Good morning, my name is [Sarah] and I will be your conference operator today. At this time I would like to welcome everyone to the Meritage Homes fourth quarter and full year 2008 Conference Call. (Operator Instructions). Thank you, Mr. Anderson you may begin your conference.

Thank you [Sarah]. Good morning everyone. I would like to welcome you to the Meritage Homes Fourth Quarter and Full Year 2008 Earnings Call and webcast. Our quarter ended on December 31st and we issued our press release yesterday with our results for the quarter and fiscal the year. If you need a copy of the release you can find it on our Web site at www.meritagehomes.com on the investor relations page, along with the slides that will accompany our webcast today. Please refer to slide two of our presentation. Our statements during this call and the accompanying materials contain projections and forward-looking statements which are the current opinions of management and subject to change. We undertake no obligation to update these projections or opinions. Additionally, our actual results may be materially different than our expectations due to various risk factors. For information regarding those risk factors, please see our press release and our most recent filings with the Securities and Exchange Commission, specifically our 2007 annual report on form 10-K and our latest report on form 10-Q. Today’s presentation also includes certain non-GAAP financial measures as defined by the SEC. To comply with their rules we have provided a reconciliation of the non-GAAP measures in our earnings press release. With me today on the call to discuss our quarter are Steve Hilton, Chairman and CEO of Meritage Homes, and Larry Seay our Executive Vice President and CFO. We’ll keep our call to about 50 minutes this morning so that we end before noon Eastern Time. I’ll now turn it over to Mr. Hilton to review our fourth quarter results. Steve?

Thank you Brent. I would like to welcome everyone to our call today. I will begin with slide four if you’re following along on the webcast. The most significant highlights of our fourth quarter include our cash generation, year end cash balance, and expected tax refund in the first quarter of 2009. In addition, we operated a small profit for impairments due in part to reductions in our direct cost and overhead, which we believe will continue to benefit us in the future. Let me walk you through some of the more details on those items. As anticipated, we generated a significant amount of additional cash, increasing our cash position by $87 million, more than 70% increase in the last three months of 2008. We ended the year with $206 million in cash and no borrowings outstanding under our credit facility. That compares to $28 million in cash and $82 million borrowed under our credit facility at the end of the $2007. In addition we expect to collect approximately $112 million of tax refunds in the first part of ’09. In addition to generating cash, the other significant accomplishments this past quarter was our small positive pre-tax income before impairments compared to the prior year’s pre-tax loss before impairments. The recent quarter’s results were due to an increase in our gross margin before impairments, which was due to construction costs savings and the benefit of previous quarters impairments that reduced the cost basis of the homes that we closed. Our improvement – our improved results also reflected a decrease in general administrative expenses of 47% from last year’s fourth quarter. We also reduced our community count by 14% during the quarter. I’ll address each of these in more detail. Slide five; we generated positive cash flow from our operations since…

Thanks Steve, turning to slide 13. Cancelations increased during the year as the economy continued to weaken resulting in increases in our inventory of unsold accidental SPEC homes, yet we successfully reduced our SPEC inventory to 768 or 4.3 homes per community as of December 31, 2008 from 809 SPEC home at the end of the previous quarter. That’s 31% lower than our December 31, 2007 total SPECs, 527 of the 768 homes were completed and 241 were under construction. We are primarily a build to order builder, however, we’re adjusting our strategy with a regard to our level of SPEC inventory in order to compete more effectively with retails and foreclosures today. Many first time home buyers are renters who want to move into a home quickly and may not be willing to wait for one to be built. In addition, due to the fact that it has been taking longer for existing homeowners to sell their homes, many move up builders are also renters who sold their existing home before shopping for a new home. We therefore feel that we need to maintain an inventory of four to five unsold homes per community that are available for quick move in. Our current strategy is to have one to two completed SPECs and two to three SPECs under construction per community. That is still well below most other home builder’s SPEC inventory levels and it does not mean that we are becoming a SPEC builder. Slide 14; we’ve proactively reduced our total lot supply due through lot sales and option terminations, bringing it down another 24% during the fourth quarter, a decrease of almost 5,000 lots. A total of 15,802 lots controlled December 31, 2008 was 71% lower than it’s peak three years earlier and down from 20,748 at…

