Dominion Homes Reports 2006 Financial Results

  
    
  
  
    
      Dominion Homes, Inc. (NASDAQ:DHOM) today announced financial results for 
      the fourth quarter and year ended December 31, 2006. Highlights for the 
      year ended December 31, 2006 compared to the year ended December 31, 
      2005 include:
    
    
      
        Revenues of $256.8 million, from the delivery of 1,335 homes, versus 
        revenues of $415.7 million, from the delivery of 2,146 homes;
      
      
        A net loss of $34.0 million, or $4.19 per diluted share, versus net 
        income of $5.3 million, or $0.65 per diluted share;
      
      
        Non-cash land impairment charges and write-offs of land and lot option 
        deposit and pre-acquisition write-offs of $14.2 million compared to 
        $6.5 million;
      
      
        Land sales of $13.2 million resulting in gains of $795,000 compared to 
        land sales of $18.5 million resulting in gains of $1.9 million;
      
      
        Sales of 1,171 homes, with a sales value of $219.1 million, versus 
        sales of 1,944 homes, with a sales value of $370.6 million; and
      
      
        Backlog of 266 sales contracts, with an aggregate sales value of $54.9 
        million, versus backlog of 430 sales contracts, with an aggregate 
        sales value of $89.7 million.
      
    
    
      The loss in 2006 is principally due to lower unit sales and reductions 
      in our gross profit margins. The decline in unit sales reflects, in 
      part, a general downturn in the national and local housing markets. The 
      Company’s gross profit margin, which declined 
      to 7.0% for 2006 from 19.2% for 2005 and 21.3% for 2004, reflects 
      pricing pressure in our markets and increased costs of real estate sold 
      related to real estate inventory impairment charges and for the 
      write-off of deposits and pre-acquisition costs for land that the 
      Company decided not to purchase. These non-cash charges reduced the 
      gross profit margin by 5.5% in 2006, 1.6% in 2005 and 0.9% in 2004. The 
      Company continues to reduce its land position and has aggressively 
      reduced its operating expenses.
    
    
      On December 29, 2006, the Company extended the maturity date of its 
      credit facility until December 29, 2010 and increased the availability 
      under the agreement to $235 million. The Company believes that the 
      amended credit facility should provide adequate liquidity during 2007, 
      and should allow the Company to be well positioned when conditions in 
      the home building market become more favorable. While the Company 
      expects to remain a leading homebuilder in its markets, it anticipates 
      continued losses in 2007.
    
    
      The Company's Chief Executive Officer, Douglas G. Borror, commented 
      "While the homebuilding market remains challenging, we are focused on 
      opportunities where we can strengthen our margins and build our market 
      share. With our amended credit facility in place, we are moving forward 
      with our 2007 business plan which includes new and updated home designs 
      and fresh marketing programs targeting new customers."
    
    
      The Company will not host an analyst conference call to discuss 2006 
      results, however, the Company’s annual report 
      on Form 10-K will be posted on the Company’s 
      website, www.dominionhomes.com, 
      when it is filed.
    
    
      Dominion Homes builds a variety of new homes and condos in Columbus, 
      Ohio and Louisville and Lexington, Kentucky, which are differentiated by 
      size, price, included features and available options. The Company’s 
      community development and home building philosophy focuses on providing 
      its customers with unsurpassed location, quality construction, brand 
      name materials and customer service. Additional information about the 
      Company and its new homes is located on its website.
    
    
      Year ended December 31, 2006
    
    
      Revenues
    
    
      During 2006 the Company delivered 1,335 homes with revenues of $256.8 
      million, compared to 2,146 homes with revenues of $415.7 million during 
      2005. The average price of homes delivered during 2006 declined slightly 
      to $191,000 compared to $191,300 for 2005.
    
    
      Net Loss
    
    
      Net loss for 2006 was $34.0 million, or $4.19 per diluted share, 
      compared to net income of $5.3 million, or $0.65 per diluted share, for 
      2005. The decline in net income from 2005 to 2006 reflects lower unit 
      sales and a decline in the gross profit margin from 19.2% in 2005 to 
      7.0% in 2006.
    
