In its latest effort in an on-going struggle to reduce costs and re-align operations with shrunken sales, Dominion Homes has terminated the lease contract on its corporate offices in Dublin, Ohio.
According to an SEC document filed yesterday, on Dec. 1 the company renegotiated an amendment to its lease agreement with BRC Properties Inc. that provided an option to terminate Dominion's lease at 5000 Tuttle Crossing. On the same day the amendment was approved, the company excersized the option and agreed to pay BRC an early termination fee of $385,000, plus any other charges due.
The company is now consolidating its corporate office in the facility at 4900 Tuttle Road, which also houses Dominion operations and is also owned by BRC. Along with other family members, Douglas Borror, CEO and Chairman of the company owns approximately 46.6% of Dominion's shares through BRC.
In the third quarter of the year, Dominion also executed lease modifications in both of its active Kentucky markets (Louisville and Lexington) in order to reduce fixed costs. Though the consolidations will reduce annual lease expenses by more than 40%, Dominion expects to incur nearly $1 million in total costs in its fourth quarter for termination fees and write-offs.
"As a result of the continued weak sales volume in the third quarter of 2007 and the generally negative outlook for the homebuilding sector for the next 12 to 18 months, we continue to implement cost reduction initiatives that we believe will further reduce expense levels," the company said in its most recent 10-K filing of third quarter results. "These initiatives include fixed cost reductions, additional headcount reductions and additional cuts in discretionary expense items."
In 2003, headcount peaked at 600 employees. By June of 2006, that number had fallen to 400 and today it stands at roughly 50% of that. In the latest quarter, SG&A dropped 17% year over year.
Still, based on the 852 closings recognized in the 12 month period ending in September, the company still suffocates under a 16-year supply of land. The company ramped up on its land inventory as sales escalated in 2002 and 2003. But in the most recent quarter, Dominion posted just 153 sales, plummeting nearly 80% from its peak in third quarter 2003.
Dominion currently stands in violation of several of its financial covenants including minimum EBITDA, minimum gross profit, minimum net worth and minimum free cash flow. In a 10-Q filed last month, the company acknowledged "It is likely that we will not satisfy those current covenants as well as the leverage ratio covenant in future quarters."
In the meantime, the company continues to operate at the mercy of its financial partners, though discussions to modify covenants are ongoing. Since June, lenders have imposed default interest rates but have not taken any other available recourse, which could include foreclosing on the company's assets.
According to Buck Horne, an analyst with Raymond James, the deteriorating financials of the company make the likelihood of bankruptcy very real.
Before year's end, the company is also planning to close its Columbus lumber and construction products distribution center and is considering a full or partial sale of its main distribution center. In this transaction, the company does not anticipate that there will be a material loss resulting from the sale or liquidation of the assets.