Good afternoon. My name is [Pei] and I'll be your conference operator today. At this time, I would like to welcome everyone to the M/I Homes second quarter Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. (Operator Instructions) Thank you. It is now my pleasure to turn the floor over to your host, Phil Creek. Sir, you may begin your conference.

Thank you very much, and thank you for joining us. On our call is Bob Schottenstein, our CEO and President; Tom Mason, our Executive Vice President; and Ann Marie Hunker, our Corporate Controller. First, to address regulation fair disclosure, we encourage you to ask any questions regarding issues that you consider material during this call because as you know, we are prohibited from discussing significant non-public items with you directly. As to forward-looking statements, this presentation includes forward-looking statements as characterized by the Private Securities Litigation Reform Act of 1995. Any statements that are not historical in nature are forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Please refer to our most recent 10-K, 10-Q and earnings press releases for other factors that could cause results to differ. Be advised that the company undertakes no obligation to update any forward-looking statements made during this call. The audio of which will be available on our website through July 2009. With that, I'll now turn the call over to Bob.

Thanks Phil, and good afternoon, everyone. As stated in today's release, market conditions remain difficult for the home building industry. Demand is weak, consumer confidence at or near a record low, and margins remain under considerable pressure. In many of our markets, conditions frankly have further deteriorated since the beginning of the year. Obviously no one knows when the current cycle will end or when things will begin to turn. We do believe however, that conditions will remain challenging for the balance of 2008, and in all likelihood through much, if not all, of 2009. And conditions may well deteriorate even further in some markets before we hit bottom. In the face of these extremely challenging, and for the most part unprecedented conditions, we have been engaged in a predominately defensive operating strategy for nearly two and a half years, focused on strengthening our balance sheet, reducing our debt levels, and rightsizing our operations. We continue to make meaningful and tangible progress on these various defensive minded initiatives, all of which will ensure that M/I Homes is well positioned to take advantage of the future opportunities that will occur once housing conditions began to improve. During the quarter, we generated $11 million in cash from operations and further reduced our homebuilding bank borrowings. Note at the beginning of 2008, we owed our banks over $115 million on our unsecured revolver. At the end of the second quarter, the balance had been reduced to $10 million and we fully expect that balance to be reduced to zero by year end. We also were successful during the quarter in reducing our inventory levels. Our total lots owned decreased by 36% in the second quarter. Recurring SG&A is down by nearly 20%, when compared to a year ago, and our headcount, which we…

Thanks, Bob. New contracts for the second quarter decreased 22% to $530 and our cancellation rate for the second quarter was 22% down from 23% last quarter and down from 28% in the second quarter of '07. Our traffic for the quarter decreased 29%. Our sales were down 22% in April, while traffic was down 24%. Sales were down 20% in May, while traffic was down 30%, and our sales were down 25% in June with traffic down 34%. Overall our gross new contracts were down 28% for the quarter. Our active communities decreased 14% from our prior year second quarter of 161 to 138 communities at quarters end. The breakdown by a region is 80 in the Midwest, 25 in Florida and 33 in the Mid-Atlantic. Our current estimate for year end '08 is to have about 135 active communities. Homes delivered in '08 second quarter were 466, declined 37% when compared to '07 738, and we delivered 58% of our backlog this quarter compared to 43% in '07. Revenue in the second quarter declined 38% when compared to '07, primarily due to a 37% decline in homes delivered and an average sale price decrease of 8% to $272,000. This decrease is partially offset by a $6.2 million increase in third-party land sales when compared to last year’s second quarter. We sold about 600 lots in the quarter, primarily in Florida. The company's results for the '08 second quarter included pretax charges of $39.9 million, impairments consisting of $17.8 million related to land that we intend to build homes on, and the $17.8 is broken down by $9.9 million in the Midwest, $1.5 in Florida and $6.4 million in the Mid-Atlantic. We also impaired $10.9 million related to land that we sold to third-parties, and the $10.6 is broken…

(Operator Instructions) Your first question comes from Ivy Zelman of Zelman & Associates. Ivy Zelman - Zelman & Associates: Good afternoon. I really appreciate all the details that was excellent. When you were talking about your unsold land at $396 million and then looking at the breakdown you said $229 million was finished unsold lots, I think 4,185 does I got it right. What are you expecting, I think you gave it as well, but I did not catch it, just quickly land spend to be maybe for this year and then '09 given you have all that finished inventory?

Yes. Ivy, you are right. At end of June, we had 4,185 finished lots. The land spend in the quarter was only $3 million and our current estimate for '08 is about $25 million. Ivy Zelman - Zelman & Associates: Assuming roughly the same or low on '09 or at this point, it is too hard to say?

Hi Ivy, how are you doing? Ivy Zelman - Zelman & Associates: Good, Bob. How are you doing?

I am doing, good. Too hard to say but very selective, very limited and only deals that make sense. Ivy Zelman - Zelman & Associates: Got it. Bob, you have been always very frank and straight forward about the challenging market environment and clearly the reason, it seems like another leg down in terms of trends with respect to absorptions. Can you tell strategically how you move forward from here in an environment, where its getting even tougher to sell homes because of whether it would be tighter mortgage credit or as the fact that unemployment rising are you going to be more aggressive on pricing if necessary or do you sit back and mothball what is M/I's strategy?