    
      Gross Profit
    
    
      Gross profit for 2006 was $18.0 million compared to $79.7 million for 
      2005, due primarily to the lower number of closings in 2006 and a 
      decline in gross profit margins. Cost of real estate sold for 2006 
      includes impairment charges and write-off of deposits and 
      pre-acquisition costs for land the Company decided not to purchase of 
      approximately $14.2 million. Gains on land sales of $795,000 are also 
      included in cost of real estate sold. Cost of real estate sold for 2005 
      include reserves and write-offs for land the Company decided not to 
      purchase of approximately $6.5 million and gains on land sales of $1.9 
      million. The decline in the 2006 gross profit as a percent of sales 
      primarily reflects higher sales discounts offered by the Company and 
      increased land and building costs during 2006.
    
    
      Selling, General and Administrative 
      Expense
    
    
      During 2006, the Company continued to reduce selling, general and 
      administrative expense, which declined to $50.1 million from $64.5 
      million for 2005 and $77.9 million for 2004. The reduction in overhead 
      expenses reflects a reduction in headcount, strict cost controls and 
      lower sales and incentive compensation expenses as a result of decreased 
      home deliveries and net income.
    
    
      Interest Expense and Provision for Income 
      Taxes
    
    
      Interest expense for 2006 increased to $11.2 million from $7.7 million 
      for 2005 due to increased borrowings and higher interest rates. The 
      income tax benefit from the operating loss for 2006 reduced the Company’s 
      loss by $9.3 million compared to $2.1 million of income tax expense for 
      2005. The annual effective tax rate decreased to a benefit of 21.5% for 
      2006 from tax expense of 28.7% for 2005. The pre-tax losses recognized 
      in 2006 were carried back to prior years and the Company has recognized 
      income tax receivables of $11.1 million as of December 31, 2006. A 
      valuation allowance was provided for all deferred tax assets as of 
      December 31, 2006 and additional tax benefits will not be realized until 
      the Company returns to profitability.
    
    
      Sales
    
    
      The Company sold 1,171 homes during 2006, representing a sales value of 
      $219.1 million, compared to 1,944 homes sold during 2005, representing a 
      sales value of $370.6 million. The average home sale price for 2006 was 
      $187,000 compared to $191,600 for 2005. The Company's backlog on 
      December 31, 2006 was 266 sales contracts, with an aggregate sales value 
      of $54.9 million, compared to a backlog on December 31, 2005 of 430 
      sales contracts, with an aggregate sales value of $89.7 million. The 
      average sales value of homes in backlog at December 31, 2006 was 
      $206,200 compared to $208,500 at December 31, 2005. The Company had 40 
      active communities as of December 31, 2006 compared to 55 as of December 
      31, 2005.
    
    
      Three months ended December 31, 2006
    
    
      Revenues
    
    
      During the three months ended December 31, 2006 the Company delivered 
      284 homes with revenues of $54.2 million, compared to 571 homes with 
      revenues of $111.5 million, for the same period of the previous year. 
      The average price of homes delivered during the three months ended 
      December 31, 2006 was $190,800 compared to $193,000 for the three months 
      ended December 31, 2005.
    
    
      Net Loss
    
    
      Net Loss for the three months ended December 31, 2006 was $17.0 million, 
      or $2.09 per diluted share, compared to net income of $991,000, or $0.12 
      per diluted share, for the three months ended December 31, 2005.
    
    
      Gross Profit
    
    
      Cost of real estate sold for the three months ended December 31, 2006 
      exceeded revenues by $3.0 million as the fourth quarter of 2006 includes 
      approximately $8.8 million of reserves and write-offs for land the 
      Company decided not to purchase. Gross profit for the three month period 
      ended December 31, 2005 was $19.4 million and included approximately 
      $3.5 million of reserves and write-offs for land the Company decided not 
      to purchase.
    
    
      Selling, General and Administrative 
      Expense
    
    
      Selling, general and administrative expense for the three months ended 
      December 31, 2006 declined by $4.0 million to $11.2 million from $15.1 
      million for the three months ended December 31, 2005.
    
    
      Interest Expense and Provision for Income 
      Taxes
    
    
      Interest expense for the three months ended December 31, 2006 increased 
      to $3.7 million from $2.1 million for the three months ended December 
      31, 2005 primarily due to increased borrowings and higher interest 
      rates. The income tax benefit from the operating loss for the three 
      months ending December 31, 2006 reduced the Company’s 
      loss by $802,000 compared to $34,000 of income tax expense for the same 
      period in 2005. The annual effective tax rate for the fourth quarter of 
      2006 decreased to a benefit of 4.5% from tax expense of 3.3% for the 
      fourth of 2005.
    
