Meritage Homes Corp. (NYSE:MTH) on Monday night reported a $129-million ($4.91 per share) net loss for the fourth quarter 2007, including $202 million in write downs and impairments for the quarter. But the company said it reduced debt, spec inventory and lot count and maintained a positive cash flow. The stock was up nearly 9% to $12.72 in early trading Tuesday on the New York Stock Exchange.

The charges included $48 million for terminated projects, $36 million for inventory write-downs on continuing projects, $12 million for land held for sale, $34 million for joint venture impairments, a $58 million goodwill charge, an $11 million non-cash pre-tax charge for the acceleration of expenses related to the cancellation of employee stock options in connection with a tender offer, and a $3 million impairment of golf course assets held for sale.

Revenues for the quarter were down 24.6%, with home closing revenue falling 25% to $615.6 million on an 18% drop in unit volume, which fell to 2,139 homes. Orders were off 13% to 1,048 for the quarter; sales-order value fell 23% to $271.6 million. The cancellation rate for the quarter was 47%.

For the full year, Meritage lost $289 million ($11.01 per share), primarily due to land and joint venture writedowns of $398 million, the $3-million fourth-quarter impairment of golf course assets, goodwill-related write-offs of $130 million and the fourth-quarter $11 million stock option charge.

Home-closing revenue for 2007 was $2.33 billion, down 32% from 2006, with closings down 27% to 7,687 and average sales prices down 8%. The company said biggest drop in closings was in Nevada, down 58%, followed by Arizona, down 49%. Net orders for the full year 2007 fell 19% to 6,290. Gross margins on home building fell to 12/1% in 2007 from 19.8% in 2006.

Homes in backlog fell 38% to 2,288; backlog value fell 44% to $669.9 million. Backlog value was down 44% from 2006 at December 31, 2007, with a 10% decline in average sale price on 38% fewer homes in backlog,. Lower homes in backlog in Arizona (-57%), Texas (-33%) and Florida (-40%) accounted for most of the absolute decline in backlog.

"This has been the most difficult year we¹ve experienced in homebuilding in more than 25 years, and we currently expect 2008 will also be challenging," said Steven J. Hilton, Meritage CEO. "Despite the difficult homebuilding Environment...we reduced our spec inventory and lots under control, continued to shrink overhead costs and generated significant positive cash flow in the second half of 2007."

The company said it reduced debt by $153 million during the fourth quarter and had a net debt-to-capital ration of 49% at year end 2007, up from 40% at the end of 2006. It also said it reduced spec inventory units by 10% and total lot supply by 16% to 26,115 lots, down 52% from peak. It also said it reduced general and administrative costs by $17 million during the quarter, equivalent to 3.1% of revenue.

Meritage also said it was in compliance with all its debt covenants at year-end and had available borrowing capacity of $381 million under its $800-million revolver on December 31, 2007. It put its interest coverage ratio at 2.3X. The company said it already has realized $24 million in tex refunds in 2008 and expects $52 million more in the first quarter as 2007 losses are carried back to recover 2005 taxes paid. Hilton said the company expects to "trigger the realization, for tax purposes, of our $141 million deferred tax asset in 2008 and beyond, and we currently beleive this asset is recoverable."

Meritage reduced total headcount by almost 40% since peak in mid-2006. It also said it cut commissions and other selling costs by14% from 2006 levels.

David Goldberg, home building analyst at UBS Investment Research, wrote in a research note that the results were "impressive..given weak backdrop." He continued, "We believe MTH's operating strategy limits its exposure to the slowdown, as options require less invested capital. Reflecting this, the co's lot position -51% from the peak and represents just 5 yrs of supply based on our '08 closing est. Further, 60% of lots are optioned, creating more flexibility to respond to changes in demand."

Noting the aggressive price discounting strategy Meritage employed in 2007, Goldberg wrote, "We would prefer a greater focus on profitability over sales, especially in light of its concentration among move-up buyers, where we believe price constraints are less severe."