Despite some bright spots in 4Q2008, such as increased home contracts and reduced borrowings, M/I Homes (NYSE:MHO) has recorded another dismal quarter and year in its books.

For the fourth quarter ended Dec. 31, M/I reported a net loss of $75.4 million (-$5.38 per share) after $52.9 million in impairments and other charges and a $29 million charge to deferred tax assets under FAS 109. Revenue was off 55.9% to $150.2 million.

The company recorded a net loss of $250.3 million (-$17.86 per share) for the year ended Dec. 31, 2008, compared to a net loss of $135.4 million for 2007. For 2008, the company recorded $158.6 million of pre-tax charges for inventory impairments and abandonments and a $108.6 million after-tax non-cash valuation allowance against its deferred tax assets compared to pre-tax charges in the same period of 2007 of $210.9 million and a tax benefit of $58 million.

In late January, the company released a report showcasing some positive signs, mainly that new-home contracts were up 5% in 4Q2008. But while home buyers showed a blip of interest in the quarter, contracts were down 25% for the year. Delivered homes were down 47% from 1,042 in 4Q2007 to 554 in 4Q2008, and down 37% for the year Cancellation rates were also down, from 49% in 4Q2007 to 31% in 4Q2008, potentially signaling a buyer's market for those who are serious players.

"Despite the significant headwinds we faced, we made progress in 2008 in a number of key areas. We generated $148 million of cash during 2008, reduced our homebuilding bank borrowings from $115 million at the beginning of 2008 to $0 at year end, and ended 2008 with $33 million of cash," CEO, chair, and president Robert H. Schottenstein said in a statement. "Our home building net debt-to-capital ratio is 32%--one of the lowest in the home building industry. We also successfully reduced our expense levels, lowered our headcount by 41% from a year ago, and reduced our owned lot count by 40% during the year. We continue to take steps designed to generate cash flow and strengthen our balance sheet."

While managment at M/I Homes focuses on the positive, particularly in the up-tick in home contracts during the fourth quarter, Morningstar's Eric Landry said the increase came at the expense of the company's gross margins and that it will be a tough quarter ahead. He anticipates that the spec count will be down as well.

The company reported a backlog of 566 units with an average sales price of $247,000, bringing the value of homes in backlog to $139 million--down from $233 million in 4Q2007. The number of active communities was also reduced from 146 in 2007 to 128 in 2008.

Moody's placed M/I Homes on credit watch negative due to the company's weakened ability to generate cash, and Schottenstein has heeded the warning. Although the company's net worth of $333 million gives him hope that it will survive the downturn, Schottenstein conceded that cash generation is not the company's top priority that it must continually work toward.

Jim Wilson at JMP Securities said that the company is hanging in there along with the rest of home builders. "In general, they have a very good balance sheet with net debt at 32% of total cap," he said. "Looks like they took more in impairments in Q4 than Q3, $53 million versus $43 million, but similar to other builders. Per share that's a lot of money hence the stock getting whacked while others are up."

Shares of M/I were getting hammered in mid-afternoon trading on the NYSE, down 20.8% to $8.60 on the earnings news and debt warning.