Good afternoon. My name is Melissa, and I will be yourconference operator today. At this time I would like to welcome everyone to theM/I homes Third Quarter Earnings Conference Call. All lines have been placed on mute to prevent backgroundnoise. After the speaker's remarks there will be a question-and-answer period(Operator Instructions). It is now my pleasure to turn over to your host, Phil Creek.Sir, you may begin your conference.

Thank you very much. Joining me on the call today fromColumbus Ohio is Bob Schottenstein, our CEO and President, Paul Rosen, thePresident of our Mortgage Company and Ann Marie Hunker, our CorporateController. First to address regulation fair disclosure, we encourageyou to ask any questions regarding issues that you consider material duringthis call because as you know we are prohibited from discussing significantnonpublic items with you directly. And as to forward-looking statements this presentationincludes forward-looking statements is characterized by the Private SecurityLitigation Reform Act of 1995. Any statements that are not historical in nature areforward-looking statements that involve risk and uncertainties that could causeactual results to differ materially from those in the forward-lookingstatements. Please refer to our most recent 10-K, 10-Q and earningspress releases for other factors that could cause results to differ. Be advisedthat the company undertakes no obligation to update forward-looking statementsmade during this call. The audio of which will available on the web sitethrough October 2008. I will now turn the call over to Bob.

Thank you Phil, good afternoon. We continue to facechallenging conditions in most of our markets due to a number of factorsincluding weak demand, higher levels of both used and new home inventory, lackof consumer confidence, negative press, a more difficult mortgage market causedby a tightening of lending standards and a proliferation of promotions anddiscounting by home builders. For the quarter, we reported a $1.73 per share loss. Thisloss included $1.49 per share of charges primarily related to inventorywrite-downs, which Phil will detail later in the call. Also included in the quarterly loss preferred sharedividends equal the $.17 per share and a loss from operations equal the $0.07 ashare. While we are disappointed with our results, they are a clear reflectionof the difficulties surrounding the homebuilding industry today. Notwithstanding the challenges, which we face, we continueto employ a strategy, which we believe is the right strategy for this time andone that will ready M/I homes for the eventual improvement in our industry. Our predominantly defensive operating strategy is aimed atreducing overhead and other costs, significantly curtailing land purchases andland investments and strengthening our balance sheet. For the first nine months of 2007, we earned $13 millionpretax from operations. Moreover, we have seen our bank debt reduced from $410million at the beginning of the year to $255 million at the end of the thirdquarter. And during that same time frame, we saw our debt-to-CAP rate fall from$0.46 to $0.40. As mentioned in today's release, we expect to deliver 3,000homes this year and to further reduce our debt levels to below $200 million byyear's end. Our strategy is primarily defensive. We continue to focus on those offensive, operatinginitiatives, which we believe are necessary for a long-term success. Theseinclude the continued improvement of our customer experience, betterutilization of the internet as a sales and…

Thanks, Bob. New contracts of 561 for 07 third quarter were2% below last year's 571. In comparison, new contracts declined by 10%year-over-year in the second quarter and 17% in the first quarter. For the quarter, traffic increased 6% and the cancellationrate was 38%. As for the monthly details our sales were up 4% in July, whiletraffic was up 21%. Sales were down 35% in August while traffic was flat, andour sales were up 30% in September and traffic was down 4%. In September, we offered a, be confident mortgage special onour specks which featured a below market rate 30-year fixed mortgage. Overall,gross new contracts were down 7% for the quarter. Our active community decreased 6% from our peak of 170 ayear ago to 159 today. To breakdown by region is 76 in the Midwest, 46 inFlorida, 37 in the Mid-Atlantic. We continue to reduce our Midwest communities and slightlyincrease our Carolina communities. Homes delivered in '07 third quarter were787, declining 15% when compared to last year's 927. We delivered 46% of our backlog this quarter compared to 32%last year. Revenue in the third quarter year-to-date declined 20% when comparedto '06. The decrease in revenue for the quarter was primarily due to a 15%decline in homes delivered and as average sale price decreased of 6% to$295,000. In the third quarter we recognized pretax impairment of$32.3 million, which includes our JV investments with respect to approximately3,400 lots in 22 communities. As was the case in the prior quarter, theseimpairments primarily occurred in our Florida and mid-Atlantic regions with 70%from communities in our Florida market. Over the last five quarters we have incurred pretax land andinvestment-related impairment charges of $171 million, $29 million in theMidwest, $67 million in Florida and $75 million in the mid-Atlantic. Thiswrite-off impacted 74 communities or 47% of our…

