Meritage Homes Corp. (NYSE:MTH) on Monday after market close reported a net loss for the second quarter 2009 of $74 million (-$2.37 per share), including $67 million in impairment charges, much of that related to the termination of an option contract on 1,200 lots outside Phoenix.

The loss compared to a net loss of $23 million (-$0.79 per share) in the second quarter 2008. Analysts were expecting a loss of $0.72 per share for the current quarter. Minus the impairments, the pre-tax loss would have been$5 million.

Home closing revenue declined 41% year over year on a drop of 36% in units to 890 and an 8% lower average closing price of $248,000. Net home sales in the quarter were 22% lower than last year at 1,147 units, partially due to a 16% decline in active communities since the second quarter of 2008. Total value of new orders declined 31.9% to $263.5 million compared to last year's second quarter, due to fewer homes sold and a decrease in the average sales price to $230,000.

Average sales per community remained nearly flat year over year at 6.6 in2009 compared to 6.9 in 2008, while increasing from 5.7 in the first quarter of 2009. Total sales showed a sequential improvement from the first quarter due to monthly increases in sales from February through May, the company said. The cancellation rate was 23%, down from 26% rate in the previous quarter and the lowest sales cancellation in more than three years.Approximately 68% of second quarter 2009 sales were to entry level and first time move-up buyers, compared to approximately 61% in the prior year.

Backlog at the end of the quarter was 1,539 units, down 41% from last year's second quarter, and backlog value was down 48% to $382 million.

Total gross margin was 12.3% before impairments, up from 12.0% in the prior quarter but down from 13.8% in the second quarter of 2008. Including impairments, gross margin was -17.7%, compared to 7.5% and 4.4% in the prior quarter and prior year, respectively.

Total general and administrative expenses were $14 million for the second quarter of 2009. Excluding the benefit of a one-time legal settlement of $10 million that reduced G&A expense in the second quarter of 2008, second quarter G&A expenses this year were down 33% from last year.

Meritage had 491 unsold homes in inventory at the end the quarter, an average of 2.8 specs per community, down from 725, 3.4 per community, in the same quarter last year. The company said it increased its level of spec homes started in 2009 to capture buyers wanting to move into a home quickly.Approximately half of Meritage's sales in the quarter were specs.

As of June 30, 2009, total lot supply was 12,986, including 8,374 owned lots, about 2.7 years total supply based on trailing twelve months closings.That was down from 21,902, or 3.1 years supply on June 30, 2008, with 9,532 of those lots owned. The reduction from the first quarter's total lot count of 15,069 mainly reflects the abandonment of optioned lots in north Phoenix and Las Vegas, as well as lots utilized for new home starts.

During the current quarter, Meritage retired $18 million principal amount of its 7.731% senior subordinated notes due 2017, issuing approximately 533,000 shares of common stock in exchange for those notes. This resulted in a $7 million gain on the early extinguishment of debt, included as a component of other income.

Meritage disclosed that it intends to terminate its $150 million revolving credit facility during the third quarter, which will free it from covenants and related restrictions. The company said it was currently in compliance with all covenants.

The company generated $40 million in cash and ended the quarter with $385.3 million in cash and equivalents, up from $205.9 million at the same time last year. Its net debt-to-capital ratio fell to 33% during the quarter.

In a statement accompanying the earnings release, Meritage CEO and chairman Steven J. Hilton pointed to several positives in the numbers, including the company's improved cash position and debt-to-capital ratio. "We increased sales from our first to second quarter this year, aided by the lowest cancellation rate we've experienced since the third quarter of 2005," he added. "We are also seeing positive results from our product repositioning ... we have been replacing older communities as they sell out, with new lower-priced lots. As a result, we increased our active communities to 178 during the second quarter. The newer communities represented only about 7% of our second quarter home closing revenue, as many are still in the start-up phases, and we expect them to have a more meaningful impact on our results over time."

He also said further impairments should be minimal. "Because the total value of our remaining option deposits and JV investments is only $30 million, we believe our risk of significant additional impairments is limited. Even if the market were to deteriorate further, we would expect any impairments of our owned assets to be small and in line with any decline in the market."

Finally, Hilton said, "We have seen an increase in land acquisition activity in our markets in just the last few months. During the first half of 2009, we entered into purchase and option contracts for approximately 550 new lots priced at deeply discounted values. We continue to actively monitor the pipeline of available lots and are evaluating lot acquisition opportunities as they arise. We expect to reinvest in other new high-quality, low-cost lots over the next few quarters, where we believe we can achieve a more normal profit margin."

Shares of Meritage closed up 3% at $22.92 in heavy trading Monday but were not active in the after-hours market.