delays in construction of homes and higher costs due to these shortages could
have an adverse effect on the Company's operations.

Natural Risks. Climatic conditions, such as unusually heavy or prolonged
rain, including "El Nino" conditions, or other natural disasters such as
earthquakes or fires, may affect operations in certain areas. In addition, the
state of California has periodically experienced drought conditions resulting
in water conservation measures and in some cases rationing by local
municipalities in which the Company does business. Restrictions by
governmental agencies on future construction activity as a result of limited
water supplies could have an adverse effect upon the Company's operations.

EMPLOYEES

At December 31, 1997, the Company had approximately 427 employees (excluding
employees of discontinued operations).

During the past five years, the Company has not directly experienced a work
stoppage in its operations caused by labor disputes. Construction of homes in
projects developed by the Company has, from time to time, been delayed due to
strikes by certain construction unions against subcontractors retained by the
Company or strikes against suppliers of materials used in the construction of
homes. Such delays have not had a significant adverse effect on the Company's
homebuilding operations. The Company believes that its relations with its
homebuilding employees and subcontractors are satisfactory.

ITEM 2. PROPERTIES

In addition to real estate held for development and sale, which is either
owned or under option to be purchased by the Company, the Company leases
approximately 4.8 acres of land in Costa Mesa, California under leases
expiring in 2002 on which the Company's executive office, the offices of the
Orange County housing division and a manufacturing facility (which is
subleased to an unrelated party) are located. The Company's other real estate
housing divisions occupy various facilities under leases which expire from
1998 through 2002.

The administrative office and branch location for Standard Pacific Savings,
F.A. ("Savings") is located in Newport Beach, California. A total of 5,072
square feet is leased under a lease which expires in 2004. In addition, Family
Lending Services occupies approximately 9,300 square feet of a facility in
Newport Beach, California under a lease that expires in February 2005.

7

As of December 31, 1997, the Company was subleasing approximately 59,000
square feet of manufacturing facilities to unrelated parties under leases
expiring beginning in May 1998.

The Company believes that all of its properties are well suited for the
purposes for which they are used.

ITEM 3. LEGAL PROCEEDINGS

Various claims and actions, considered normal to the Company's business,
have been asserted and are pending against the Company and its subsidiaries.
The Company believes that such claims and actions should not have a material
adverse effect upon the financial position of the Company.

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

None.

EXECUTIVE OFFICERS OF THE COMPANY

The executive officers of the Company, their ages and positions with the
Company, and brief accounts of their business experience, are set forth below.

NAME AGE POSITION
- ---- --- --------

Arthur E. Svendsen 74 Chairman of the Board and Chief Executive Officer; Director
Stephen J. Scarborough 49 President; Director
Andrew H. Parnes 39 Vice President--Finance, Treasurer and Chief Financial Officer
Clay A. Halvorsen 38 Vice President, General Counsel and Secretary

Arthur E. Svendsen has served as the Chairman of the Board and Chief
Executive Officer of the Company since 1961.

Stephen J. Scarborough has served as a Director since May 1996 and as
President of the Company since October 1996. Mr. Scarborough served as
Executive Vice President of the Company from January 1996 until October 1996.
Prior to this and since 1981, Mr. Scarborough was President of the Company's
Orange County, California residential homebuilding division.

Andrew H. Parnes was appointed to the position of Vice President--Finance in
January 1997. In addition, he has served as the Company's Chief Financial
Officer since July 1996 and as the Company's Treasurer since January 1991.
From December 1989 until July 1996, Mr. Parnes served as the Company's
Controller.

Clay A. Halvorsen joined the Company as Vice President, General Counsel and
Secretary in January 1998. Previously, from 1985 through December 1997, Mr.
Halvorsen practiced with the law firm of Gibson, Dunn & Crutcher LLP, where he
became a partner in January 1995.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Company's shares of common stock are listed on the New York Stock
Exchange and Pacific Stock Exchange. The following table sets forth, for the
fiscal quarters indicated, the reported high and low closing prices of the
common shares as reported on the New York Stock Exchange Composite Tape and
the amount of common dividends paid.

YEAR ENDED DECEMBER 31,
-----------------------------------------------
1997 1996
------------------------ ----------------------
QUARTER ENDED HIGH LOW DIVIDEND HIGH LOW DIVIDEND
------------- ------- ------- -------- ------ ------ --------

March 31.................. $ 8 3/4 $ 5 5/8 $.03 $7 1/4 $5 7/8 $.03
June 30................... 10 1/2 6 3/8 .03 7 3/8 6 3/8 .03
September 30.............. 13 10 1/8 .04 7 1/8 5 3/4 .03
December 31............... 16 1/4 9 3/4 .04 6 1/4 5 1/4 .03

As of March 1, 1998, the approximate number of record holders of common
stock of the Company was 1,683.

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ITEM 6. SELECTED FINANCIAL DATA

YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1997 1996 1995(1) 1994 1993
---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

Revenues................ $ 584,571 $ 399,863 $ 346,263 $ 374,783 $ 249,884
========== ========== ========== ========== ==========
Income (loss) from
continuing operations
before income taxes and
cumulative effect of
change in accounting
for income taxes....... $ 41,046 $ 12,948 $ (37,247) $ 11,200 $ (1,617)
(Provision) benefit for
income taxes........... (17,070) (5,197) 14,890 (4,595) 710
---------- ---------- ---------- ---------- ---------- ---
Income (loss) from
continuing operations
before cumulative
effect of change in
accounting for income
taxes.................. 23,976 7,751 (22,357) 6,605 (907)
Income (loss) from dis-
continued operations,
net of income taxes.... 48 642 (5,006) (718) 2,726
Gain on disposal of dis-
continued operation,
net of income taxes.... 3,302 -- -- -- --
Cumulative effect of
change in accounting
for income taxes....... -- -- -- -- 858
---------- ---------- ---------- ---------- ----------
Net income (loss)....... $ 27,326 $ 8,393 $ (27,363) $ 5,887 $ 2,677
========== ========== ========== ========== ==========
Basic Income (Loss) Per
Share:
Income (loss) per share
from continuing opera-
tions.................. $ 0.82 $ 0.26 $ (0.73) $ 0.21 $ (0.03)
Income (loss) per share
from discontinued oper-
ations,
net of income taxes.... 0.00 0.02 (0.17) (0.02) 0.09
Gain on disposal of dis-
continued operation,
net of income taxes.... 0.11 -- -- -- --
Cumulative effect of
change in accounting
for income taxes....... -- -- -- -- 0.03
---------- ---------- ---------- ---------- ----------
Net income (loss) per
share.................. $ 0.93 $ 0.28 $ (0.90) $ 0.19 $ 0.09
========== ========== ========== ========== ==========
Diluted Income (Loss)
Per Share:
Income (loss) per share
from continuing opera-
tions.................. $ 0.81 $ 0.26 $ (0.73) $ 0.22 $ (0.03)
Income (loss) per share
from discontinued
operations, net of
income taxes........... 0.00 0.02 (0.17) (0.03) 0.09
Gain on disposal of dis-
continued operation,
net of income taxes.... 0.11 -- -- -- --
Cumulative effect of
change in accounting
for income taxes....... -- -- -- -- 0.03
---------- ---------- ---------- ---------- ----------
Net income (loss) per
share.................. $ 0.92 $ 0.28 $ (0.90) $ 0.19 $ 0.09
========== ========== ========== ========== ==========
Stockholders' equity per
share.................. $ 9.58 $ 8.79 $ 8.58 $ 9.56 $ 9.49
Cash dividends paid per
share.................. $ 0.14 $ 0.12 $ 0.12 $ 0.12 $ 0.12
Weighted average common
shares outstanding-
basic.................. 29,504,477 30,000,492 30,488,676 30,616,991 30,585,442
Weighted average common
and diluted shares out-
standing-diluted....... 29,807,702 30,011,595 30,488,676 30,674,349 30,633,471
Total assets............ $ 547,665 $ 449,114 $ 444,603 $ 531,768 $ 542,696
Long-term debt: continu-
ing operations......... $ 214,305 $ 80,000 $ 129,062 $ 134,360 $ 147,273
Stockholders' equity.... $ 283,778 $ 260,389 $ 257,926 $ 292,743 $ 290,395

- --------
(1) The 1995 pretax loss from continuing operations of $37.2 million reflects
the adoption of Financial Accounting Standards No. 121 ("FAS 121") which
resulted in a $46.5 million noncash pretax charge to operations. See Note
2 to the Company's consolidated financial statements included elsewhere in
this Form 10-K.

9

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
"Selected Financial Data" and the Company's consolidated financial statements
and the related notes included elsewhere in this Form 10-K.

RESULTS OF OPERATIONS

SELECTED FINANCIAL INFORMATION

YEAR ENDED DECEMBER 31,
----------------------------
1997 1996 1995
-------- -------- --------
(DOLLARS IN THOUSANDS)

Revenues...................................... $584,571 $399,863 $346,263
Cost of sales................................. 490,876 348,066 307,794
Noncash charge for impairment of long-lived
assets....................................... -- -- 46,491
-------- -------- --------
Gross margin................................ 93,695 51,797 (8,022)
-------- -------- --------
Gross margin percentage..................... 16.0% 13.0% 11.1%(1)
-------- -------- --------
Selling, general and administrative expenses.. 52,141 37,351 34,873
Income from unconsolidated joint ventures..... 3,787 4,708 6,953
Interest expense.............................. 4,981 7,142 1,860
Amortization of excess of cost over net assets
acquired..................................... 245 -- --
Other income.................................. 931 936 555
-------- -------- --------
Income (loss) from continuing operations
before income taxes........................ $ 41,046 $ 12,948 $(37,247)
======== ======== ========
- --------

(1) The 1995 homebuilding gross margin percentage excludes the $46.5 million
noncash charge for the adoption of FAS 121.

OPERATING DATA

YEAR ENDED DECEMBER 31,
--------------------------
1997 1996 1995
-------- -------- --------
(DOLLARS IN THOUSANDS,
EXCEPT
AVERAGE SELLING PRICES)

New homes delivered:
California......................................... 1,477 1,131 942
Texas.............................................. 402 338 299
Joint ventures (California)........................ 67 154 195
-------- -------- --------
Total.............................................. 1,946 1,623 1,436
======== ======== ========
Net new orders:
California......................................... 1,599 1,458 1,145
Texas.............................................. 428 340 335
-------- -------- --------
Total.............................................. 2,027 1,798 1,480
======== ======== ========
Backlog at year end (in units)....................... 566 485 312
Backlog at year end (in dollars)..................... $191,682 $168,674 $ 77,945
Active selling communities at year end............... 51 53 49
Average selling price:
California deliveries (excluding joint ventures)... $337,649 $292,007 $308,383
Texas deliveries................................... $195,631 $185,622 $180,058
Combined (excluding joint ventures)................ $307,265 $267,529 $277,465
Combined (including joint ventures)................ $309,239 $261,681 $271,936

10

Fiscal Year 1997 Compared to Fiscal Year 1996

Net income from continuing operations for the year ended December 31, 1997
increased 209 percent from the previous year to $24.0 million, or $0.81 per
diluted share, compared to $7.8 million, or $0.26 per diluted share, in 1996.
The strong increase in earnings resulted from a record number of new home
deliveries, an increase in the average selling price of homes and continued
gross margin improvement from the Company's California homebuilding
operations.

