Meritage Homes Corp. (NYSE:MTH) after market close Wednesday reported a net loss of $79 million ($-2.58 per share) for the fourth quarter of 2008, largely due to pre-tax real estate-related and joint venture impairments of $109 million, plus $1 million impairment of intangible assets, partially offset by a $30 million net tax benefit. The loss was narrowed compared to the net loss of $129 million reported for the fourth quarter of 2007, which included $130 million of pre-tax real estate-related and joint venture charges, plus an additional $58 million pre-tax charge to impair goodwill and intangible assets. Wall Street was expecting a loss of $0.96 per share.

For the year, the Meritage net loss was $292 million, including primarily non-cash real estate-related and joint venture charges of $263 million (pre-tax), and $16 million of tax expense, which is comprised of a $119 million deferred tax valuation expense, partially offset by $103 million of tax benefits recorded in 2008. By comparison, the full year net loss of $289 million in 2007 included $398 million of pre-tax real estate-related and joint venture charges, and $130 million of pre-tax charges to impair goodwill.

Operating results were depressed. Homes closed for the quarter were off 30% to 1,488 and down 37% in revenue to $387 million. The average sales price of homes closed fell 9.7% to $259,800 from $287,800 in the fourth quarter of 2007. Sales orders were down 52% to 500 during the quarter, and sales order value fell 59% to $112 million. The cancellation rate was not reported.

Backlog at quarter's end on Dec. 31 was 1,281 units with a value of $338 million, down 44% and 50% respectively from the same time in 2007. The company reduced active communities by 14% to 178 during the quarter. The company said it cut its spec inventory to 768 as of Dec. 31, 2008, from 809 the previous quarter and 31% lower than Dec. 31, 2007.

"Economic conditions in the fourth quarter of 2008 were the worst we've experienced to date," said Steven J. Hilton, Meritage chairman and CEO. "The reverberations from the financial crisis that began in September 2008 impacted all of our markets, and we experienced a substantial decrease in traffic and sales during the fourth quarter, which is also traditionally a slower selling time due to seasonality." He added, however, that "one positive sign was that gross sales hit their quarterly low point in November and have inched up a bit since then and into January."

Impairments on land sold or held for sale accounted for $23 million of the total fourth quarter 2008 real estate-related charges recognized during the quarter. Four property sales generated $12 million of those impairments, but together with prior impairments accounted for $47 million of the tax losses realized during the quarter. Additional impairments in the quarter included $49 million of option terminations, $32 million related to continuing projects and $5 million related to joint venture impairments. Geographically, $44 million of the total was attributable to California, mainly from two large option terminations and one bulk land sale. In addition, option terminations and lot sales in Texas made up most of the $36 million of that region's total real estate-related charges in the fourth quarter of 2008.

"Due to further weakening in our markets, we made strategic decisions to cancel options and sell lots in certain marginal projects," Hilton explained. "Those actions accounted for approximately $67 million of the total impairments in the fourth quarter, which allowed us to realize approximately $106 million of corresponding tax losses. As a result, our total expected 2009 tax refunds increased from our prior quarter estimate, and we now expect to receive a $112 million early refund in 2009."

Meritage controlled 15,802 lots at Dec. 31, 2008, down 71% from peak in 2006 and down from 20,738 at Sept. 30, 2008. The company owns 8,750 lots representing a 1.6-year supply based on trailing 12 months' closings.

Meritage said it was in compliance with all covenants under its amended credit facility as of Dec. 31, 2008. Its net debt-to-capital ratio was 45% at Dec. 31, 2008, down from 49% at Dec. 31, 2007.

William Gloede is a senior editor with BIG BUILDER magazine.