Thank you Larry, 2008 marks the end of our third year in the housing recession, which has eliminated many of our competitors and weakened all of our peers. We have built a substantial cash position that should provide greater flexibility for the future. In addition to the $206 million cash we had at the end of the year, we expect to collect $112 million in tax refunds during the first few months of this year. Our new product strategy is designed to appeal to larger market segments of entry level and first move up buyers. We have redesigned our products, eliminating home plans in communities that didn’t meet current market requirements, and introducing more than 50 new designs to appeal to entry level homebuyers. All of these are priced within the FHA mortgage caps, and we have reduced our construction costs to allow us to sell these homes at lower prices while still earning an acceptable profit. By executing our asset life strategy as it was designed, we have managed to lower SPEC inventory, lower lot supply, and a relatively strong balance sheet. At some point we intend to begin acquiring lots again at what will be greatly reduced prices. However, we are keenly aware of the risk in this environment and therefore plan to redeploy capital only where we believe to achieve returns to justify the risk. We fully expect 2009 will be another challenging year, but we are not hanging our hopes on rescue packages that are out of our control. Having just entered our balance sheet well to date, we are focused on minimizing our losses and engineering our return to profitability. We have consolidated operations, reduced overhead and limited purchases in order to preserve cash. Despite lower sales and current market conditions, we expect to generate modest positive cash flow before tax refunds for the full year 2009, before any potential limited land acquisitions. We look forward to better market conditions that will enable us to take advantage of such opportunities. We’ll now open it up for questions. The operator will remind you of the instructions fro Q&A. Thank you.

(Operator Instructions) Your first question comes from the line of Nishu Sood – Deutsche Bank Nishu Sood – Deutsche Bank: First question I wanted to ask was, Larry, you made a really interesting point in your commentary that with as large of the cash balances that some of the builders have built up, they're going to need that for either their debt repayment or the working capital build up. So a lot of the builders, most of the builders are going to be migrating towards an asset light strategy similar to you folks. When you take a look at that dynamic as well as you're shifting now incredibly changed to more a first time type of project as opposed to move up. Really the kind of differences that have marked Meritage in the past, and strategically seem to be eroding, so I just wanted to get your thoughts on that, your strategy in terms of what's going to differentiate you versus of the other builders going forward.

This is something we have been doing for a long time and other builders have not. So I think we're going to be more experienced at it, we know how to do rolling options. I think we just have more flexibility than others, Larry, you can--

I think because we have used alternative financing structures and used them in ways that minimized our risk with keeping to our principals of low deposits and no current pay deals and things which really transfer the risks to the land owner, I think we've done a better job in the past doing that and we'll stick to our guns. And we're just pointing out a fact that even though our cash balance may not be as large as some other big builders, w don’t have as many cash needs going forward and we don’t believe we'll be operating at a competitive disadvantage, because there will be these alternative sources of finances going forward, and as we said we are having conversations with several land owners now about innovative new option structures.

I'd also say that our product will still make the difference. We still think our product designs are going to be competitive, if not better than a lot of our competitors. Even though we're moving down to entry level first time move up, we're still going to have that Meritage flair and excitement about our product that we think will distinguish us from our competitors. Nishu Sood – Deutsche Bank: So just as a way for framing your capacity to pursue these sorts of opportunities, you look at your cash balances just over $200 million. You'll probably have about $325 million or so once you get that tax refund. If things were to turn around right now, how much of that – or I guess even in a broader context, how much liquidity do you think you would have to deploy right now towards new opportunities?

Well some of the options – structures that we're talking about that land owners are sitting on land are having difficulty selling, are no down or limited down option structures where there's actually less risk than under the old structure. So we could potentially tie up a lot of land with very little investment and the only investment then required is building a model or two and having a few spec houses, as well as--

[Interposing] They're just not going to turn around that fast, also. And if they did turn around that fast you'd have a price appreciation, which means builders would return to profitability relatively quickly and they would be able to go back into maybe their credit lines, but I don’t expect that to happen. I think it's going to be more of a gradual recovery.

And I guess I would add we don’t anticipate utilizing much of the cash we're building up in 2009. We think we'll still have very small amounts of land acquisitions in '09 because we're still waiting to make sure it's the right time to start to tie up new potions and most of that's going to be optioned.

Your next question comes from the line of David Goldberg – UBS. David Goldberg – UBS: The first question is on the cost. I know you mentioned bringing cost down. I'm just trying to get an idea of where you think cost per square feet may be on your new product is, maybe cost per square foot is relative to where you were before and maybe how much of that is coming from raw material savings relative to labor savings?