The Company delivered 1,946 new homes in 1997 (including 67 homes delivered
by the Company's unconsolidated joint ventures), a new fiscal year high, at an
average selling price of $309,239 compared to 1,623 new homes (including 154
homes delivered by the Company's unconsolidated joint ventures) at an average
selling price of $261,681 during 1996.

Homebuilding revenues (excluding the Company's unconsolidated joint
ventures) also reached a new high of $584.6 million in 1997, an increase of
46.2 percent from the prior year. The increase in revenues from the prior year
of approximately $184.7 million resulted primarily from an increase of $109.7
million attributable to a 27.9 percent increase in new home deliveries, a
$74.7 million increase due to a 14.9 percent higher average selling price,
with the balance of the increase attributable to land sales. The Company's
Northern California division experienced an increase in deliveries over last
year of 71.6 percent to 628 homes, while deliveries from the southern
California operations were in line with the strong level of deliveries
generated in 1996. The increase in the average selling price in 1997 resulted
primarily from a greater distribution of homes delivered in the $400,000 to
$800,000 price range in California.

Cost of sales increased by $142.8 million from the previous year, or 41.0
percent, of which $95.1 million was due to an increase in the number of new
homes delivered while $48.2 million was attributable to an increase in the
average cost of new homes delivered. The increase in cost of sales was
partially offset by a reduction in costs associated with land sales. The
increase in the average cost of new homes delivered in 1997 was primarily due
to the changing product mix towards higher-priced homes.

The gross margin percentage for 1997 increased to 16.0 percent from 13.0
percent in 1996. This increase was primarily due to the healthy California
housing market.

Selling, general and administrative expenses decreased as a percentage of
revenues from 9.3 percent in 1996 to 8.9 percent in 1997. This decrease is
attributable to the fixed level of certain general and administrative
expenses, as well as a reduction in selling costs as a percent of revenues due
to the improving housing market in California.

Income from unconsolidated joint ventures declined from approximately $4.7
million in 1996 to $3.8 million in 1997 as a result of fewer unit deliveries
as compared to the previous year. Although joint venture unit deliveries were
down from the prior year, both gross margins and average selling prices for
the ventures increased respectively from 1996 levels.

Interest incurred for 1997 was $17.0 million of which $12.0 million was
capitalized to real estate inventories and approximately $5.0 million was
expensed compared to $16.7 million incurred in 1996 of which $9.5 million was
capitalized and $7.1 million expensed. The increase in the amount of interest
capitalized in 1997 was due primarily to more projects under development
throughout 1997 as compared to the year earlier period.

Amortization of excess of cost over net assets acquired relates to the
acquisition on September 30, 1997 of Duc Development Company, a privately held
northern California homebuilder. The excess of cost over net assets acquired
is being amortized over a seven-year period.

11

The Company generated a record net new order total of 2,027 homes for 1997,
a 12.7 percent increase from the previous year. The Company's Northern
California orders increased 28.1 percent to 607 homes while the Texas
operations combined for a 25.9 percent improvement in net new orders over the
prior year. This strong order trend translated into a backlog of presold homes
of 566, a 16.7 percent increase over the 1996 year-end total, and the highest
level in eight years. Net orders in 1997 for the Company's southern California
operations were in line with the strong level generated in 1996.

As a result of higher than expected deliveries and orders in the fourth
quarter of 1997, which had the effect of reducing the Company's inventory of
homes available for sale entering 1998, and the anticipated timing of the
Company's new project openings, the Company expects that net new orders for
the first quarter of 1998 will be less than the record level of net new orders
for the first quarter of 1997. However, the Company anticipates opening 35 to
40 new model home complexes during 1998, with many of these openings occurring
in the second and third quarters. Consequently, the Company anticipates that
its order volume for the year will be weighted more towards the middle and
second half of the year.

Net income for 1997, including discontinued operations, was $27.3 million,
or $0.92 per diluted share, compared to $8.4 million, or $0.28 per diluted
share in 1996. The discontinued operations reflect the Company's savings and
loan subsidiary and the Company's former office furniture subsidiary, which
was sold in December for a net gain of approximately $3.3 million, or $0.11
per diluted share. See "--Discontinued Operations" for further discussion of
the discontinued operating segments of the Company.

Fiscal Year 1996 Compared to Fiscal Year 1995

Net income from continuing operations for the year ended December 31, 1996
increased to $7.8 million, or $0.26 per diluted share, compared to a loss of
($22.4) million, or ($0.73) per diluted share, in 1995. The increase in
earnings resulted from an increase in new home deliveries and an improvement
in gross margins. In addition, 1995 reflects a pretax noncash charge of
approximately $46.5 million for the adoption of FAS 121 (See Note 2 to the
Company's consolidated financial statements included elsewhere in this
Form 10-K).

During the year ended December 31, 1996, the Company delivered 1,623 new
homes (including 154 homes delivered by the Company's unconsolidated joint
ventures) at an average selling price of $261,681 compared to 1,436 new homes
(including 195 homes delivered by the Company's unconsolidated joint venture)
at an average selling price of $271,936 during 1995.

Homebuilding revenues increased by 15.5 percent from 1995, while cost of
sales (before the impairment charge in 1995) increased by 13.1 percent. The
increase in revenues from 1995 of approximately $53.6 million resulted
primarily from an increase of $63.3 million attributable to 228 more homes
delivered and a $4.9 million increase in revenues attributable to land sales,
which were partially offset by a decrease of $14.6 million due to a
3.6 percent lower average selling price of new homes delivered. The increase
in unit deliveries was primarily attributable to a 45.8 percent increase in
deliveries from the Northern California division to 366 homes, an 18.7 percent
increase in deliveries from the Ventura division to 184 homes and a 13.0
percent increase in Texas deliveries to 338 homes. The increase in deliveries
was attributed to, among other things, improved market conditions in the
geographic markets the Company serves, particularly in California, as well as
lower mortgage interest rates during most of 1996 as compared to fiscal 1995.

The average selling price of the Company's homes is impacted by product mix,
geographic mix and changing prices on homes sold. The decrease in the average
selling price from 1995 to 1996 was due primarily to a reduction in deliveries
of higher priced homes from the Company's Orange County division.

The $40.3 million increase in cost of sales (before the impairment charge in
1995) included $56.2 million attributable to an increased number of new home
deliveries and a $5.8 million increase in cost of sales attributable to
undeveloped lots sold, which were partially offset by a decrease of $21.7
million due to a decline in the average cost of new homes delivered. The
reduction in the average cost of new homes delivered was primarily due to the
changing product mix discussed above.

12

The gross margin percentage for 1996 was 13.0 percent compared to 11.1
percent (before the impairment charge) in 1995. The increase in the gross
margin percentage was primarily due to improved market conditions in the
California markets, higher absorption rates, as well as proportionately more
deliveries from newer projects in 1996 as compared to 1995. The newer projects
generally carry higher margins than older projects, which include land
acquired in prior years at higher prices.

Selling, general and administrative expenses decreased as a percentage of
revenues from 10.1 percent in 1995 to 9.3 percent in 1996. This decline can be
attributed to increased revenues of 15.5 percent from the prior year period.

Income from the unconsolidated joint ventures decreased from approximately
$7.0 million in 1995 to $4.7 million in 1996 as a result of fewer unit
deliveries as well as more deliveries of lower priced product from one of the
joint ventures. This joint venture delivered 151 new homes in 1996 compared to
195 new homes in 1995. The Company delivered three homes from a new joint
venture during the fourth quarter of 1996.

Interest incurred for 1996 was $16.7 million of which $9.5 million was
capitalized to real estate inventories and $7.1 million was expensed compared
to $19.2 million incurred in 1995 of which $17.3 million was capitalized and
$1.9 million expensed.

CARRYING COSTS, REAL ESTATE INVENTORIES AND COST OF SALES

AT DECEMBER 31,
--------------------------------
1997 1996 1995
--------- --------- ----------
(DOLLARS IN MILLIONS)

Carrying costs in inventory and the percent-
age of total real estate inventory:
Interest.................................. $13.7 3.0% $25.1 6.7% $32.5 8.8%
Property taxes............................ 8.6 1.9 8.0 2.1 8.8 2.4
----- --- ----- --- ----- ----
$22.3 4.9% $33.1 8.8% $41.3 11.2%
===== === ===== === ===== ====
Total real estate inventories............... $452 $373 $368
Cost of sales for the year then ended (be-
fore FAS 121
adjustment for 1995) ...................... 491 348 308
Ratio of cost of sales to ending inventory
(Inventory turn ratio)..................... 1.09 .93 .84

The increase in the 1997 inventory turn ratio is due to a 41 percent
increase in cost of sales while real estate inventories increased only 21
percent. This positive trend is primarily due to a 28 percent increase in unit
deliveries resulting from strong housing market conditions in California.
Additionally, during 1997 the Company delivered homes from certain of its
older projects which have been in the Company's inventory balances for several
years. These projects generally had higher land and interest costs than more
recent acquisitions. The newer projects generally develop and deliver more
quickly than the older projects which results in a higher inventory turn ratio
and a lower amount of carrying costs in ending inventory.

Capitalized interest in real estate inventory at December 31, 1997 decreased
approximately $11.4 million from December 31, 1996, a reduction of
approximately 45 percent. This decrease can be attributed to (i) the sale of
homes from older projects which generally include higher carry costs than
newer projects and (ii) improving market conditions which have resulted in
shorter holding periods and a higher inventory turnover rate.

13

UTILIZATION OF DEBT AND EQUITY IN FUNDING REAL ESTATE INVENTORIES

Sources of financing for the Company's real estates inventories were as
follows for the three years ended December 31, 1997:

AT DECEMBER
31,
----------------
1997 1996 1995
---- ---- ----

Purchase money deeds of trust................................. 4% 1% 4%
Unsecured debt................................................ 44 42 40
Equity........................................................ 52 57 56
--- --- ---
100% 100% 100%
=== === ===

DISCONTINUED OPERATIONS

Disposition of Panel Concepts. In December 1997, the Company completed the
sale of Panel Concepts, Inc. ("Panel Concepts") to HON Industries, Inc., a
national furniture manufacturer, for a cash sales price of approximately $9.5
million, after distribution of certain non-operating assets to the Company
totaling approximately $9 million. Panel Concepts has been accounted for as a
discontinued operation and the results of its operations have been segregated
in the Company's consolidated financial statements included elsewhere in this
Form 10-K.