Thank you, Phil. Mortgage and title operations pretax incomedecreased from $2.4 million to 2006 third quarter and $2 million in the sameperiod of 2007. The change was partly the result of a 12% decrease in loansoriginated from $625 in 2006 to $549 in 2007. Additionally, financing beingoffered to M/I homes customers and competitive market conditions contributed tolower margins. Loan-to-value on our first mortgages for the third quarterwas 85% in 2007 compared to 80% in 2006's third quarter due to fewer secondmortgages. For the quarter, 90% of our loans were conventional with 10% beingFHA/VA. This compares to 89% and 11% respectively for 2006's the same period.The FHA maximum mortgage limits and the markets that we operate and range from$200,000 in Indiana and North Carolina to $363,000 in Virginia and Maryland. Approximately 7% of our third quarter closings wereadjustable rate mortgages, this compares to 29% in the third quarter of 2006,19% of our first, 12% of our second, and 7% third quarter 2007 applicationswere adjustable rate mortgages. Mortgages closed by M/I financial during thethird quarter, 11% were interest only loans. This compares to 17% in2007-second quarter. The percentage of customers that received down paymentassistance in the third quarter increased to 7% versus 6% for the same periodin 2006. Overall, our average total mortgage amount was $245,000 in2007's third quarter. The average borrower credit score on mortgages originatedby M/I Financial was 726 in the third quarter of 2007 compared to 714 in 2007'ssecond quarter. These scores compared to 732 in 2006's third quarter to 719 in2006's second quarter. We sell our mortgages along with their servicing rights. Inconjunction with the sales, we also enter into agreements that’s guaranteecertain purchases if we will repurchase a loan if certain conditions occur.Primarily, if the mortgagor does not meet those conditions of the loan withinthe first six…

Thank, Paul. As far as the balance sheet, all amounts andpercentages as I discussed include the impact of the charges that we havetalked about. Home building inventory at 9/30/07 decreased $287 million or 21%below last year. Our total unsold land investment in 9/30/07 is $614 millioncompared to $829 million at 9/30/06. Raw land and land under development values decreased 32% and59% from a year ago and finished unsold lots increased 2%. In 9/30/07, we had$169 million of raw land, $98 million of land under development and $347million of finished unsold lots. The market break down of our $614 million ofunsold land is $211 million in the Midwest, $236 million in Florida, and $167million in the mid-Atlantic region. In the third quarter, we purchased $6 million of land, ourcurrent estimate for ‘07 land acquisition is $26 million compared to $164million last year. In the majority of our ‘07 land purchases are in ourCarolina market. In 9/30/07, we controlled 18,989 lots. We owned 16,767 andcontrolled an additional 2,222. This compares to prior year total controlled of22,465 where we owned 18,919 and controlled an additional 3,546. Our peak ownedlots were 21,318 at March 31, 06. Our current level represents a 21% decrease.The 9/30/07 mix of lots owned are 39% Midwest, 46% Florida, and 15%mid-Atlantic. All numbers include our prorated share of joint ventures andexclude lots under contract to sell to third parties. We have approximately $9million at risk in deposits, letters of credit and pre-acquisition costs at9/30/07, which covers our lots under control and we continue to reduce our landposition. In 9/30/07 we had $43 million invested in joint ventureswith approximately $27 million of this being in Florida. These JVs are for landacquisition and develop purposes and all with home building partners. Three of these ventures have third party financing and areconservatively leveraged…

(Operator Instructions) Your first question is coming fromIvy Zelman with Zelman and Associates. Please go ahead.

Hey, good afternoon guys.