Well it's both. There's less materials in the house, the types of materials. The labor's less because the house is more streamlined and more efficient to build. But we're building a lot of houses in the West, in Florida, maybe excluding California for less than $40 a square foot, where previously they were in the high 50s or over $60 per square foot. California's still is more expensive than that, maybe more in the 40s where it was in the 60s and 70s. So we're having a lot of success, either from renegotiating because the subcontractors are more eager for the business and they've become more efficient and brought their costs down and it's through the redesign. David Goldberg – UBS: Do you have any idea what the breakout between how much you'll be able to break labor down at least?

I don’t have a break down on that but, a third I'd say; maybe more on the materials side because commodities have come down as much as 50% in the last quarter. So significant on the materials and then significant on the labor as well. David Goldberg – UBS: Great, and then my second question was I was hoping you guys could give some more details on the Texas market and specifically, on a cash on cash basis. Are you still profitable in that market i.e., can you go out and buy if it's the right piece of dirt, can you go out and buy land take it through the process and still generate positive free cash flow on the new piece of dirt?

Can we go out and buy dirt and make money? I think you can, I mean we're not buying any dirt in Texas, so I can't give you any real life examples. David Goldberg – UBS: Well I guess another way to put it then, would be when you're building homes in Texas you're generating free cash flow on most homes, how much of that is return on capital versus return on capital when you previously invested in land?

We made money – I think we made money in three out of four markets last year in Texas, even after impairments, so. David Goldberg – UBS: On a cash on cash basis?

No, I'm talking on an income statement basis. We're still making – I guess its maybe on two out of the four, I may have misspoken, but we made money in markets in Texas last year at lower prices. Now the margins are pretty skinny. They've gotten skinnier, but we have not seen the large price declines in land on the whole and on the houses in Texas that we've seen in other markets.

Your next question comes from the line of Jim Wilson – JMP Securities. James Wilson – JMP Securities: First one as I guess you kind of noted that sales have gotten a little better in December and January. Could you give a little color on where or anything or what you would want to give credit to maybe just lower interest rates, but could you give a little color on that?

I tell you our best, actually has been in Texas the last few weeks. We've had better gross sales and less cancellations than we had in the last couple months of last year. We had a pretty good couple of weeks in Orlando and we sold some homes in Arizona. I don’t see a big turn around. I can't tell you three weeks makes a trend, but certainly we're not seeing the December type activity in January. We're doing better in January than we were in November, December, and we're more in line with what we did in the third quarter last year. James Wilson – JMP Securities: All right, and then with all the improvements in cost, I see a decent improvement sequentially in margins in Q4, could you give us some color on what gross margins look like in backlog.

Larry, you want to take that?

Sure, we’ve some improvement in gross margins and we’d like to think that we would see that trend of being a little bit better than last year continue. In this market we really aren’t going to make any gross margin projections, it just depends on what further happens to the market too. If things stabilize and prices stabilize I think we could start to see some improvement, but it’s just very hard to make any predictions there Jim.

Eric Landry – Morningstar: Morning. Thanks.

Morning. Eric Landry – Morningstar: Hey, Larry, I am a bit confused on the deferred tax asset valuation allowance.

Sure. Eric Landry – Morningstar: You talk about $127 million in the slides, yet nothing was broke out. Was there a $21 million addition in the fourth quarter?

Well, there was – the deferred tax asset is very confusing, because you have additions from impairments recurring, you have realization occurring as assets are disposed of, and on top of that you have the reserves being booked against the asset you previously booked. So it’s very difficult to understand but in the third quarter we – if you go to our summary and income statement we have about a $30 million benefit so in – excuse me in the fourth quarter. In the fourth quarter we had a $30 million benefit which means that we had real tax realization of write offs of that quarter that exceeded the write-offs or exceeded reserves. So we – that, in that quarter because we sold so many, so much land and we triggered so many losses from permeating options, that actually acceded the impairments taken, so that’s why you see that trend happening, but at the end of the year, we had $127 million deferred tax assets left, of which every dollar was reserved. Does that help? Eric Landry – Morningstar: A little bit but I still – so if the impairments are more than the actual taxes, then you can break it out, otherwise you don’t break out is what you’re saying?