Disposition of Standard Pacific Savings. In May 1997, the Company's Board of
Directors adopted a plan of disposition for Savings. Pursuant to the plan, the
Company sold substantially all of Savings' mortgage loan portfolio in June
1997. The Company also entered into a definitive agreement to sell the
remainder of Savings' business, including Savings' charter. The definitive
agreement was subject to a number of conditions, including approval of the
transaction by the Office of Thrift Supervision ("OTS"). As a result of the
failure of the OTS to approve the transaction prior to the definitive
agreement's termination date, the definitive agreement terminated on January
31, 1998. The Company plans to continue pursuing a disposition strategy with
respect to Savings and, therefore, Savings has been accounted for as a
discontinued operation and the results of its operations have been segregated
in the Company's consolidated financial statements included elsewhere in this
Form 10-K. Savings has not offered mortgage financing to the Company's home
buyers since July 1994, and the sale of Savings is not expected to have any
impact on sales of the Company's homes. Management currently estimates that
both the disposition of Savings under the plan and the operating results of
Savings for the period through the disposition will not result in a
significant gain or loss to the Company.

RECENT DEVELOPMENTS

The Company has entered into a non-binding letter of intent to acquire The
Olson Company, a leading southern California urban in-fill homebuilder, for
proposed consideration consisting of the issuance of 942,723 shares of the
Company's common stock and the grant of options to acquire an additional
360,296 shares of the Company's common stock. The proposed acquisition offers
the Company the opportunity to develop a leading presence in a complementary
and growing homebuilding market segment. If completed, it is expected that the
acquisition would be accounted for as a pooling of interests. This transaction
is subject to customary conditions, including execution of a definitive
acquisition agreement and satisfactory completion of the Company's due
diligence examination. No assurances can be given that the transaction will be
consummated.

In August 1997, the Company formed Family Lending Services, which will
operate as a mortgage banking subsidiary of the Company, offering mortgage
financing to the Company's home buyers and others. Family Lending Services is
in the process of obtaining required regulatory approvals and mortgage
warehouse financing and is currently expected to begin offering mortgage
financing to home buyers in the second quarter of 1998. Accordingly, the
financial position and related results of operations of Family Lending
Services for the year ended December 31, 1997 have been reflected as
continuing operations in the accompanying consolidated balance sheets and
statements of operations.

14

LIQUIDITY AND CAPITAL RESOURCES

The Company's principal uses of cash have been for operating expenses, land
acquisitions, construction expenditures, market expansion, principal and
interest payments on debt and dividends to shareholders. Cash requirements
were provided from internally generated funds and outside borrowings,
including a bank revolving credit facility and note offerings. Management
believes that these sources of cash are sufficient to finance its current
working capital requirements and other needs.

In August 1997, the Company and its bank group amended the Company's
unsecured revolving credit facility (the "Revolving Credit Facility") to,
among other things, increase the commitment to $275 million, increase the term
of the facility from three years to four years and reduce the cost of
borrowings and other fees. The facility has a current maturity date of
July 31, 2001. This agreement contains covenants, including certain financial
covenants. This agreement also contains provisions which may, in certain
circumstances, limit the amount the Company may borrow under the Revolving
Credit Facility. At December 31, 1997, the Company had borrowings of $19.0
million outstanding under this facility.

The Company made its first $20 million sinking fund payment on the 10 1/2%
Senior Notes on March 1, 1997. As of December 31, 1997, there was $78.8
million outstanding of the 10 1/2% Senior Notes. A second $20 million sinking
fund payment was made by the Company on March 1, 1998, reducing the balance
outstanding on such notes to $58.8 million.

To finance land purchases, the Company may utilize, among its other sources,
purchase money mortgage financing of which approximately $17.2 million was
outstanding for this purpose at December 31, 1997, an increase of $12.7
million from December 31, 1996.

Additionally, the Company has utilized joint venture structures over the
past few years whereby these joint ventures have obtained secured construction
financing. This type of structure minimizes the use of funds from the
Company's Revolving Credit Facility. The Company plans to continue using this
type of arrangement to finance the development of properties as opportunities
arise.

The Company paid approximately $4.1 million in dividends to its stockholders
for the year ended December 31, 1997. Payments of dividends on the Company's
common stock is within the discretion of the Company's Board of Directors and
is dependent upon various factors, including the earnings, cash flow, capital
requirements and operating and financial condition of the Company. Certain of
the Company's senior credit and debt agreements impose restrictions on the
amount of dividends the Company may pay. On January 27, 1998, the Board of
Directors declared a quarterly cash dividend of $.04 per share of common
stock. This dividend was paid on February 27, 1998 to shareholders of record
on February 13, 1998.

During the year ended December 31, 1997, the Company issued 292,100 shares
of common stock pursuant to the exercise of stock options for aggregate
proceeds of $1.7 million.

Pursuant to the previously announced stock repurchase program, the Company
repurchased 284,800 shares of its common stock for approximately $2.1 million
during 1997. Since inception of the program, the Company has repurchased an
aggregate of 1,285,750 shares of its common stock for approximately $8.3
million as of December 31, 1997, leaving a balance of approximately $11.7
million available to be repurchased.

In June 1997, the Company issued $100 million of 8 1/2% Senior Notes due in
2007 (the "8 1/2% Senior Notes"). The notes were issued at a discount to yield
approximately 8.6 percent. The 8 1/2% Senior Notes are subject to certain
restrictive financial covenants, which, among other things, impose certain
limitations on the ability of the Company to (i) incur additional
indebtedness, (ii) create liens, (iii) make restricted payments, as defined,
and (iv) sell assets. These notes are callable at the Company's option
commencing June 15, 2002 at a premium of 104.25 percent of par value, with the
call price reducing ratably to par on June 15, 2005. Net proceeds to the
Company after offering expenses were approximately $96.9 million. The Company
used the net proceeds to repay indebtedness outstanding under the Company's
Revolving Credit Facility.

15

In February 1998, the Company issued $100 million of 8% Senior Notes due
February 15, 2008 (the "8% Senior Notes"). The 8% Senior Notes were issued at
a discount to yield approximately 8.1 percent. These notes are senior
unsecured obligations of the Company and rank pari passu with the Company's
other existing unsecured indebtedness. In addition, the 8% Senior Notes
contain restrictive covenants similar to those in the 8 1/2% Senior Notes
which, among other things, impose certain limitations on the ability of the
Company to (i) incur additional indebtedness, (ii) create liens, (iii) make
restricted payments, as defined, and (iv) sell assets. The 8% Senior Notes are
redeemable at the option of the Company, in whole or in part, commencing
February 15, 2003 at 104.00 percent of par, with the call price reducing
ratably to par on February 15, 2006. Net proceeds to the Company after
offering expenses were approximately $97.3 million. Approximately $54.3
million of the net proceeds were used to repay the indebtedness outstanding
under the Revolving Credit Facility on the date of closing (February 10,
1998), with the balance of the net proceeds used or to be used (i) to fund a
$20 million sinking fund payment due on March 1, 1998 on the Company's 10 1/2%
Senior Notes, (ii) to repay an approximately $11.2 million trust deed note
payable in March of 1998 and (iii) for general corporate purposes.

The Company has no material commitments or off balance sheet financing
arrangements that would tend to affect future liquidity.

YEAR 2000 COMPLIANCE

The Company has assessed the vulnerability of its computer systems to the
"Year 2000 issue" and the cost of addressing Year 2000 compliance.
Modifications and replacements of computer systems, primarily the replacement
of computer software, to attain Year 2000 compliance have begun, and the
Company expects to attain Year 2000 compliance and institute appropriate
testing of its modifications and replacements before the Year 2000 date
change. Presently, the Company does not believe that Year 2000 compliance will
result in material investments by the Company, nor does the Company anticipate
the Year 2000 issue will have material adverse effects on the business
operations or financial performance of the Company. There can be no assurance,
however, that the Year 2000 issue will not adversely affect the Company and
its business.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement No. 130 "Reporting Comprehensive Income" ("FAS 130") and Statement
No. 131 "Disclosures about Segments of an Enterprise and Related Information"
("FAS 131"). Both FAS 130 and 131 are required to be adopted by the Company
for the year ended December 31, 1998. The Company believes the adoption of
these statements will not have a material impact on its consolidated financial
statements.

16

STATEMENT REGARDING FORWARD LOOKING DISCLOSURE

This Form 10-K contains "forward looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), which represent the Company's
expectations or beliefs concerning future events, including, but not limited
to, the following: statements regarding the price range of future homes
constructed by the Company; statements regarding the inventory turn ratio and
carrying costs on newer projects; statements regarding the impact of the
proposed acquisition of The Olson Company; statements regarding the backlog of
homes; statements regarding the adequacy of the Company's inventory of
building sites; statements regarding the availability of building sites for
purchase from joint ventures; statements regarding the time typically required
to complete the construction phase of an increment of a project; statements
regarding the sufficiency of the Company's cash provided by internally
generated funds and outside borrowings; statements regarding future net new
orders; statements regarding the gain or loss to be recognized by the Company
from the planned disposition of Savings and the operating results of Savings
for the period through disposition; statements regarding the future operations
of Family Lending Services; statements regarding expected year 2000 compliance
and the anticipated impact of the year 2000 issue on the Company's business
operations and financial performance; statements regarding the intended use of
proceeds of the Company's offering of the 8% Senior Notes; and statements
regarding the expected impact of the adoption of accounting statements on the
Company's consolidated financial statements. The Company cautions that these
statements are further qualified by important factors that could cause actual
results to differ materially from those in the forward looking statements,
including, without limitation, the following: change in the demand for new
homes attributable to the cyclical and competitive nature of the homebuilding
business; changes in general economic conditions; uncertainty in or changes in
the continued availability of suitable undeveloped land at reasonable prices;
adverse local market conditions; existing and changing governmental
regulations, including regulations concerning environmental matters, the
permitting process for home construction, savings and loan institutions and
mortgage banking; increases in prevailing interest rates; the level of real
estate taxes and energy costs; the cost and availability of materials and
labor; the availability of construction financing and home mortgage financing
attractive to the purchasers of homes; and inclement weather and other natural
disasters. Results actually achieved thus may differ materially from expected
results included in these and any other forward looking statements contained
herein.

17

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholders and Board of Directors of Standard Pacific Corp.:

We have audited the accompanying consolidated balance sheets of STANDARD
PACIFIC CORP. (a Delaware corporation) and subsidiaries as of December 31,
1997 and 1996, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Standard Pacific Corp. and
subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles.