Hey Ivy.

Nice to be back on your conference call. I wanted tounderstand the outlook a little bit if you could help us, the cash flow for thequarter generating $11 million in cash was below our expectations but I'mrelatively bullish on the opportunity to generate cash flow in the fourthquarter and one of the things that would help me gain confidence if you couldwalk us through. I think Phil, you tried to, sort of how much money isalready put in the ground, that's already been developed and even homes thathave been partially built and those homes that have already been completed, butobviously reduce the need for future cash going in the ground. And if you can kind of give us some idea of what yourportfolio looks like, that would significantly change the delta in cash goingin the development that had been a drain this year and why it wouldsignificantly hopefully go down in 08 allowing you to generate a lot more cash.

Of course we are not getting into any type of cashprojections for 08 at this stage. As far as what's happening to us in 07, mostof our…?

I realize you can't get into projections but am I right inmy thought process if I understand that a lot of the money has already gone inthe ground and you don't have a lot more to continue to expend on new ground?

Yes, exactly, we talked about how little land we are buyingthis year versus last year. We are also being very careful in bringing anythingout of raw into development. What's happened to us a little bit is we have beenspending some money this year moving land from land under development tofinished lots, Ivy, also, in the fourth quarter we should be closing morehomes, also the spec homes have been progressing through the pipeline. We areclosing more and more specs, which shows my percentage is also. So we did not generate a whole lot of cash in the thirdquarter even though, we did not buy that much land. But that was really more inthe backlog being built out further, also moving specs through the process andfinishing a few lots. But again, we think we will be generating more cash becausewe talked about, we are borrowing like $255 from the banks at the end of thethird quarter and we are expecting that to be below $200 by the end of theyear. But it’s really -- more of our closings.

Now looking at -- Hey Phil, just to understand thatobviously EBIT it is not a good understanding of what your cash flow is on aper unit basis. If you could explain what you are getting, assuming you are notmaking any money on the house, should we be using something in the magnitude of20% of revenues for the cash recovery per unit, assuming that you are notmaking money on the house and per spec units that you have already completed,you obviously will get more back because you have already incurred the cost onthe stick and bricks and the other expenses related to it.

We had, it kind of comes out to what the cost of the lot is.So you could probably, look at it at about 20%, Ivy. We talked about wanting todeliver, approximately 3,000 homes. We hope that it is actually a little morethan that, but the best way to look at it is, really, the lot that are comingout of the system through closing. That's where the majority of the cash flowis coming from. We figure everything else will pretty much be a push betweenbuilding out the inventory, developing lots and everything else.

Right. Good luck. Thank you.

Thanks. Ivy. Any other questions?

Thank you. Your next question is coming from Alex Barronwith Agency Trading Group. Please go ahead.

Hi, Bob, hi, Phil.

How are you, Alex?

Great, thanks. I wanted to ask you guys, I guess your salespace like everybody else's, has kind of dropped over time and I guess inresponse you guys have done all sorts of incentives. Can you help me just kindof understand, at what triggers I guess the next level of incentive at whatminimum sales pace do you kind of say that's too low, we have to, we have to dosomething here.

Well, we are doing something now, and Phil touched on itbriefly, Alex. What we are doing and what we have been doing is a combinationof things. First of all, we are constantly reviewing every one of ourcommunities in hopes of trying to get pricing where we think the market is.It’s very difficult under these conditions because there is just so muchvolatility and so many targets that are moving at the same time. But in terms of what we are advertising above and beyond allthat, we have been primarily leading with what we believe is very favorable30-year fixed rate financing on what we call express delivery or spec homes. Weare marketing them with a 4 to 7/8%, 30-year fixed rate and we have got otherbelow market rates that we utilize on new builds. That's primarily what we doing and we are doing it rightnow. We are going to continue to do it as long as it is working and it’sworking, okay. We think things would be worse if we didn't do it. So that's whywe are continuing to do it.

Got it. But I guess if you had a minimum number of homesthat you are trying to sell per community, what is that, at least two or threeor ..?

