Dominion Homes reported a loss of $29.7 million for the second quarter, its sixth consecutive quarterly loss late Tuesday (August 14), and the company announced that as of June 30, 2007 it was not in compliance with certain financial covenants. The company said it was currently in discussions with its lenders to modify its credit facility regarding requirements at that date and for future quarters.
Dominion cited lower than expected sales, reduced profit margins, and impairment charges recorded in the first six months of this year for triggering the violations. The $29.7 million loss (-$3.63 per diluted share) includes a non-cash charge of $17.2 million related to real-estate-inventory impairments.
For the first six months of this year, the company reported a net loss of $41.2 million, (-$5.04 per diluted share, compared to a net loss of $11.0 million (-$1.36 per diluted share) for the same period in 2006.
According to a 10-Q filing with the Securities and Exchange Commission, the company amended its credit facility on Dec. 29, 2006 and extended its due date from May 31, 2007 to December 29, 2010. It then amended the credit facility again on January 26 and March 31 of this year. Dominion said it was "not in compliance with certain financial covenants and is in discussions with its lenders with respect to an additional amendment to its credit facility."
This is the company's latest move in what has been an ongoing effort to work with creditors as the company reorganizes and adjusts operations to compensate for sluggish market conditions and management strategies that have proven ineffective over the past several years.
Dominion closed 206 homes during the quarter, roughly half the number for the same period last year. And while the average delivery price remained relatively stable, prices were offset by larger incentives. Also affecting revenue was the sale of the company's mortgage unit, which resulted in a revenue drop of $37 million in the second quarter, from $75.8 million last year to $38.8 million this year.
"While our results are disappointing, they are not surprising given the sustained national housing slump," said Douglas Borror, chairman and CEO in a prepared statement. "Our 2007 planning anticipated that the housing downturn in our markets was reaching its final stages. We now see no sign of recovery before mid-2008 and we continue with a defensive operating strategy."
The company continues to pare down its bloated land supply. Though it achieved an almost 10% reduction in equivalent lots owned, selling off $11.9 million during the first six months of the year, the effort only yielded a $183,000 gain.
Cost-saving measures have resulted in a 34% reduction ($4.5 million) in selling, general and administrative expense from the second quarter of 2006, which was partially offset by an increase in interest expense of $2.9 million. SG&A expenses for the first six months of 2007 decreased 37% to $17.7 million from $28.2 million for the comparable period last year.
During the second quarter ending, the company reduced its outstanding debt by $3.5 million. In the first half of the year, Dominion reduced the outstanding principal balance on its revolving credit facility and Term A loan by approximately $17.9 million.
During the past 18 months, Dominion reduced its employee head count by more than 50% as it continued to downsize the business to reflect the market conditions. In an attempt to satisfy demand for lower entry price, the company introduced two new series of homes with fewer standard features and more options.
This fall, all operations will be consolidated at Dominion headquarters in Dublin, Ohio. The facility will include a new decorating studio and offices for its affiliated title and mortgage companies as well as housing all corporate and support activities.