ARTHUR ANDERSEN LLP

Orange County, California
January 23, 1998

18

STANDARD PACIFIC CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

YEAR ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
---------- ---------- ----------

Revenues................................... $ 584,571 $ 399,863 $ 346,263
Cost of sales.............................. 490,876 348,066 307,794
Noncash charge for impairment of long-lived
assets.................................... -- -- 46,491
---------- ---------- ----------
Gross margin............................. 93,695 51,797 (8,022)
---------- ---------- ----------
Selling, general and administrative ex-
penses.................................... 52,141 37,351 34,873
Income from unconsolidated joint ventures.. 3,787 4,708 6,953
Interest expense........................... 4,981 7,142 1,860
Amortization of excess of cost over net as-
sets acquired............................. 245 -- --
Other income............................... 931 936 555
---------- ---------- ----------
Income (loss) from continuing operations
before income taxes....................... 41,046 12,948 (37,247)
(Provision) benefit for income taxes....... (17,070) (5,197) 14,890
---------- ---------- ----------
Income (loss) from continuing operations... 23,976 7,751 (22,357)
Income (loss) from discontinued operations,
net of income taxes of $(1,034), $(408)
and $3,636, respectively.................. 48 642 (5,006)
Gain on disposal of discontinued operation,
net of income taxes of $(51), $0 and $0,
respectively.............................. 3,302 -- --
---------- ---------- ----------
Net Income (Loss).......................... $ 27,326 $ 8,393 $ (27,363)
========== ========== ==========
Basic Net Income (Loss) Per Share:
Income (loss) per share from continuing
operations.............................. $ 0.82 $ 0.26 $ (0.73)
Income (loss) per share from discontinued
operations, net of income taxes......... 0.00 0.02 (0.17)
Gain on disposal of discontinued
operation, net of income taxes.......... 0.11 -- --
---------- ---------- ----------
Net Income (Loss) Per Share.............. $ 0.93 $ 0.28 $ (0.90)
========== ========== ==========
Weighted average common shares
outstanding............................. 29,504,477 30,000,492 30,488,676
========== ========== ==========
Diluted Net Income (Loss) Per Share:
Income (loss) per share from continuing
operations.............................. $ 0.81 $ 0.26 $ (0.73)
Income (loss) per share from discontinued
operations, net of income taxes......... 0.00 0.02 (0.17)
Gain on disposal of discontinued
operation, net of income taxes.......... 0.11 -- --
---------- ---------- ----------
Net Income (Loss) Per Share.............. $ 0.92 $ 0.28 $ (0.90)
========== ========== ==========
Weighted average common and diluted
shares outstanding...................... 29,807,702 30,011,595 30,488,676
========== ========== ==========

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

19

STANDARD PACIFIC CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

AT DECEMBER 31,
-----------------
1997 1996
-------- --------

ASSETS
Cash and equivalents..................................... $ 8,381 $ 5,252
Investment securities held to maturity................... -- 5,329
Mortgage notes receivable and accrued interest........... 12,095 3,741
Other notes and accounts receivable, net................. 11,686 8,648
Inventories:
Real estate in process of development and completed
model homes........................................... 448,951 363,718
Real estate held for sale.............................. 2,897 8,927
Property and equipment, net of accumulated depreciation
and amortization of $3,570 and $3,320, respectively..... 2,515 1,741
Investments in and advances to unconsolidated joint
ventures................................................ 26,217 885
Deferred income taxes.................................... 12,136 16,481
Other assets............................................. 7,455 6,325
Excess of cost over net assets acquired, net ............ 6,605 --
-------- --------
Total assets of continuing operations.................... 538,938 421,047
-------- --------
Net assets of discontinued operations.................... 8,727 28,067
-------- --------
Total Assets........................................... $547,665 $449,114
======== ========

LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Accounts payable and accrued expenses................. $ 49,582 $ 26,958
Unsecured notes payable............................... 19,000 57,300
Trust deed notes payable.............................. 17,174 4,467
10 1/2% senior notes due 2000......................... 78,800 100,000
8 1/2% senior notes due 2007, net..................... 99,331 --
-------- --------
Total Liabilities..................................... 263,887 188,725
-------- --------
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; 10,000,000 shares
authorized; none issued.............................. -- --
Common stock, $.01 par value; 100,000,000 shares
authorized; 29,637,281 and 29,629,981 shares
outstanding at December 31, 1997 and 1996,
respectively......................................... 296 296
Paid-in capital....................................... 283,525 283,331
Accumulated deficit................................... (43) (23,238)
-------- --------
Total stockholders' equity............................ 283,778 260,389
-------- --------
Total Liabilities and Stockholders' Equity.......... $547,665 $449,114
======== ========

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

20

STANDARD PACIFIC CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

COMMON RETAINED
NUMBER OF STOCK EARNINGS
YEARS ENDED DECEMBER 31, 1995, 1996 COMMON PAR PAID-IN (ACCUMULATED
AND 1997 SHARES VALUE CAPITAL DEFICIT)
- ------------------------------------- ---------- ------ -------- ------------

BALANCE, DECEMBER 31, 1994........... 30,621,931 $306 $289,447 $ 2,990
Exercise of stock options and related
income tax benefit.................. 9,000 -- 64 --
Repurchase of common shares.......... (570,650) (5) (3,856) --
Cash dividends declared ($.12 per
share).............................. -- -- -- (3,657)
Net (loss)........................... -- -- -- (27,363)
---------- ---- -------- --------
BALANCE, DECEMBER 31, 1995........... 30,060,281 301 285,655 (28,030)
Repurchase of common shares.......... (430,300) (5) (2,324) --
Cash dividends declared ($.12 per
share).............................. -- -- -- (3,601)
Net income........................... -- -- -- 8,393
---------- ---- -------- --------
BALANCE, DECEMBER 31, 1996........... 29,629,981 296 283,331 (23,238)
Exercise of stock options and related
income tax benefit.................. 292,100 3 2,315 --
Repurchase of common shares.......... (284,800) (3) (2,121) --
Cash dividends declared ($.14 per
share) ............................. -- -- -- (4,131)
Net income........................... -- -- -- 27,326
---------- ---- -------- --------
BALANCE, DECEMBER 31, 1997........... 29,637,281 $296 $283,525 $ (43)
========== ==== ======== ========

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

21

STANDARD PACIFIC CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(DOLLARS IN THOUSANDS)

YEAR ENDED DECEMBER 31,
----------------------------
1997 1996 1995
-------- -------- --------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................... $ 27,326 $ 8,393 $(27,363)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities of continuing operations:
Discontinued operations....................... (3,350) (642) 5,006
Noncash charge for impairment of long-lived
assets....................................... -- -- 46,491
Depreciation and amortization................. 586 555 231
Amortization of excess of cost over net assets
acquired..................................... 245 -- --
Changes in cash and equivalents due to:
Inventories................................. (615) (5,376) 52,459
Receivables and accrued interest............ (1,804) (992) 5,988
Investment in and advances to unconsolidated
joint ventures............................. (25,332) 3,576 (3,015)
Accounts payable and accrued expenses....... 21,083 2,797 (4,665)
Deferred income taxes....................... 4,345 1,124 (15,805)
Other, net.................................. 4,555 299 206
-------- -------- --------
Net cash provided by (used in) continuing
operations..................................... 27,039 9,734 59,533
Net cash provided by (used in) discontinued
operations..................................... 37,088 (22,785) 21,371
-------- -------- --------
Net cash provided by (used in) operating
activities..................................... 64,127 (13,051) 80,904
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash paid for acquisition................... (65,842) -- --
Net additions to property and equipment......... (1,264) (242) (183)
Sales (purchases) of investment securities...... 5,329 81 (1,539)
Proceeds from the sale of discontinued
operations..................................... 8,379 -- --
-------- -------- --------
Net cash provided by (used in) investing
activities..................................... (53,398) (161) (1,722)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from (payments on) bank lines of
credit and term loans.......................... (38,300) 8,800 (37,750)
Net proceeds from the issuance of 8 1/2% senior
notes.......................................... 96,931 -- --
Principal payments on senior notes and trust
deed notes payable............................. (27,707) (11,021) (12,885)
Dividends....................................... (4,131) (3,601) (3,657)
Repurchase of common shares..................... (2,124) (2,329) (3,861)
Proceeds from exercise of stock options......... 1,705 -- 64
-------- -------- --------
Net cash provided by (used in) financing
activities..................................... 26,374 (8,151) (58,089)
-------- -------- --------
Net increase (decrease) in cash and equivalents. 37,103 (21,363) 21,093
Cash and equivalents at beginning of period..... 16,234 37,597 16,504
-------- -------- --------
Cash and equivalents at end of period........... $ 53,337 $ 16,234 $ 37,597
======== ======== ========

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

22

STANDARD PACIFIC CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)

(DOLLARS IN THOUSANDS)

YEAR ENDED DECEMBER 31,
-----------------------
1997 1996 1995
------- ------- -------

SUMMARY OF CASH BALANCES:
Continuing operations ................................. $ 8,381 $ 5,252 $ 290
Discontinued operations................................ 44,956 10,982 37,307
------- ------- -------
$53,337 $16,234 $37,597
======= ======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest--continuing operations.................... $17,026 $16,687 $19,200
Income taxes....................................... 15,500 1,477 530
SUPPLEMENTAL DISCLOSURES OF NONCASH ACTIVITIES:
Land acquisitions financed by purchase money trust
deeds............................................... $19,214 $ 635 $ 9,444
Expenses capitalized in connection with the issuance
of the 8 1/2% senior notes due 2007................. 2,377 -- --

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

23

STANDARD PACIFIC CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(DOLLARS PRESENTED IN TABLES ARE IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

1. COMPANY ORGANIZATION AND OPERATIONS

Standard Pacific Corp., a Delaware corporation (hereinafter referred to as
the "Company"), operates primarily as a geographical diversified builder of
single-family homes for use as primary residences with operations throughout
the major metropolitan markets in California and Texas. Approximately 79
percent of the Company's home deliveries (including the unconsolidated joint
ventures) were in California for the year ended December 31, 1997. There have
been periods of time in California where economic growth has slowed and the
average sales price of homes in certain areas in California in which the
Company does business have declined. There can be no assurance that home sales
prices will not decline in the future.

The Company's business is affected by national, world and local economic
conditions and events and the effect such conditions and events have on the
markets it serves in California and Texas and in particular by the level of
mortgage interest rates and consumer confidence in those regions. The Company
cannot predict whether interest rates will be at levels attractive to
prospective homebuyers. If interest rates increase, and in particular mortgage
interest rates, the Company's operating results could be adversely impacted.