Well, we would typically not break it out. We toyed with trying to show the full detail to people and it’s just very confusing, but essentially this is just an example, if you had $20 million of impairments you took in the fourth quarter and you were able to trigger $30 million of previously recognized book losses for tax purposes, you would wind up with a $10 million net tax benefit in the quarter. On the converse side, if it were the other way around, you reserved $30 million for book purposes, but you only triggered 10 you would wind up having the opposite occur, where you would have to reserve that tax asset and – or that net tax asset and you would have a tax expense instead of a tax benefit. Okay? And if you would like to talk to me afterwards call me, I will be happy to walk you through more examples.

Your next question comes from the line of Carl Reichardt – Wachovia. Carl Reichardt – Wachovia: Actually our questions have already been answered, thank you.

Your next question comes from the line of Joel Locker – FBN Securities. Joel Locker – FBN Securities: On your sell your option deposits dropped about $17 million on your line item, but then you wrote off $49 million. I kind of just, I guess, want to know a little more color on the break down of the $49 million or how many were letters of credit or what not, where that number actually came from?

Well, that’s a good point. I don’t have the specific detail, but there were some letters of credit outstanding relating to options that were terminated and there were also some pre-acquisition costs relating to options for the terminated, so the sum of those, the actual investment; letters of credit and pre-acquisition costs added up to the $49 million, so. Joel Locker – FBN Securities: All right and then if you – I mean do you have a total exposure number, in addition to letters of credit, pre-acquisition costs, and plus the $52 million in option deposits, that are listed on the balance sheet, as of the end of the fourth quarter?

Well, in our Q we do break that out. Joel Locker – FBN Securities: Right.

Joel Locker – FBN Securities: Right and last question on the – of 8700 owned lots, how many of those are completely finished would you think?

Oh, I'd say almost all of them. [Inaudible] development costs. Joel Locker – FBN Securities: Would you say that’s correct Larry?

Well, yes, I would say maybe 75% to 90% range. There’s certainly probably 10% that aren’t but the great majority are. Joel Locker – FBN Securities: But the 10% that aren’t or halfway, they're almost finished kind of, or?

Yes, I mean we don’t have any that are close to raw. I mean, I’d say there’s not much development expense left on those lots. Joel Locker – FBN Securities: Right. All right. Thanks a lot guys.

Your next question comes from the line of Lee Bradding – Wachovia. Lee Bradding – Wachovia: I guess my first question is in regards to community count. I guess the past year is down 20% and if I think I heard you right you said, what 43% of communities have less than 25 lots left for sale? And I guess just is there any guidance you can give us going forward? I mean there’s one way you can look at it but simple math that pays, do you look at running through 40% of your communities potentially this year on coming in on the worse side, or does it look like a similar year to last year I guess?

Well it all depends on sales pace and I don’t know if it will be 40% but we would think that it would be a number certainly in the double digits that’s hard to give projections that we use to know what our sales pace is but I think, I think it wouldn’t be anymore than 43% on the other hand it could wind up being 20% although that’s just an estimate. It’s not a projection. Lee Bradding – Wachovia: And that’s fair.

That’s assuming we’re not replacing any of those communities with new communities. Of course, today we’re not doing that but, as we get later into the year and next year if the market does recover we’ll start to replace them. Lee Bradding – Wachovia: Okay and on the JV side, I don’t imagine there was much of a change but I just wanted to make sure it seems like you didn’t have much in impairment there, but from a Q3 kind of balance, off balance sheet was it much of a change versus Q3 from in Q4?

I’m not certain I understand but the balance sheet exposure now for JVs is down to about $17 million, if I recall. So there’s not any one large JV in there, it's a matter of smaller JV’s and to date we’ve – the one’s we still have going seem to be performing okay. Lee Bradding – Wachovia: Okay where I was getting at was on the balance sheet, the off balance sheet when you disclosed that, I mean last quarter you had about $560 million in real estate assets and mortgages associated with that about $400 million. I was just wondering if there was significant with that in Q4.

Well yes there have been a lot of the joint ventures that have been – I guess we’ve had past discussions with banks where we’ve either given the property back to the bank at the joint venture level and they were non-recourse loans, or we’ve been able to sell the project to another party and pay off the debt. So I don’t have those numbers to talk about now, but we will have significant reductions that we will disclose in our summarized and capitalized balance sheet data in our K. Lee Bradding – Wachovia: Thanks.