Well, I think, when you look at our results in the thirdquarter, we closed almost 800 homes and lost a couple of million dollars fromoperation so obviously, that's not getting a fermented break even fromoperations. In normal situations, we would like to have at least two permonth, per community at a minimum of 20% gross margin, but right now undertoday's environment we are trying to balance off what it takes to get that andalso, as Ivy brought up, we are focused very much on cash flow and the balancesheet. So we are in the subdivision business, Alex. We look at itevery Tuesday. We would sure like to have at least one per month per community.Two would be better, but you have to balance off what's in the marketplace andwhat's going on.

And about that incentive, I was going to ask you, that30-year incentive, how much is that costing you, I guess how should I thinkabout it as a percent of the ASP and where does it flow through in the incomestatement?

The promotional we have been running, again what, forexpress delivery homes and when we price our houses, we build in a certainamount for financing. So the divisions bear some of that cost through theirmargins. Also, since most of those transactions are going through themortgage company, our mortgage company also shares in that cost. So itprimarily goes through the cost of sales line and the mortgage company line butalso, Alex, we are doing some marketing and advertising as far as we are doingsome radio, some newspaper and those types of things. So that's also increasing our SG&A. So it kind of goesthrough everywhere a little bit.

All right. Got it. Thanks. I am going to get back in thequeue.

Thanks.

Thank you. Your next question is coming from Joel Locker(ph) with SBN Security. Please go ahead.

Hi guys, how are you doing?. I just have a question, just afollow up on Ivy's question on the inventory. If you have $347 million infinished and if you take a ball park figure of 25% of revenues is actually thelot cost, you come up to $75,000 a lot which leads you to about 4,600 finishedlots. Is that a good way to look at it? Which would give you sixquarters worth of finished lots?

If you look right now, Joel, in our company, our finishedlots average about 65,000. Yes, you are in the ballpark.

Right, so I mean, that's seven, seven quarters or so offinished lots you technically wouldn't have to put any more money in the rawland or the other land under development. So the cash flow under that thesis would be a lot strongergoing forward in 08 even if you are selling houses at a break even or at aloss.

I understand what you are saying, I mean and obviously, alsowhen you look at the finished lots, we are hoping not only to work through thatthrough the home building operations, but we are also working very hard to sellsome of those to outsiders.

Right.

But on the other side of that, again, not getting into 07 or08 specifically, I mean, we will continue to buy some raw land, we willcontinue to buy some finished lots in some markets like the Carolinas, where wedon't have a whole lot of land. We also have cash dividends to pay.

Right.

There will be some raw land being developed but you cannotlook at it just as simplistically as finished lots, but that is a big piece ofit.

And just on your G&A,, I guess SG&A overall is kind ofrunning around 12% to 12.5%, say like in ‘02, 03 and now it is up to 18.6% forthe third quarter. I mean, when do you think that will start trending back downjust to maybe mid-teens or something like or?

In some respect the percentages are deceptive because ourrevenues have dropped so much. In an absolute basis our SG&A has actuallycome down and continues to come down. One of the things that I think also skewsthe numbers, Joel, for us, is the fact that before the cycle turned; we wereinternally developing between 80% and 90% of our own land. So we have a lot of owned land and what I will call theoverhead costs associated with land which are unavoidable in terms of realestate taxes and HOA fees, ongoing lot and site maintenance, all of these runthrough the SG&A line, and compared to those builders who don't have nearlyas much as a percentage of their operation invested in land. It slightly skewsour percentages. I don't know if Phil want to add anything.

Yes, when you look at the number, I think I'm with Ann Mariein saying about 20% of our SG&A is really due to our land cost, Joel.

Right.

Again, which is real estate taxes, HOA fees and those typesof things. We are obviously trying to work through our land inventory by eitherselling and building it or whatever, also trying to sell some of the lots. Also, in certain environments, we are protesting, trying toget the basis of some of that property reduced.

Right.

Another thing, we have been pretty successful in reducingour raw land, successful in reducing our land under development, but as you getto finished lots that's a higher tax basis also.

You need into that to build the houses on, to get it throughthe pipeline.