Well that is a great question. There was a magic answer. First of all to subdivision business every subdivision is different even within the same market. If it makes sense to mothball a project, we would. We do not have any at this point that we have. Where we have excess inventories we maybe more aggressive. We are trying to move through our land position. I think things are going to be very tough this year. I think things may even be tougher next year. I would like to believe and nobody knows but based on some of the things that you produced and what others have said that '10 maybe the year, where things begin to turn. We just want to make certain that when they do because I think prices still have a little bit of room to fall in most markets. That we are not sitting here with a lot of projects that are overpriced even though they maybe well located, if they are way overpriced. We want to make sure; we work through most of them now. We feel very good about most of our land position it is just that we do not feel good about it right now. So, we have got to figure out what the hell we are going to do to have the right subdivisions when the market turns and it is going to and I mean that to be perfectly blunt the goal is just to get through this because this time we will pass and you know while we are playing defense 90% of the time, we are not playing defense all the time. I think there is a lot of things in our company that are being strengthened now. It is tough to promote improvement when you reporting…

Yes. Ivy Zelman - Zelman & Associates: Shall I stump you.

I lost you for a minute. Ivy Zelman - Zelman & Associates: Okay.

Ivy that is a great question and the answer again is it depends on every subdivision. At onetime, we had almost 6000 finished lots we work that down. As Bob said, we are in the subdivision business, so we look at every sub division. In some subdivisions we could be selling things at a little bit of a loss and still be generating some cash but again it depends. We have been able to the last couple of quarters to bring our spec investment down some and one time that was a little over $100 million now it is down to $93 million. We are only spending $3 million on land in the quarter and then also not spending much on land development; it is all of those things. We look at every subdivision about what makes the most sense. Again we are always trying to generate cash every quarter. We want to make sure; we continue to improve our liquidity as best we can that is very important to us. Ivy Zelman - Zelman & Associates: All right. Well, I appreciate it. Thanks a lot. Good luck.

Thank you.

Okay.

Your next question comes from Alex Barron of Agency Trading Group.

Hello. How are you doing?

Hi, Alex.

I wanted to ask you this is more of a general impairment methodology question. Roughly at what point in the gross margins does impairment get triggered? Then after you impair it what is the gross margin reset back up to in a given community?

Alex, we look at every subdivision. In general when you get to that 10% gross profit level you tend to try to look at it very carefully. As far as when it gets reset to again it depends to some degree on what is your selling expense is and other things are. It is not like once you impair it you create some 15% to 20% margins. I do not want to mislead you there. Again, the simple answer is when you get down to that 10% range, you will start getting very close to an impairment.

Okay. I think I heard you say there was like 44% or 45% of your communities have been impaired so far?

Of the active communities at the end of the second quarter, yes, about 45%.

Right. So, do you have like a breakdown by region of what that percentage is by region?

Alex that is not anything we have disclosed. Obviously we have that. If you look at the majority of our impairment my region, the biggest part of our impairments has been Florida. We have had impaired a lot of communities in Florida. We have also impaired a lot of communities in the Mid-Atlantic more in DC than it has been the Carolina's. Then the smallest amount impairments since we started by region, the Midwest. We did impaired I think about $10 million of the impairment from the second quarter were in the Midwest. So, again, we have impaired in almost half of our communities companywide.

What is the difference about the Midwest that maybe does not trigger many impairments or is it just a fact that you never hence they were paid for the land to begin with?

I think there is a couple of thing Alex. One thing is that our biggest part of the Midwest is Columbus. In the Midwest in general they did not have the huge price run up that a lot of other markets have. Also there is not the large builder competition in the Midwest therefore you do not have as much competition doing large impairments either with drop in prices. So, I think it is a couple of those different things Alex.

Got it. Thank you so much. Again, your disclosure is very helpful.

Thank you, Alex. Next question?

Your next question comes from David Frank of Wanger Asset Management.

Hello gentlemen.

Hi David.

First of on covenants, do I understand correctly that the primary covenant to look is the net worth covenant where you see, you have a $120 million of cushion?

David, when you look at the credit facility that is the covenant we close with the $120 million of net worth. When you get over to the dividend issue that is from the $200 million of public senior notes.

Okay. Basically I am trying to understand this, if you do not go through that $120 million net wroth cushion then your borrowing base of approximately $130, $140 million should remain available to you?

The $250 million unsecured bank line matures in October of 2010 and as long as minimum net worth is not trapped and as long as depending on the asset you have in place at the time the borrowing base is the calculation of that. Yes, that line would be available to us.

Is there are certain advanced rates on different kinds of assets that play a roll in the borrowing base?

Yes, there is.

Do you disclose that?

No, we do not. Bank credit agreements are filed as part of the public documents. I mean, we have figures, the backlogs at 90% or 95% that is the highest.

Right.

You go down to the lowest which is raw land, which is the lowest advanced rate, but if you want that detail we can give that to you offline.