    
      Sales
    
    
      The Company sold 131 homes during the three months ended December 31, 
      2006, representing a sales value of $24.2 million, compared to 230 homes 
      sold during the three months ended December 31, 2005, representing a 
      sales value of $44.9 million. The average home sale price for the three 
      months ended December 31, 2006 was $185,000 compared to $195,300 for the 
      three months ended 2005.
    
    
      Certain statements in this news release are "forward-looking 
      statements" within the meaning of the Private Securities Litigation 
      Reform Act of 1995. Such statements involve known and unknown 
      risks, uncertainties and other factors that may cause actual results to 
      differ materially. Such risks, uncertainties and other factors 
      include, but are not limited to, changes in national or local economic 
      conditions, changes in the local or national homebuilding industry, 
      changes in federal lending programs, fluctuations in interest rates, 
      increases in raw materials and labor costs, levels of competition and 
      other factors described in the Company's Annual Report and Form 10-K for 
      the year ended December 31, 2005, and its Quarterly Report on Form 10-Q 
      for the period ended September 30, 2006. All forward-looking 
      statements made in this press release are based on information presently 
      available to the management of the Company. The Company assumes 
      no obligation to update any forward-looking statements.
    
    
      
        
          
            FINANCIAL HIGHLIGHTS
          
          
            (Unaudited)
          
          
            (In thousands, except share and per share amounts)
          
          
             
          
          
            Consolidated Statements of Operations
          
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
          Three Months Ended
        
        
        
        
          Twelve Months Ended
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
          December 31,
        
        
        
        
          December 31,
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
          2006 
        
        
        
        
          2005 
        
        
        
        
          2006 
        
        
        
        
          2005 
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Revenues
        
        
        
        
          $ 54,215 
        
        
        
        
          $ 111,520 
        
        
        
        
          $ 256,760 
        
        
        
        
          $ 415,700 
        
      
      
        
          Cost of real estate sold
        
        
          57,215 
        
        
        
        
          92,104 
        
        
        
        
          238,734 
        
        
        
        
          336,007 
        
      
      
        
          Gross profit
        
        
        
        
          (3,000)
        
        
        
        
          19,416 
        
        
        
        
          18,026 
        
        
        
        
          79,693 
        
      
      
        
          Selling, general and administrative
        
        
          11,172 
        
        
        
        
          15,124 
        
        
        
        
          50,082 
        
        
        
        
          64,475 
        
      
      
        
          Income (loss) from operations
        
        
          (14,172)
        
        
        
        
          4,292 
        
        
        
        
          (32,056)
        
        
        
        
          15,218 
        
      
      
        
          Interest expense
        
        
          3,663 
        
        
        
        
          3,267 
        
        
        
        
          11,248 
        
        
        
        
          7,745 
        
      
      
        
        
        
        
        
          Income (loss) before income taxes
        
        
          (17,835)
        
        
        
        
          1,025 
        
        
        
        
          (43,304)
        
        
        
        
          7,473 
        
      
      
        
          Provision (benefit) for income taxes
        
        
          (802)
        
        
        
        
          34 
        
        
        
        
          (9,295)
        
        
        
        
          2,147 
        
      
      
        
        
        
        
        
        
        
          Net income (loss)
        
        
          $ (17,033)
        
        
        
        
          $ 991 
        
        
        
        
          $ (34,009)
        
        
        
        
          $ 5,326 
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Earnings per share
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
      
      
        
        
        
          Basic
        
        
        
        
        
        
        
        
          $ (2.09)
        
        
        
        
          $ 0.12 
        
        
        
        
          $ (4.19)
        
        
        
        
          $ 0.66 
        
      
      
        
        
        
          Diluted
        
        
        
        
        
        
          $ (2.09)
        
        
        
        
          $ 0.12 
        
        
        
        
          $ (4.19)
        
        
        
        
          $ 0.65 
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Weighted average shares outstanding
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
      
      
        
        
        
          Basic
        
        
        
        
        
        
        
        
          8,137,912 
        
        
        
        
          8,087,433 
        
        
        
        
          8,120,205 
        
        
        
        
          8,065,586 
        
      
      