Right. Do you think it will …?

It’s just hard to predict, because one of the big pieces asBob said is the revenue side and when you look at our backlog, our backlog isdown quite a bit from the prior year. We have been holding specs down fairlywell our specs have actually have come down a little bit the last two quarters. We are working hard on reducing the dollars. It is hard tosay when the percentage is going to come down much because the revenue site isso unpredictable.

So, unless the revenue picks up it’s pretty hard to rightsize your SG&A, I mean, just overall, even if you go into 08 even if youhave the lower head count coming through and once all that.

Well, I don't know if I would go quite that far becausecandidly, with what we are still seeing in the market, I think, we have moreoverhead reduction that will be coming. And, at some point you can only cut somuch, but I think we do have more overhead reduction coming in the fourthquarter and probably in the first quarter of next year.

Right. And just one last question on the impairmentreversals, how many impairment reversals, what was the dollar amount in thethird quarter that came through the income statement from prior quarters?

About $5 million in the third quarter and $14 millionyear-to-date.

$5 million in the third quarter, all right, thanks a lot.I'll jump back.

Thanks Joel.

Thank you. Your next question is coming from Scott Mack withAAD Capital. Please go ahead.

Good afternoon, everybody.

Good evening, Scott.

I was wondering if you could, you mentioned this in the preparedremarks, some of the strategic priorities, just in terms of taking a look atthe home building process and presumably with an eye of taking cost out of thatprocess. If you could talk a little bit about some of the things thatyou are doing and maybe some of the cost savings per home that you are able togenerate?

Well, it falls into a number of different buckets. One ofthem is working hand in hand in a collaborative way with some of our nationalaccount partners to reduce cost and to price protect. The other one is working with the individual sub-contractorsand the material suppliers that we don't have national relationships with butit is done locally market by market. And in year-over-year, we probably have seen on averagesomewhere between 5% and 7% reduction in sticks and bricks, as a result ofthose initiatives, but those initiatives continue. We also continue to trywhere we have the leverage to do so to renegotiate that which we are paying onlot take down agreements where we believe it is in our best interest tocontinue to take the lots. The other thing is a reduction in building days. We havematerially reduced the number of days within which to build new models and alsospecs by almost 50%. A year ago, it was taking us on average in most of ourmarkets over 120 to 150 days to build a new model or spec. Today, our goal is to complete the construction within 60days. There is probably some other things, but those would the main items andthose are significant.

Can you give me an idea just, I mean, when you wrap thoseup, just in terms of the percentages, the cost to build a home?

Well, the one percentage that I did give you I think ispretty close to 5% to 7% reduction of our cost. The other cost benefits thataccrue as a result of constructing spec homes and we don't, we have never had alot of spec homes, but we still do have them and are still are utilizing thatselectively as a strategy to work our inventory. But when you get a spec home built quicker and get it to thestreet faster and as a result hopefully produce a closing quicker, you certain,you understand those benefits as well.

And I want to attack the cash flow question, maybe from adifferent angle. Just in terms of the first nine months of 2007, can youquantify or tell us how much money you have put into land and land developmentand you mentioned there will still be an on going need to do a little bit thatbut just to directionally or in order of magnitude, talk about how it mightchange going forward?

From a land standpoint as far as purchasing raw land, wetalked about last year we bought $160 million of land. This year so far, wehave bought about $20 I think and we plan to buy another 5 or so, for 26 forthe year. So we've not spent much money on raw land. We never really get intoexposing about how much did we put in land under development. That's -- Some ofit, but most of it is raw. We never have gotten into that. Again, you have to look at other places you are using cash,you are building your backlog, you are putting dollars into specs, you arepaying dividends, and again the cash flow statement gets into some of that. Butagain the biggest way we are generating cash is working through those finishedlots.

Okay. Thank you very much for your time.

Thanks a lot.

Thank you. Your next question is coming from Alex Barronwith Agency Trading Group. Please go ahead.

Hello, again, Alex.