This is the conference operator we will only be taking two more questions. Your next question comes from the line of Dan Oppenheim. Daniel Oppenheim – Credit Suisse: Thanks very much. I was wondering if you can talk about the gross orders bottoming November, with the cancellations, or late stage cancellations that came through in December. Can you give us a sense of how cancellations went over the course of the quarter, by month?

I think, I mean if I remember correctly, they spiked substantially in December. Daniel Oppenheim – Credit Suisse: Okay that is true, that is true.

We had a – particularly in Texas we had a lot of closings scheduled for December and we had a lot of people that didn’t show up at the closing table for their houses and those houses turned into accidental specs. So it was the worst cancellation month we’ve ever seen in Texas. That being said, we don’t have that many cancellations now in January and we’re making pretty gross sales numbers and sticking so and the other thing I don’t think we talked about is we’ve sold quite a few specs in the last three weeks. Would you say, is it correct to say Larry, we sold about a third of our finished spec inventory the last few weeks?

Yes, I think that’s right and because of ’the late stage cans, we wound up with more finished specs so our mix of finished specs was more two-thirds finished and one-third under construction. We would like for that ratio to be flipped, so we made a concerted effort to sell those completed spec homes early in January. Daniel Oppenheim – Credit Suisse: Yes, and do you show a positive impact on cash flow for this quarter?

For the first quarter, correct. Daniel Oppenheim – Credit Suisse: Okay, great, and then wondering, you talked about redesigning some of the communities in the past few months of '08, how many of those, or when did those come on line and what have you seen in terms of sells performance with those redesigned communities?

Well, we actually started early in the last few months, we started actually in the second quarter redesigning a lot of communities. We opened, as we said, several communities with new products in Orlando, in Phoenix, now every one of our communities in Phoenix now has new product in it. Several of them are already open and some are opening in the next month or two. Everywhere we've put in this new lower priced product we've had good sales success. We're seeing the difference already in our sales number between the new product and the old product because the old product just doesn’t compete today with the foreclosures and re-sales because it's too expensive so, we need to get this new product on as quick as possible. We built several model complexes literally in one month from the day we broke ground to the day we completed the model and opened for business, we have been able to do it in a month. We've seen build times that I haven't seen in 25 years in the business, because sub contractors aren't very busy, they're kind of standing around, they're very accommodating, they're helping us get these houses built very, very quickly.

I'd add that other than in Florida, even though we have all these subdivisions open now, it really hasn't had time to fully impact our sales. We've seen it in Florida; we haven't seen it in the sales results so hopefully we'll see that this quarter.

Your last question comes from the line of [Timothy Jones] – [Wasserman & Associates]. [Timothy Jones] -– [Wasserman & Associates]: It's pretty impressive that you've cut your cycle time by 31 days, I love that figure. Could you tell me from what the absolute number that it went from and it is now?

Larry, do you have that?

It kind of varies by product type but you know I don’t have that off the top of my head, I'm sorry.

We could get back to you on that, though, Tim. [Timothy Jones] -– [Wasserman & Associates]: Okay, thank you and the other one, what's your feeling here on this [carry back] [NLL] being taken back by five years, do you know the last time it's [been up] by the Senate? Do you have any better feeling on that?

So far what we're hearing is, it's on track to happen, that doesn’t mean it's going to happen for sure but, so far, so good. There's still amendments to be offered and negotiations to take place between the senate and house but as of today it looks from what we know, it looks positive. [Timothy Jones -– Wasserman & Associates]: And you said something that, under the accounting rules, you can't actually put the deferred taxes that you wrote down, back on the balance sheet, can you? You said that you could utilize them but--

No, I think, well Larry, can we? I think we can.

Yes, actually we will do an estimate of what taxes – if the five year period back goes in place we'll estimate what losses will trigger for tax purposes for '09 and 2010, and we will reverse the reserve against the tax asset and a large portion of that reserve can be reversed, so it would make the deferred tax asset bounce go back up and our equity would go back up and we'd have this kind of tax gain in the quarter of implementation. Okay?

I think he was cut off.

Okay, well thank you very much, we appreciate your participation and your support of Meritage, and we'll look forward to talking to you again at the end of our next quarter. Good day.

This concludes today's conference call. You may now disconnect.