Just a week after Rolling Meadows, Ill.-based Kimball Hill Homes said it hired a chief restructuring officer, the company announced on Feb. 27 two separate moves to reposition itself for survival despite slumping sales and anxious creditors.
First, the company said it plans to exit the Florida housing market with plans to complete and deliver all homes under construction by year's end. In addition, the company said it is slashing overhead by reducing headcount by 75 employees in the corporate office and other unspecified locations this week.
The company delivered homes in 80 communities during the 2007 fiscal year, with Houston being its strongest market. Since that time, the once-stable Texas MSA has fallen off the map in terms of permitting. But souring the outlook even more was Kimball Hill' s exposure to volatile markets--including Florida.
According to CEO Ken Love, the company determined it could not remain profitable after careful evaluation of the Florida market. Instead, resources can be directed at operations in Texas, Illinois, Nevada, and California.
"These are not decisions we made lightly," Love said in a statement, adding that the company will provide both severance and outplacement assistance to associates whose positions will be eliminated.
Though Kimball Hill has been cutting costs, selling off land, and dropping home prices, in its fiscal first quarter, which ended Dec. 31, 2007, the company lost $46 million--more than double its loss in the same period the previous year. The company posted $152 million in home building revenue, off 36% from last year. Home building gross margins fell to -6.1% of revenue.
Adding fuel to the fire, the company is entangled in two failing joint venture arrangements in Nevada. In combining the two, Kimball Hill is not only responsible for more than $60 million in debt, but take-down arrangements require the builder to buy another $59 million in land by May.
According to a recent SEC filing, "There is a substantial likelihood that its liquidity will be insufficient to support these purchase obligations. Failure to make either purchase could, among other things, result in an event of default under the applicable joint venture's secured credit facility."
According to Lance Ramella, a principal at Meyers Building Advisors, the number of new homes sold in the Chicago area of Illinois fell from 46,000 in 2005 to 28,000 in 2007. As a result, Kimball Hill isn't the only Chicago-area home builder feeling the pain of a housing downturn and credit crunch. Last week, South Barrington-based Kennedy Homes laid off 20 of its 32 employees and suspended new-home building. Last fall, Neumann Homes, based in Warrenville, sought Chapter 11 protection.