Hey, thanks for taking the follow up. Talking about specs, Iguess just conceptually I wanted to understand, I know obviously the market isslow and all that. But what is, I guess more philosophically. What is your perspective on specs, is it kind of a necessaryevil in this point in the cycle or is it something that if -- that you wish youcould just kind of get rid of all of them and not have to. In other words, arethey just accidental or are you guys creating them on -- somewhat on purpose tocreate cash flow.

Both. I mean, let me say this first, until maybe you can addonto this. Historically, M/I Homes has probably been among the mostconservative of all homebuilders when it comes to voluntary specs. Whereas most builders would probably at any point in timerun between 20% and some as high as 50% of inventory on specs, those arevoluntary. And M/I, it was generally somewhere between 10% and 15% is themaximum. Today, of course you have got voluntary specs because ofincreased cancellations including those occur frankly, in some cases as late asthe closing day, we have got some involuntary specs. Phil, I don't if you wantto add…

I mean, it is something that we manage very closely on aregion basis. We adjust our spec levels as we need to. We talked earlier in thecall about finished lots that we have, and we think by keeping a certain amountof specs out there. And again, as Bob said, we tend to be pretty most lowest inthe business, three or four community, we think by keeping those specs outthere, we do get through our lot inventory and also allow us to free up some cash. Also, one of the issues today is there is a lot of people inthe market with houses to sell, and you need to take that into account also asyou attack your sales program. But it is something we do manage, we thinkespecially with the fight for where it is, it is something that is necessary tous, but again we think we play it’s conservative as anybody does.

Got it. And then as it pertains to your land, I was noticingyour number of lots owned and option in the mid-Atlantic region is upsequentially and I think you guys said it was probably North Carolina. So can you give me some, can you confirm that and can yougive me some idea of what the breakdown is between D C. and Carolina in numberof lots.

Well, when you look at owned lots at 9/30/07, North Carolinaand D.C., the mid-Atlantic was 2,474, Alex. When you look a year ago it was2,846. So it is actually down from where it was a year ago. It was 2,413 at 6/30/07 so it is up like 60 lots but it isjust up slightly. We probably are still a little land shy in Raleigh andCharlotte and again, as we said before, that's kind of where we are buyingthings now.

Cautiously, though because those markets have started to slowand it’s just, it’s a different day.

Yes, I mean, Bob talked about It was our current estimate todeliver about 800 homes there, w owned about 2,400 lots. So we have on ourbooks today a current run rate about a three-year supply.

And are those markets roughly half and half, equal in sizein terms of lots?

Which one, Charlotte and Raleigh?

No, the Carolinas versus D.C.

He’s going to keep asking that until I answer it. You areconsistent, Alex. There’s actually, it is more in the neighborhood of 60% inthe Carolinas, 40% in D.C.

Got it. And one more if I could, did you give the communitycount by region?

Yes, I did.

Okay. I will go through the transcript then. Thank you.

That's okay. I will give it to you again Alex slide here. Whenyou look at our community count, we actually have 159 today, 76 in the Midwest,46 in Florida, and 37 in the mid-Atlantic.

Thank you, Phil and thanks, Bob.

No problem.

Thank you. Your next question is coming from Joel Lockerwith FBN Securities. Please go ahead.

Just had a quick question on the line out on the land salesyou had what, $7.7 million that ran through the land sales this of impairment,in the third quarter?

Yeah.

How much -- how much did you have in the second quarter?Because I didn't have anything in my model that ran from that column, and justit was a $4.7 million in revenues, but a $2.1…

I don't have that handy, Joel.

You don't?

The number in here is -- I don't know.

I don't know if you heard that.

$10.4 million you said, year-to-date.

No, that was the year-to...

Right, year-to-date $10.4 million; right?

Yes. I don't have it…

It might have just been the 2.7 because so, I think it wasmostly all second quarter, but -- All right. I will -- that's good enough.Thanks a lot.

Thanks.

Thank you. There appear to be no further questions. I wouldlike to turn the floor back over for closing comments.

Thank you very much for joining us. And we look forward totalking to you with year-end results. Thanks.

Thank you. This does conclude today's M/I Homes thirdquarter earnings conference call. You may now disconnect.