In August 1997, the Company formed Family Lending Services, Inc. ("Family
Lending Services"), which will operate as a mortgage banking subsidiary of the
Company, offering mortgage financing to the Company's home buyers and others.
Certain assets were contributed from Standard Pacific Savings, F.A.
("Savings") to capitalize this entity. Family Lending Services is in the
process of obtaining required regulatory approvals and mortgage warehouse
financing and is currently expected to begin offering mortgage financing to
home buyers in the second quarter of 1998. Accordingly, the financial position
and related results of operations of Family Lending Services for the year
ended December 31, 1997 have been reflected as continuing operations in the
accompanying consolidated balance sheets and statements of operations.

The consolidated financial statements also include Standard Pacific Savings,
F.A., a federally chartered savings and loan institution, and Panel Concepts,
Inc., an office furniture manufacturing subsidiary, which have been treated as
discontinued operations (See Note 12).

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a. Basis of Presentation

The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated. Investments in unconsolidated joint
ventures in which the Company has less than a controlling interest are
accounted for using the equity method.

b. Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

c. Cash and Equivalents

For purposes of the consolidated statements of cash flows, cash and
equivalents include cash on hand, demand deposits, and all highly liquid
short-term investments, including interest bearing securities purchased with a
remaining maturity of three months or less.

24

STANDARD PACIFIC CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(DOLLARS PRESENTED IN TABLES ARE IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

d. Real Estate Inventories

For real estate under development the Company capitalizes direct carrying
costs, including interest, property taxes and related development costs. Field
construction supervision and related direct overhead are also included in the
capitalized cost of real estate inventories. General and administrative costs
are expensed as incurred.

Effective December 31, 1995, the Company adopted the provisions of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-lived
Assets and for Long-lived Assets to be Disposed Of" (FAS 121). FAS 121
requires long-lived assets, including real estate inventories, that are
expected to be held and used in operations to be carried at the lower of cost
or, if impaired, the fair value of the asset, rather than the net realizable
value. Long-lived assets to be disposed of should be reported at the lower of
carrying amount or fair value less cost to sell. In evaluating long-lived
assets held for use, an impairment loss is recognized if the sum of the
expected future cash flows (undiscounted and without interest charge) is less
than the carrying amount of the asset. Once a determination has been made that
an impairment loss should be recognized for real estate inventories expected
to be held and used, various assumptions and estimates are used to determine
fair value including, among others, estimated costs of construction,
development and marketing, sales absorption rates, anticipated sales prices
and carrying costs. The calculation of the impairment loss is based on
estimated future cash flows which are calculated to include an appropriate
return and interest. The estimates used to determine the impairment adjustment
could change in the near term as the economy in the Company's key markets
change.

The effect of the adoption of FAS 121, plus the effects of continued adverse
trends experienced during 1995 in certain of the geographic markets in which
the Company operates, on the values of certain of the Company's land holdings,
particularly in San Diego county, resulted in a pretax noncash charge of $46.5
million for the year ended December 31, 1995. These adverse developments
included, among other things, record high foreclosure rates, declines in
median home prices and continued anemic economic recovery.

e. Capitalization of Interest

The Company follows the practice of capitalizing interest on real estate
inventories during the period of development in accordance with Financial
Accounting Standards No. 34, "Capitalization of Interest Cost." Interest
capitalized as a cost of real estate under development is included in cost of
sales as related units are sold. The following is a summary of interest
capitalized and expensed from continuing operations for the following periods:

YEAR ENDED DECEMBER 31,
-----------------------
1997 1996 1995
------- ------- -------

Total interest incurred during the period........... $17,026 $16,687 $19,200
Less: Interest capitalized as a cost of real estate
under development.................................. 12,045 9,545 17,340
------- ------- -------
Interest expense.................................... $ 4,981 $ 7,142 $ 1,860
======= ======= =======
Interest previously capitalized as a cost of real
estate under development, included in cost of
sales.............................................. $23,475 $16,920 $27,638(1)
======= ======= =======
Capitalized interest in ending inventories.......... $13,712 $25,142 $32,517
======= ======= =======

- --------
(1) Excludes $11.6 million of interest included in the FAS 121 adjustment.

25

STANDARD PACIFIC CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(DOLLARS PRESENTED IN TABLES ARE IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

f. Property and Equipment

Property and equipment is recorded at cost. Depreciation and amortization is
recorded using the straight-line method over the estimated useful lives of the
assets.

g. Income Taxes

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

h. Excess of Cost Over Net Assets Acquired

The excess amount paid for a business acquisition over the net fair value of
assets acquired and liabilities assumed has been capitalized in the
accompanying consolidated balance sheets and is being amortized on a straight-
line basis over seven years. Amortization expense for the year ended December
31, 1997 was $245,000. (See Note 4)

i. Revenue Recognition

Revenues of residential housing are recorded after construction is
completed, required down payments are received and title passes.

j. Warranty Costs

Estimated future warranty costs are charged to cost of sales in the period
when the revenues from home closings are recognized.

k. Net Income Per Share

Effective December 31, 1997 the Company adopted Statement of Financial
Accounting Standards No. 128 "Earnings per Share" (FAS 128). This statement
requires the presentation of both basic and diluted net income per share for
financial statement purposes. Basic net income per share is computed by
dividing income available to common stockholders by the weighted average
number of common shares outstanding. Diluted net income per share includes the
effect of the potential shares outstanding, including dilutive stock options
using the treasury stock method. The table below reconciles the components of
the basic net income per share calculation to diluted net income per share.

FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
1997 1996 1995
------------------------ ----------------------- ---------------------------
INCOME SHARES EPS INCOME SHARES EPS INCOME SHARES EPS
------- ---------- ----- ------ ---------- ----- -------- ---------- ------

Basic Net Income (Loss)
Per Share:
Income (loss) available
to common stockholders
before discontinued
operations............ $23,976 29,504,477 $0.82 $7,751 30,000,492 $0.26 $(22,357) 30,488,676 $(0.73)
Effect of Dilutive
Securities:
Stock options.......... -- 303,225 -- 11,103 -- --
------- ---------- ------ ---------- -------- ----------
Diluted Net Income
(Loss) Per Share: $23,976 29,807,702 $0.81 $7,751 30,011,595 $0.26 $(22,357) 30,488,676 $(0.73)
======= ========== ===== ====== ========== ===== ======== ========== ======

26

STANDARD PACIFIC CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(DOLLARS PRESENTED IN TABLES ARE IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

In January 1998, the Company granted an additional 400,000 stock options
which were not considered in the calculation above for 1997, however, the
effect of these stock options would not have had an impact on the above
calculation as they were antidilutive for purposes of computing diluted net
income per share.

l. Stock-Based Compensation

The Company accounts for its stock-based compensation plan using the
provisions of Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" (APB 25).

In 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (FAS 123). Under the provisions of FAS 123, companies can elect
to account for stock-based compensation plans using a fair-value-based method
or continue measuring compensation expense for those plans using the intrinsic
value method prescribed in APB 25. FAS 123 requires that companies electing to
continue using the intrinsic value method must make pro forma disclosures of
net income and earnings per share as if the fair-value-based method of
accounting had been applied.

Effective December 31, 1996, the Company adopted FAS 123 for financial
statement disclosure purposes only and accordingly, the adoption had no impact
on the Company's results of operations or financial position for the year then
ended.

m. Reclassifications

Effective January 1, 1997, the Company changed its presentation of selling
costs in its consolidated statements of operations whereby selling costs are
now combined with general and administrative expenses. This presentation is
consistent with industry practice. Previously, the Company included these
costs as a component of cost of sales. The Company reclassified the prior
period amounts to conform with the 1997 presentation.

Additionally, certain other items in prior period financial statements have
been reclassified to conform with current year presentation.

3. INVESTMENTS IN UNCONSOLIDATED JOINT VENTURES

Summarized financial information related to the Company's joint ventures
accounted for under the equity method are as follows:

AT DECEMBER 31,
---------------
1997 1996
------- -------

Assets:
Cash...................................................... $ 5,545 $ 545
Real estate in process of development and completed model
homes.................................................... 74,835 9,809
Other assets.............................................. 1,319 3,355
------- -------
$81,699 $13,709
======= =======
Liabilities and Equity:
Accounts payable and accrued expenses..................... $ 5,248 $ 3,409
Construction loans payable................................ 17,442 7,153
Equity.................................................... 59,009 3,147
------- -------
$81,699 $13,709
======= =======

27

STANDARD PACIFIC CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(DOLLARS PRESENTED IN TABLES ARE IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

The Company's share of equity shown above is approximately $23.5 million and
$943,000 at December 31, 1997 and 1996, respectively.

YEAR ENDED DECEMBER 31,
-----------------------
1997 1996 1995
------- ------- -------

Revenues............................................. $24,427 $32,168 $46,166
Cost of revenues..................................... 17,591 23,817 32,881
------- ------- -------
Net earnings of joint ventures....................... $ 6,836 $ 8,351 $13,285
======= ======= =======

The Company's share of earnings in the joint ventures detailed above varies,
but in no case is its share of earnings greater than 50 percent. Additionally,
the Company's ownership interests in the joint ventures varies, but in no case
does it exceed 50 percent.

In addition, the sole purpose of two of the joint ventures which the Company
is party to is to develop finished lots whereby the Company will purchase the
lots from the joint venture to construct homes thereon. The Company does not
anticipate recording any income or loss from these two joint ventures.

4. ACQUISITION

On September 30, 1997, the Company acquired all of the outstanding common
stock of Duc Development Company ("Duc"), a privately held northern California
homebuilding company, for cash consideration of approximately $16 million of
which approximately $5 million is contingent consideration which is to be paid
upon the Company obtaining entitlement approvals on a certain parcel of land.
Upon such payment, the amount will be recorded as real estate inventory. In
connection with this acquisition, the Company acquired certain other real
estate assets related to Duc's operations for approximately $55 million in
cash and the assumption of approximately $8 million of debt.

The acquisition has been accounted for as a purchase, and accordingly, the
purchase price has been allocated to the net assets acquired based upon their
estimated fair market values as of the date of acquisition. The excess of the
purchase price over the estimated fair value of net assets acquired totaled
approximately $6.85 million, which has been recorded as excess of cost over
net assets acquired in the accompanying consolidated balance sheets and is
being amortized on a straight-line basis over seven years. In addition,
operations for Duc are included in the accompanying statement of operations
commencing October 1, 1997.

The pro forma effect of including Duc's operations in the Company's
consolidated operating results since January 1, 1997 is not presented, as the
impact is not material.