Okay. Then in terms of cash flows I think I heard you said you expect $36 million rebates from the government in Q1 '09?

We expect to get about $36 million tax refund by the first part of next year. That is right.

Okay. That is just based on what is the recovering '06 taxes paid?

That is right.

Okay. Then on last question in the financing area you noted that about 18% of your closings in Q2 utilized down-payment assistance I understand that FHA has seized allowing the down-payment assistance program to operate does that mean that 18% goes away?

Well, down-payment assistance is going to go away. I do not know exactly when that will take effect in sometime in the next couple of months…

October 1.

October 1. Thank you, Tom. Well that have an impact in the short-term. I think it will. I do not think it will be significant that the risk of sounding I do not know maybe idealistic. I think it is a good thing that is its going away. In other words in recent Housing Stimulus Act that brought back sub prime financing. I think people would be up in arms and I think that down-payment assistance is largely been something to help or maybe accelerated as getting into this. People can not save a few bucks I am not sure they ought to be buying a house. So, there are some ways to mitigate against it. Basically, I think it is probably a small short-term negative. We are not terribly concerned about it. It is never going to… but the issue is not how many people have used it, it is how many people have used it by necessity.

Right.

Because some people are led to use it even though they do not have to. So, I guess the short answer to your question is probably a negative but not a very significant one and I think in the long run its healthy for the economy.

That is helpful. Thank you for that.

Okay.

Have a follow-up question from Alex Barron of Agency Trading Group.

Yes. Thank you. I am sure you probably mentioned that Phil the cash flow from operations for the quarter I missed that?

It is about 10 million.

Positive.

Positive.

Okay. I thought I also heard you say something about you were restrictive from paying dividends, is that on the common stock or is that on the preferred?

It is on both. Again, Alex that is a restricted basket covenant on our $200 million of public senior note. That basket is now negative by about $13 million and that prevents cash dividend payments being made.

So, starting next quarter they will stop is that what you are saying?

That is right.

Okay. All right. Just wanted to confirm. Thank you.

Thanks.

Your next question comes from Eric Landry of Morningstar.

Hi, thanks. Phil did you mentioned land gross profit if you did I missed it.

No. We did not discuss that. What we did discuss within the quarter that we sold about 600 lots primarily in Florida and we also disclosed what the impairment was on those lot, but nothing from a gross profit standpoint.

Okay. Is there a reason, because you use to break it out?

I think that was a long time ago before all these impairments made it up the information.

Okay. All right, thanks. That is all I have.

Thanks, Eric.

No, problem.

Your next question comes from Lee Brady of Wachovia.

It's Lee Brading.

Hi, Lee. How you are doing?

All right. I missed I think some of the information, I did miss on the sales, you gave some monthly information, I basically got May, June, but I missed the April trend from a traffic and sales standpoint?

No problem. Our traffic for the quarter decreased 29%. Our sales were down 22% in April, while traffic was down 24%. Then sales were down 20% in May with traffic down 30% and our sales were down 25% in June, Lee with traffic down 34%.

Okay, great. So, it seems pretty consistent, and you see a little acceleration on the traffic side in June but fairly consistent on the sales side throughout the quarter looks like, okay. On the land side, you did a good job obviously of only spending about $3 million from purchasing the land and looking at $25 million this year. Just curious, where is that $25, is that aspect that you are having to takedown somewhat you think or is it a matter that you see areas are running out of land that you need to purchase on?

Lee, if you look at the $25, we are currently projecting there is probably about $10 million over or so again, these are estimates at this time. In Chicago, I think, we have opened our first community and we are being very careful there. We are looking at a few opportunities there. The next biggest purchase will probably be in the Carolina's. So, those will be between Chicago, Raleigh and Charlotte that will be the biggest part of the $25.

Okay that is helpful. At what point do you start running out of land in certain pockets and in Florida or Midwest and other areas somewhere or not that in Chicago that you need to purchase land as you entered that market, are the areas that you are going to need to say in early '09.

If you look at the 11,300 we own at June 30th, Bob talked about the 6,000 in the Midwest so other then Chicago we have a pretty good land supply in the Midwest. Florida, we have taken it down a lot but we still have about 3500 lots and then in the Mid-Atlantic we are down to 1800 lots. So, again we are buying a few things in the Carolina's and as DC gets on the upswing there will be more purchases there so that is the breakdown, Lee.

Okay. Then last one here, just on the specs I think you said you had about 4 per community? What would be a comfortable level for you or a target that you would more of an ideal selling you would target.

I think that is the number. We were like three to five range.

Okay.

We look at by subdivision units we also look at dollars we have invested and then we also look at the specs that our complete. We obviously do not have to have too many specs complete. We do have that investment now under a $100 million and we are continuing to work that down to generate some cash.

Great, okay. Thanks very much.

Thank you.

Thanks, Lee.

(Operator Instructions) There appears to be no more questions at this time. I would now like to turn the floor back over to your host for any closing comments.

Thank you very much for joining us. We look forward to talking to you next quarter.

Thanks.

Thank you. This concludes today's M/I Homes conference call. You may now disconnect.