        
        
        
          Diluted
        
        
        
        
        
        
          8,137,912 
        
        
        
        
          8,185,794 
        
        
        
        
          8,120,205 
        
        
        
        
          8,201,694 
        
      
    
    
      
        
          FINANCIAL HIGHLIGHTS
        
      
      
        
          (Unaudited)
        
      
      
        
          (In thousands)
        
      
      
        
           
        
      
      
        
          Consolidated Balance Sheets
        
      
      
        
           
        
      
      
        
        
        
        
        
          December 31,
        
        
        
        
          December 31,
        
      
      
        
        
        
        
        
          2006 
        
        
        
        
          2005 
        
      
      
        
          ASSETS
        
        
        
        
        
        
        
        
        
      
      
        
          Cash and cash equivalents
        
        
        
        
          $3,032 
        
        
        
        
          $3,554 
        
      
      
        
          Restricted cash
        
        
        
        
          6,762 
        
        
        
        
          - 
        
      
      
        
          Accounts receivable
        
        
        
        
          2,329 
        
        
        
        
          4,889 
        
      
      
        
          Real estate inventories
        
        
        
        
          371,086 
        
        
        
        
          426,275 
        
      
      
        
          Prepaid expenses and other
        
        
        
        
          16,484 
        
        
        
        
          8,792 
        
      
      
        
          Deferred income taxes
        
        
        
        
          - 
        
        
        
        
          1,485 
        
      
      
        
          Net property and equipment
        
        
        
        
          4,523 
        
        
        
        
          6,562 
        
      
      
        
          Total assets
        
        
        
        
          $404,216 
        
        
        
        
          $451,557 
        
      
      
        
           
        
      
      
        
          LIABILITIES AND SHAREHOLDERS' EQUITY
        
        
        
        
        
        
        
        
        
      
      
        
           
        
      
      
        
          Revolving line of credit
        
        
        
        
          $16,800 
        
        
        
        
          $205,240 
        
      
      
        
          Term notes
        
        
        
        
          184,779 
        
        
        
        
          - 
        
      
      
        
          Seller financed debt and capital lease liability
        
        
        
        
          8,746 
        
        
        
        
          9,300 
        
      
      
        
          Other liabilities
        
        
        
        
          25,427 
        
        
        
        
          41,484 
        
      
      
        
          Total liabilities
        
        
        
        
          235,752 
        
        
        
        
          256,024 
        
      
      
        
          Shareholders' equity
        
        
        
        
          168,464 
        
        
        
        
          195,533 
        
      
      
        
          Total liabilities and shareholders' equity
        
        
        
        
          $404,216 
        
        
        
        
          $451,557 
        
      
    
    
      
        
          
             Land Inventory as of December 31, 2006
          
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          
             
          
        
        
        
        
          Finished
        
        
        
        
          Lots Under
        
        
        
        
          Unimproved Land
        
        
        
        
          Total
        
      
      
        
          Land Inventory
        
        
        
        
          Lots
        
        
        
        
          Development
        
        
        
        
          Estimated Lots
        
        
        
        
          Estimated Lots
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Owned by the Company:
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
      
      
        
          Central Ohio
        
        
        
        
          1,819 
        
        
        
        
          867 
        
        
        
        
          8,726 
        
        
        
        
          11,412 
        
      
      
        
          Kentucky
        
        
        
        
          265 
        
        
        
        
          398 
        
        
        
        
          887 
        
        
        
        
          1,550 
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Controlled by the Company:
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
      
      
        
          Central Ohio
        
        
        
        
          - 
        
        
        
        
          - 
        
        
        
        
          267 
        
        
        
        
          267 
        
      
      
        
          Kentucky
        
        
        
        
          - 
        
        
        
        
          - 
        
        
        
        
          - 
        
        
        
        
          - 
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Held for sale:
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
      
      
        
          Central Ohio
        
        
        
        
          - 
        
        
        
        
          26 
        
        
        
        
          1,537 
        
        
        
        
          1,563 
        
      
      
        
          Kentucky
        
        
        
        
          - 
        
        
        
        
          73 
        
        
        
        
          - 
        
        
        
        
          73 
        
      
      
        
        
        
        
        
          2,084 
        
        
        
        
          1,364 
        
        
        
        
          11,417 
        
        
        
        
          14,865