5. UNSECURED NOTES PAYABLE AND TRUST DEED NOTES PAYABLE

a. Unsecured Notes Payable to Banks

In August 1997, the Company and its bank group amended the unsecured
Revolving Credit Facility (the "Facility") to, among other things, increase
the commitment to $275 million, increase the term of the Facility from three
years to four years and reduce the cost of borrowings and other fees. The
Facility has a current maturity date of July 31, 2001. The Facility contains
covenants which require, among other things, the maintenance of certain
amounts of tangible stockholders' equity, the maintenance of debt-to-equity
ratios, and minimum interest coverage ratio provisions, as defined. The
Facility also contains provisions which may, in certain circumstances, limit
the amount the Company may borrow under the credit facility. At December 31,
1997, the Company had borrowings of $19.0 million outstanding under this
Facility. Interest rates charged under this Facility primarily include
Eurodollar and prime rate pricing options. In addition to fees charged on the

28

STANDARD PACIFIC CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(DOLLARS PRESENTED IN TABLES ARE IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

commitment and unused portion of the Facility, this Facility also requires the
Company to maintain a compensating balance, as defined.

As of December 31, 1997, and throughout the year, the Company was in
compliance with the covenants of the Revolving Credit Facility.

b. Trust Deed Notes Payable

At December 31, 1997 and 1996, trust deed notes payable primarily consist of
trust deeds on land purchases. At December 31, 1997, the weighted average
interest rate on these trust deeds was approximately 8.0 percent.

c. Borrowings and Maturities

The following summarizes the borrowings during the three years ended
December 31, 1997 for the unsecured notes payable and trust deed notes
payable:

1997 1996 1995
------- ------- --------

Maximum borrowings outstanding during year at
month end...................................... $98,295 $91,299 $101,947
Average outstanding balance during the year..... $45,395 $78,552 $ 86,377
Weighted average interest rate for the year..... 7.3% 6.8% 7.5%
Weighted average interest rate on borrowings
outstanding at year end........................ 7.9% 7.1% 6.8%

Maturities of the trust deed notes payable and the 8 1/2% and 10 1/2% Senior
Notes (see Note 6 below) are as follows:

YEAR ENDED DECEMBER 31,
-----------------------

1998............................................................. $ 34,836
1999............................................................. 22,338
2000............................................................. 38,800
2001............................................................. --
2002............................................................. --
Thereafter....................................................... 99,331
--------
$195,305
========

6. SENIOR NOTES

In 1993, the Company issued $100 million principal amount of its 10 1/2%
Senior Notes due March 1, 2000 (the "10 1/2% Senior Notes"). Interest is due
and payable on March 1 and September 1 of each year. The 10 1/2% Senior Notes
are not redeemable at the option of the Company prior to maturity. The Company
is required to make annual mandatory sinking fund payments sufficient to
retire 20 percent of the original aggregate principal amount of the Notes ($20
million per year) commencing on March 1, 1997, at a redemption price of 100
percent of the principal amount, with the balance of the notes ($38.8 million)
retired on March 1, 2000. The Company made its first $20 million sinking fund
payment on the 10 1/2% Senior Notes on March 1, 1997.

In June 1997, the Company issued $100 million of 8 1/2% Senior Notes due
June 15, 2007 (the "8 1/2% Senior Notes"). The 8 1/2% Senior Notes were issued
at a discount to yield approximately 8.6 percent and have been reflected net
of the unamortized discount in the accompanying consolidated balance sheets.
Interest is due and payable on June 15 and December 15 of each year until
maturity. These notes are redeemable at the option of the Company, in whole or
in part, commencing June 15, 2002 at a price of 104.25 percent of par value,
with the call price reducing ratably to par on June 15, 2005. Net proceeds to
the Company after offering expenses were approximately $96.9 million.

29

STANDARD PACIFIC CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(DOLLARS PRESENTED IN TABLES ARE IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

Both the 10 1/2% and 8 1/2% Senior Notes (the "Notes") are senior unsecured
obligations of the Company and rank pari passu with the Company's other
existing senior unsecured indebtedness. The Company will, under certain
circumstances, be obligated to make an offer to purchase a portion of both the
10 1/2% and 8 1/2% Senior Notes in the event of the Company's failure to
maintain a minimum consolidated net worth, as defined, and under certain other
circumstances. In addition, the Notes contain other restrictive covenants
which, among other things, impose certain limitations on the ability of the
Company to (i) incur additional indebtedness, (ii) create liens, (iii) make
restricted payments, as defined, and (iv) sell assets. As of December 31,
1997, the Company was in compliance with the covenants of both the 10 1/2% and
8 1/2% Senior Notes.

7. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

The following methods and assumptions were used to estimate the fair value
of each class of financial instrument for which it is practicable to estimate:

Cash and Equivalents--The carrying amount is a reasonable estimate of
fair value. These assets primarily consist of short term investments and
demand deposits.

Investment Securities Held to Maturity--These investments for 1996
consist primarily of U.S. government and corporate debt securities which
are publicly traded. The fair value of these issues is based on their
quoted market prices at year end.

Revolving Credit Facility--The carrying amounts of the revolving credit
obligations approximate market value because of the frequency of repricing
the borrowings (usually 7 to 90 day maturities).

Trust Deed Notes Payable--These notes are primarily for purchase money
deeds of trust on land acquired. These notes have maturities ranging from 3
months to three years. The rates of interest paid on these notes
approximate the current rates available for secured real estate financing
with similar terms and maturities, therefore, carrying amounts approximate
fair value.

10 1/2% Senior Notes due 2000--This issue is publicly traded on the New
York Stock Exchange. Consequently, the fair value of this issue is based on
its quoted market price at year end.

8 1/2% Senior Notes due 2007--This issue is also publicly traded on the
New York Stock Exchange. As a result, the fair value of this issue is based
on its quoted market price at year end.

The estimated fair values of the Company's financial instruments from
continuing operations are as follows:

AT DECEMBER 31,
-----------------------------------
1997 1996
----------------- -----------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------

Financial Assets:
Cash and equivalents.................. $ 8,381 $ 8,381 $ 5,252 $ 5,252
Investment securities held to
maturity............................. -- -- 5,329 5,379
Financial Liabilities:
Revolving credit facility............. $19,000 $ 19,000 $ 57,300 $ 57,300
Trust deed notes payable.............. 17,174 17,174 4,467 4,467
10 1/2% senior notes due 2000......... 78,800 82,669 100,000 103,375
8 1/2% senior notes due 2007.......... 99,331 102,990 -- --

30

STANDARD PACIFIC CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(DOLLARS PRESENTED IN TABLES ARE IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

8. COMMITMENTS AND CONTINGENCIES

The Company leases office facilities under noncancelable operating leases.
Generally, the Company is required to pay taxes and insurance and maintain the
assets under such operating leases. Future minimum rental payments on
operating leases having an initial term in excess of one year as of December
31, 1997, including Savings, are as follows:

1998.............................................................. $ 990
1999.............................................................. 950
2000.............................................................. 954
2001.............................................................. 859
2002.............................................................. 344
Thereafter........................................................ 210
------
Subtotal........................................................ 4,307
Less--Sublease income............................................. (323)
------
Net rental obligations.......................................... $3,984
======

Rent expense, net of sublease income, under noncancelable operating leases
for the three years ended December 31, 1997 was approximately $1.3 million,
$1.4 million and $1.4 million, respectively.

The Company and certain of its subsidiaries are parties to claims and
litigation proceedings arising in the normal course of business. Although the
legal responsibility and financial impact with respect to certain claims and
litigation cannot presently be ascertained, the Company does not believe that
these matters will result in the payment by the Company of monetary damages,
net of any applicable insurance proceeds, that, in the aggregate, would be
material in relation to the consolidated financial position of the Company. It
is reasonably possible that the reserves provided for by the Company with
respect to such claims and litigation could change in the near term.

9. INCOME TAXES

The Company's provision (benefit) for income taxes from continuing
operations includes the following components:

YEAR ENDED DECEMBER 31,
-----------------------
1997 1996 1995
------- ------ --------

Current:
Federal.......................................... $12,909 $ 766 $ 3,301
State............................................ 3,471 209 991
------- ------ --------
16,380 975 4,292
------- ------ --------
Deferred:
Federal.......................................... 535 3,254 (14,731)
State............................................ 155 968 (4,451)
------- ------ --------
690 4,222 (19,182)
------- ------ --------
Total Provision (Benefit).......................... $17,070 $5,197 $(14,890)
======= ====== ========

31

STANDARD PACIFIC CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(DOLLARS PRESENTED IN TABLES ARE IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

The components of the Company's deferred income tax asset (liability) from
continuing operations as of December 31, 1997 and 1996 are as follows:

1997 1996
------- -------

Inventory adjustments...................................... $10,610 $12,093
Financial accruals......................................... 5,885 4,144
Nondeductible purchase price............................... (4,613) --
Other...................................................... 254 244
------- -------
$12,136 $16,481
======= =======

At December 31, 1997, the Company has a consolidated net deferred tax asset
of approximately $12.1 million reflecting the balance of the benefit created
primarily as a result of the $46.5 million noncash charge taken during 1995
related to the impairment of long-lived assets. A significant portion of this
asset's realization is dependent upon the Company's ability to generate
sufficient taxable income in future years. Although realization is not
assured, management believes it is more likely than not that the net deferred
tax asset will be realized. The amount of the deferred tax asset considered
realizable, however, could be reduced in the near term if estimates of future
taxable income are reduced or if tax rates are lowered.

The effective tax rate differs from the Federal statutory rate of 35 percent
for 1997 and 34 percent for 1996 and 1995 due to the following items:

YEAR ENDED DECEMBER 31,
--------------------------
1997 1996 1995
------- ------- --------

Financial income (loss) from continuing
operations before income taxes............... $41,046 $12,948 $(37,247)
======= ======= ========
Provision (benefit) for income taxes at
statutory rate............................... $14,366 $ 4,402 $(12,664)
Increases (decreases) in tax resulting from:
State income taxes, net..................... 2,481 796 (2,286)
Other....................................... 223 (1) 60
------- ------- --------
Provision (benefit) for income taxes.......... $17,070 $ 5,197 $(14,890)
======= ======= ========
Effective tax (benefit) rate.................. 41.6% 40.1% (40.0)%
======= ======= ========

10. STOCK OPTION PLAN

In 1991, the Company adopted the 1991 Employee Stock Incentive Plan (the
"Plan") pursuant to which officers, directors and employees of the Company are
eligible to receive options to purchase common stock of the Company. Under the
Plan the maximum number of shares of Company stock that may be issued pursuant
to awards granted is one million. On May 13, 1997, the shareholders of the
Company approved the 1997 Stock Incentive Plan (the "1997 Plan"). Under the
1997 Plan, the maximum number of shares of Company stock that may be issued is
two million.

Options are typically granted to purchase shares at prices equal to the fair
market value of the shares at the date of grant. The options typically vest
over a one to five year period and are generally exercisable at various dates
over one to 10 year periods. When the options are exercised, the proceeds are
credited to equity along with the related income tax benefits, if any.

32

STANDARD PACIFIC CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(DOLLARS PRESENTED IN TABLES ARE IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

The following is a summary of the transactions relating to the two
respective Plans for the years ended December 31, 1997, 1996 and 1995:

1997 1996 1995
------------------- ------------------ -----------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
--------- -------- -------- -------- ------- --------

Options, beginning of
year................... 928,590 $ 6.30 721,590 $9.73 771,990 $9.80
Granted................. 343,000 10.70 365,000 6.35 20,000 5.75
Exercised............... (292,100) 5.81 -- -- (9,000) 6.88
Canceled................ (20,500) 7.83 (158,000) 9.48 (61,400) 9.76
--------- ------ -------- ----- ------- -----
Outstanding, end of
year................... 958,990 $ 7.99 928,590 $6.30 721,590 $9.73
========= ====== ======== ===== ======= =====
Options exercisable at
end of year............ 360,990 588,590 671,590
========= ======== =======
Options available for
future grant........... 1,685,275 7,775 214,775
========= ======== =======

In January 1998, the Company granted an additional 400,000 stock options
pursuant to the 1997 Plan.

During the fourth quarter of 1996 the Company repriced 326,100 options which
were previously granted to nonexecutive employees. The new price represents
the fair market value of the shares at the date of repricing. Additionally,
the weighted average exercise price for all options outstanding as of December
31, 1996 reflects the repriced options at their new exercise price.

The following information is provided pursuant to the requirements of FAS
123.

The fair value of each option granted during the three years in the period
ended December 31, 1997 is estimated using the Black--Scholes option-pricing
model on the date of grant using the following weighted average assumptions:

1997 1996 1995
------- ------- -------

Dividend yield.................................... 1.31% 2.0% 2.1%
Expected volatility............................... 43.80% 46.30% 53.46%
Risk-free interest rate........................... 6.17% 6.12% 6.70%
Expected life..................................... 5 years 5 years 5 years

The 958,990 options outstanding as of December 31, 1997 have exercise prices
between $5.38 and $13.75, with a weighted average exercise price of $7.99 and
a weighted average remaining contractual life of 7.72 years. As of December
31, 1997, 360,990 of these options are exercisable with a weighted average
exercise price of $6.47. The weighted average fair value of options granted
during the years ended December 31, 1997, 1996 and 1995 was $6.55, $2.75 and
$2.66, respectively.

33

STANDARD PACIFIC CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(DOLLARS PRESENTED IN TABLES ARE IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

During the years ended December 31, 1997, 1996 and 1995, no compensation
expense was recognized related to the stock options granted, however, had
compensation cost been determined consistent with FAS 123 for the Company's
1997, 1996 and 1995 grants for its stock-based compensation plan, the
Company's net income (loss), and diluted net income (loss) per share for the
years ended December 31, 1997, 1996 and 1995 would approximate the pro forma
amounts below:

YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
1997 1996 1995
--------------------- --------------------- ---------------------
AS REPORTED PRO FORMA AS REPORTED PRO FORMA AS REPORTED PRO FORMA
----------- --------- ----------- --------- ----------- ---------

Net income (loss)....... $27,326 $27,100 $8,393 $7,619 $(27,363) $(27,394)
Diluted net income
(loss) per common
share.................. $ .92 $ .91 $ .28 $ .25 $ (.90) $ (.90)

The effects of applying FAS 123 in this pro forma disclosure are not
indicative of future amounts.

11. STOCKHOLDER RIGHTS PLAN AND COMMON STOCK REPURCHASE PLAN

The Company has a stockholder rights agreement (the "Agreement") in place.
Under the Agreement, one right will be granted for each share of the Company's
outstanding common stock. Each right entitles the holder, in certain takeover
situations, as defined, and after paying the exercise price (currently $40),
to purchase Company common stock having a market value equal to two times the
exercise price. Also, if the Company is merged into another corporation, or if
50 percent or more of the Company's assets are sold, the rightholders may be
entitled, upon payment of the exercise price, to buy common shares of the
acquiring corporation at a 50 percent discount from the then current market
value. In either situation, these rights are not available to the acquiring
party. However, these exercise features will not be activated if the acquiring
party makes an offer to acquire all of the Company's outstanding shares at a
price which is judged by the Board of Directors to be fair to all Company
stockholders. The rights may be redeemed by the Company under certain
circumstances at the rate of $.01 per right. The rights will expire on
December 31, 2001, unless earlier redeemed or exchanged.

In July 1995, the Board of Directors of the Company authorized the
repurchase of up to $10 million of the Company's common stock. In January
1997, the Board increased the repurchase limit to $20 million. For the year
ended December 31, 1997, the Company repurchased 284,800 shares of its common
stock for an aggregate price of $2.1 million. Since July 1995, the Company has
repurchased an aggregate of 1,285,750 shares of its common stock for
approximately $8.3 million through the year ended December 31, 1997.

12. DISCONTINUED OPERATIONS

In May 1997, the Company's Board of Directors adopted a plan of disposition
(the "Plan") for the Company's savings and loan subsidiary. Pursuant to the
Plan, the Company sold substantially all of Savings' mortgage loan portfolio
in June 1997. The proceeds from the sale of the mortgages were used to pay off
substantially all of the outstanding balances of Federal Home Loan Bank
advances with the remaining amount temporarily invested until the savings
deposits are sold along with Savings' remaining assets. In June 1997, the
Company also entered into a definitive agreement to sell the remainder of
Savings' business, including Savings' charter. The definitive agreement was
subject to a number of conditions, including, approval of the transaction by
the Office of Thrift Supervision ("OTS"). As a result of the failure of the
OTS to approve the transaction prior to the definitive agreement's termination
date, the definitive agreement terminated on January 31, 1998. The Company
plans to continue pursuing a disposition strategy with respect to Savings and,
therefore, Savings has been accounted for as a discontinued operation and the
results of its operations have been segregated in the accompanying
consolidated financial statements. Management currently estimates that both
the disposition of

34

STANDARD PACIFIC CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(DOLLARS PRESENTED IN TABLES ARE IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

Savings under the Plan and the operating results of Savings for the period
through the disposition will not result in a significant gain or loss to the
Company.

In November 1997, the Company entered into a definitive agreement to sell
all of the outstanding stock of Panel Concepts, Inc. ("Panel") to a third
party which closed December 1, 1997. A net gain of approximately $3.3 million
has been reflected in the accompanying consolidated results of operations.
Proceeds from the sale of Panel were approximately $9.5 million before
transaction and other related costs. In addition, certain non-operating assets
of Panel totaling approximately $9 million were distributed to the Company
prior to the closing.

Panel has also been accounted for as a discontinued operation and,
accordingly, the results of its operations have been segregated in the
accompanying consolidated statements of operations. Additionally, the assets
and liabilities of both Savings and Panel have been classified in the
accompanying consolidated balance sheets as "Net assets of discontinued
operations."

Interest income and product sales from these discontinued operations
aggregated $31,784,000, $39,383,000, and $40,982,000 for the years ended
December 31, 1997, 1996 and 1995, respectively.

The components of net assets of discontinued operations included in the
consolidated balance sheets at December 31, 1997 and 1996 are as follows:

AT DECEMBER 31,
----------------
1997 1996
------- --------
(DOLLARS IN
THOUSANDS)

ASSETS
Cash and equivalents...................................... $44,956 $ 10,982
Accounts receivable, net.................................. -- 2,425
Investment securities available for sale.................. 22,559 42,440
Mortgage notes receivable and accrued interest, net....... 317 199,135
Manufacturing inventories................................. -- 1,432
Property and equipment, net of accumulated depreciation
and amortization of $598 and $4,189, respectively........ 98 4,527
Real estate acquired in settlement of loans, net.......... -- 2,079
Deferred income taxes..................................... 1,273 1,581
Investment in FHLB stock.................................. 8,465 7,958
Other assets.............................................. 108 1,813
------- --------
Total assets--discontinued operations................... $77,776 $274,372
------- --------
LIABILITIES
Savings accounts.......................................... $50,230 $132,813
FHLB advances............................................. 18,000 109,000
Accounts payable and accrued expenses..................... 819 4,492
------- --------
Total liabilities--discontinued operations.............. 69,049 246,305
------- --------
Net assets of discontinued operations..................... $ 8,727 $ 28,067
======= ========

35

STANDARD PACIFIC CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(DOLLARS PRESENTED IN TABLES ARE IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

13. RESULTS OF QUARTERLY OPERATIONS (UNAUDITED)

FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL(1)
-------- -------- -------- -------- --------

1997:
Revenues..................... $111,303 $140,578 $177,150 $155,541 $584,571
Income from continuing
operations before taxes..... 5,146 7,955 11,660 16,285 41,046
Income (loss) from
discontinued operations, net
of income taxes............. 484 (24) 367 (779) 48
Gain on disposal of
discontinued operation, net
of income taxes............. -- -- -- 3,302 3,302
Net income................... $ 3,517 $ 4,667 $ 7,241 $ 11,901 $ 27,326
======== ======== ======== ======== ========
Diluted Net Income Per Share:
Income per share from
continuing operations....... $ 0.10 $ 0.16 $ 0.23 $ 0.32 $ 0.81
Income (loss) per share from
discontinued operations, net
of income taxes............. 0.02 0.00 0.01 (0.03) 0.00
Gain per share on disposal of
discontinued operation, net
of income taxes............. -- -- -- 0.11 0.11
-------- -------- -------- -------- --------
Net income per share......... $ 0.12 $ 0.16 $ 0.24 $ 0.40 $ 0.92
======== ======== ======== ======== ========
1996:
Revenues..................... $ 61,584 $101,727 $105,417 $131,135 $399,863
Income from continuing
operations before taxes..... 715 2,902 4,158 5,173 12,948
Income (loss) from
discontinued operations, net
of income taxes............. 144 478 (472) 492 642
Net income................... $ 573 $ 2,211 $ 2,025 $ 3,584 $ 8,393
======== ======== ======== ======== ========
Diluted Net Income Per Share:
Income per share from
continuing operations....... $ 0.02 $ 0.06 $ 0.08 $ 0.10 $ 0.26
Income (loss) per share from
discontinued operations, net
of income taxes............. -- 0.01 (0.01) 0.02 0.02
-------- -------- -------- -------- --------
Net income per share......... $ 0.02 $ 0.07 $ 0.07 $ 0.12 $ 0.28
======== ======== ======== ======== ========

- --------
(1) Some amounts do not add across due to rounding differences in quarterly
amounts.

14. SUBSEQUENT EVENT (UNAUDITED)

In February 1998, the Company issued $100 million of 8% Senior Notes due
February 15, 2008 (the "8% Senior Notes"). The 8% Senior Notes were issued at
a discount to yield approximately 8.1 percent. Interest is due and payable on
February 15 and August 15 of each year until maturity. These notes are
redeemable at the option of the Company, in whole or in part, commencing
February 15, 2003 at 104.00 percent of par, with the call price reducing
ratably to par on February 15, 2006. Net proceeds to the Company after
offering expenses were approximately $97.3 million. Approximately $54.3
million of the net proceeds was used to repay the indebtedness outstanding
under the Revolving Credit Facility on the date of closing (February 10,
1998), with the balance of the net proceeds to be used (i) to fund a $20
million sinking fund payment due on March 1, 1998 on the Company's 10 1/2%
Senior Notes, (ii) to repay an approximately $11.2 million trust deed note
payable due in March of 1998 and (iii) for general corporate purposes.

36

STANDARD PACIFIC CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(DOLLARS PRESENTED IN TABLES ARE IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

The 8% Senior Notes are senior unsecured obligations of the Company and rank
pari passu with the Company's other existing senior unsecured indebtedness.
The Company will, under certain circumstances, be obligated to make an offer
to purchase a portion of the 8% Senior Notes in the event of the Company's
failure to maintain a minimum consolidated net worth, as defined, and under
certain other circumstances. In addition, the 8% Senior Notes contain other
restrictive covenants which, among other things, impose certain limitations on
the ability of the Company to (i) incur additional indebtedness, (ii) create
liens, (iii) make restricted payments, as defined, and (iv) sell assets.

37

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

Not applicable.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Certain of the information required by this Item with respect to executive
officers is set forth under the caption "Executive Officers of the Company" in
Part I. The remaining information required by Items 401 and 405 of Regulation
S-K is set forth in the Company's 1998 Annual Meeting Proxy Statement which
will be filed with the Securities and Exchange Commission not later than
120 days after December 31, 1997. The Company's 1998 Annual Meeting Proxy
Statement, exclusive of the information set forth under the captions "Report
of the Compensation Committee" and "Company Performance," is incorporated
herein by this reference.

ITEM 11. EXECUTIVE COMPENSATION

The information required by Item 402 of Regulation S-K is set forth in the
Company's 1998 Annual Meeting Proxy Statement which will be filed with the
Securities and Exchange Commission not later than 120 days after December 31,
1997. The Company's 1998 Annual Meeting Proxy Statement, exclusive of the
information set forth under the captions "Report of the Compensation
Committee" and "Company Performance," is incorporated herein by this
reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by Item 403 of Regulation S-K is set forth in the
Company's 1998 Annual Meeting Proxy Statement which will be filed with the
Securities and Exchange Commission not later than 120 days after December 31,
1997. The Company's 1998 Annual Meeting Proxy Statement, exclusive of the
information set forth under the captions "Report of the Compensation
Committee" and "Company Performance," is incorporated herein by this
reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Not applicable.

38

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

PAGE
REFERENCE
---------

(a) (1) Financial Statements, included in Part II of this report:
Report of Independent Public Accountants......................... 18
Consolidated Statements of Operations for each of the three years
in the period ended
December 31, 1997............................................... 19
Consolidated Balance Sheets at December 31, 1997 and 1996........ 20
Consolidated Statements of Stockholders' Equity for each of the
three years in the period ended December 31, 1997............... 21
Consolidated Statements of Cash Flows for each of the three years
in the period ended
December 31, 1997............................................... 22
Notes to Consolidated Financial Statements....................... 24
(2) Financial Statement Schedules:
Financial Statement Schedules are omitted since the required in-
formation is not present or is not present in the amounts suffi-
cient to require submission of the schedule, or because the in-
formation required is included in the consolidated financial
statements, including the notes thereto.
(3) Index to Exhibits
See item (a) (3) below.

(b)Reports on Form 8-K. No Current Reports on Form 8-K were filed during the
last quarter of the period covered by this Annual Report on Form 10-K.

(c)INDEX TO EXHIBITS. See Item 14(a)(3) below.

(d)Financial Statements required by Regulation S-X excluded from the annual
report to shareholders by Rule 14(a)-3(b)(1). Not applicable.

39

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF
COSTA MESA, CALIFORNIA, ON THE 10TH DAY OF MARCH 1998.

STANDARD PACIFIC CORP.
(Registrant)

By: /s/ Arthur E. Svendsen
__________________________________
Arthur E. Svendsen
Chairman of the Board and
Chief Executive Officer

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT IN THE CAPACITIES AND ON THE DATES INDICATED.

SIGNATURE TITLE DATE
--------- ----- ----

/s/ Arthur E. Svendsen Chairman of the Board, Chief March 10, 1998
____________________________________ Executive Officer and
(Arthur E. Svendsen) Director

/s/ Stephen J. Scarborough President and Director March 10, 1998
____________________________________
(Stephen J. Scarborough)

/s/ Andrew H. Parnes Vice President of Finance March 10, 1998
____________________________________ and Treasurer and Principal
(Andrew H. Parnes) Financial and Accounting
Officer

/s/ Robert J. St. Lawrence Director March 10, 1998
____________________________________
(Robert J. St. Lawrence)

/s/ William H. Langenberg Director March 10, 1998
____________________________________
(William H. Langenberg)

/s/ James L. Doti Director March 10, 1998
____________________________________
(James L. Doti)

/s/ Keith D. Koeller Director March 10, 1998
____________________________________
(Keith D. Koeller)

/s/ Donald H. Spengler Director March 10, 1998
____________________________________
(Donald H. Spengler)

/s/ Ronald R. Foell Director March 10, 1998
____________________________________
(Ronald R. Foell)

40

INDEX TO EXHIBITS

(a)(3)

*3.1 Certificate of Incorporation of the Registrant incorporated by
reference to Exhibit 3.1 of the Registrant's Registration Statement on
Form S-4 (file no. 33-42293).

*3.2 Certificate of Correction of Certificate of Incorporation of the
Registrant incorporated by reference to Exhibit 3.2 of the
Registrant's Registration Statement on Form 8-B filed with the
Securities and Exchange Commission on December 17, 1991.

*3.3 Form of Certificate of Amendment to Certificate of Incorporation of
the Registrant incorporated by reference to Exhibit 3.3 of the
Registrant's Registration Statement on Form 8-B filed with the
Securities and Exchange Commission on December 17, 1991.

*3.4 Form of Certificate of Merger of the Registrant incorporated by
reference to Exhibit 3.4 of the Registrant's Registration Statement on
Form 8-B filed with the Securities and Exchange Commission on December
17, 1991.

*3.5 Bylaws of the Registrant incorporated by reference to Exhibit 3.2 of
the Registrant's Registration Statement on Form S-4 (file no. 33-
42293).

*4.1 Rights Agreement, dated as of December 31, 1991, between the
Registrant and Manufacturers Hanover Trust Company of California, as
Rights Agent, incorporated by reference to Exhibit 4.1 of the
Registration Statement on Form S-4 (file no. 33-42293).

*4.2 Standard Pacific Corp. Officers' Certificate dated March 5, 1993 with
respect to the Company's 10 1/2% Senior Notes due 2000, incorporated
by reference to Exhibit 4 of the Company's Current Report on Form 8-K
dated March 5, 1993.

*4.3 Standard Pacific Corp. Officers' Certificate dated June 17, 1997 with
respect to the Registrant's 8 1/2% Senior Notes due 2007, incorporated
by reference to Exhibit 4.1 of the Registrant's Current Report on Form
8-K dated June 17, 1997.

4.4 Standard Pacific Corp. Officers' Certificate dated February 5, 1998
with respect to the Registrant's 8% Senior Notes due 2008.

4.5 Registration Rights Agreement dated as of February 5, 1998 between the
Registrant and SBC Warburg Dillon Read Inc., BancAmerica Robertson
Stephens and Donaldson Lufkin & Jenrette Securities Corporation.

*4.6 Indenture dated as of April 1, 1992 by and between the Company and
United States Trust Company of New York, Trustee, incorporated by
reference to Exhibit 4 to the Company's Current Report on Form 8-K
dated February 24, 1993.

*10.1 Acquisition Agreement dated March 6, 1987 between the Federal Savings
and Loan Insurance Corporation and Standard Pacific Savings, F.A.
incorporated by reference to Exhibit C of the Company's Current Report
on Form 8-K dated March 6, 1987.

*10.2 Sixth Amended and Restated Revolving Credit Agreement dated as of
August 8, 1997, among the Company, Bank of America National Trust and
Savings Association, The First National Bank of Chicago, Credit
Lyonnais Los Angeles Branch, Fleet National Bank, Sanwa Bank
California, Comerica Bank and PNC Bank, National Association,
incorporated by reference to Exhibit 10.8 of the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1997.

*10.3 Standard Pacific Corp. 1991 Employee Stock Incentive Plan,
incorporated by reference to Annex B of the Company's prospectus
dated October 11, 1991, filed with the Securities and Exchange
Commission pursuant to Rule 424(b).

*10.4 Form of Stock Option Agreement to be used in connection with the
Standard Pacific Corp. 1991 Employee Stock Incentive Plan,
incorporated by reference to Exhibit 28.2 of the Company's
Registration Statement on Form S-8 filed on January 3, 1992.

41

*10.5 Standard Pacific Corp. 1997 Stock Incentive Plan, incorporated by
reference to Exhibit 99.1 of the Company's Registration Statement on
Form S-8 filed on August 21, 1997.

*10.6 Form of Non-Qualified Stock Option Agreement to be used in Company's
1997 Stock Incentive Plan, incorporated by reference to Exhibit 99.2
of the Company's Registration Statement on Form S-8 filed on August
21, 1997.

*10.7 Form of Non-Qualified Director's Stock Option Agreement to be used in
connection with the Company's 1997 Stock Incentive Plan, incorporated
by reference to Exhibit 99.3 of the Company's Registration Statement
on Form S-8 filed on August 21, 1997.

*10.8 Form of Incentive Stock Option Agreement to be used in connection
with the Company's 1997 Stock Incentive Plan, incorporated by
reference to Exhibit 99.4 of the Company's Registration Statement on
Form S-8 filed on August 21, 1997.

*10.9 Stock Purchase Agreement, dated as of September 30, 1997, by and
between the Company, Duc Development Company and Daniel A. Duc,
incorporated by reference to Exhibit 10.9 of the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1997.

10.10 Share Purchase Agreement, dated as of November 7, 1997, by and
between the Company and HON Industries, Inc.

22.1 Subsidiaries of the Company.

23.1 Consent of Arthur Andersen LLP, Independent Public Accountants.

27.1 Financial Data Schedule.
- --------
(*) Previously filed.

42