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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended: June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from _________to _________.
Commission file number: 0-28024
THE FORTRESS GROUP, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 54-1774997
- --------------------------------- ---------------------------------
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
1650 Tysons Boulevard, Suite 600, McLean, Virginia 22102
--------------------------------------------------------
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (703) 442-4545
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No __
As of August 12, 1998, there were outstanding 12,016,312 shares of
common stock, par value $.01, of the registrant.
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<PAGE>
THE FORTRESS GROUP, INC.
QUARTER ENDED JUNE 30, 1997
INDEX
PAGE
----
PART I - FINANCIAL INFORMATION
Item 1.
The Fortress Group, Inc.
Consolidated Balance Sheets 3
Consolidated Statements of Operations
(unaudited) 4
Consolidated Statements of Cash Flows
(unaudited) 6
Notes to Consolidated Financial Statements
(unaudited) 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
PART II - OTHER INFORMATION
Item 2. Changes in Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 6. Exhibits and Reports on Form 8-K. 17
(a) Exhibits.
(b) Reports on Form 8-K.
SIGNATURES 18
EXHIBIT INDEX 19
2
<PAGE>
THE FORTRESS GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
---- ----
(unaudited)
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 18,021 $ 12,406
Accounts and notes receivable 14,396 21,944
Due from related parties 3,005 4,416
Real estate inventories 292,700 217,342
Land held for resale 7,004 6,934
Mortgage loans held for sale 14,371 11,128
Investments in land partnerships 9,597 6,763
Property and equipment, net 13,369 10,246
Prepaid expenses and other assets 23,364 22,655
Goodwill, net 36,160 23,470
--------- ---------
Total assets $ 431,987 $ 337,304
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued construction liabilities $ 27,815 $ 23,172
Notes and mortgages payable 282,522 228,420
Due to related parties 1,437 783
Accrued expenses 13,180 14,464
Customer deposits 14,102 7,300
--------- ---------
Total liabilities 339,056 274,139
--------- ---------
Minority interest 59 268
--------- ---------
Shareholders' equity
Preferred stock, all classes and series, $.01 par value, 1 million
authorized (See Note 8 for designations and respective amounts
outstanding) 2 1
Common stock, $.01 par value, 99 million authorized,
12,159,493 and 11,748,694 issued, respectively 121 117
Additional paid-in capital 75,391 47,371
Preferred subscription receivable (500)
Retained earnings 18,543 15,936
Treasury stock, at cost, 151,100 and 120,100 shares, respectively (685) (528)
--------- ---------
Total shareholders' equity 92,872 62,897
--------- ---------
Total liabilities and shareholders' equity $ 431,987 $ 337,304
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
THE FORTRESS GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
For the Three For the Three
Months Ended Months Ended
June 30, 1998 June 30, 1997
------------- -------------
<S> <C> <C>
TOTAL REVENUES $ 166,484 $ 105,992
----------- -----------
HOMEBUILDING:
Residential sales $164,113 $104,214
Lot sales and other 1,705 1,367
----------- -----------
Homebuilding revenues 165,818 105,581
Cost of sales
Construction and land costs 140,186 90,087
Amortization of purchase accounting adjustments 529 237
----------- -----------
Gross profit 25,103 15,257
Selling 10,696 6,959
General and administrative 8,063 5,882
Goodwill amortization 610 139
----------- -----------
Net operating income 5,734 2,277
----------- -----------
Other expense (income):
Interest expense 980 665
Interest income (210) (75)
Minority interest (19) (15)
Other, net (309) (307)
----------- -----------
Homebuilding income before taxes 5,292 2,009
MORTGAGE:
Operating revenues 666 411
General, administrative and other expenses 661 401
----------- -----------
Mortgage income before taxes 5 10
Total income before taxes 5,297 2,019
Provision for income taxes 2,121 764
----------- -----------
Net income $ 3,176 $ 1,255
=========== ===========
NET INCOME PER SHARE DATA (See Note 9):
Basic net income per share $ .21 $ .10
=========== ===========
Diluted net income per share $ .15 $ .10
=========== ===========
Basic weighted average shares outstanding 11,803,650 11,822,706
=========== ===========
Diluted weighted average shares outstanding 21,160,703 12,776,833
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
THE FORTRESS GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
For the Six For the Six
Months Ended Months Ended
June 30, 1998 June 30, 1997
------------- -------------
<S> <C> <C>
TOTAL REVENUES $ 287,011 $ 176,311
----------- -----------
HOMEBUILDING:
Residential sales $ 282,138 $ 172,613
Lot sales and other 3,162 3,033
----------- -----------
Homebuilding revenues 285,300 175,646
Cost of sales
Construction and land costs 241,847 149,509
Amortization of purchase accounting adjustments 1,071 413
----------- -----------
Gross profit 42,382 25,724
Selling 18,968 11,507
General and administrative 14,809 10,043
Goodwill amortization 1,143 234
----------- -----------
Net operating income 7,462 3,940
----------- -----------
Other expense (income):
Interest expense 2,101 871
Interest income (367) (140)
Minority interest (43) 2
Other, net (510) (446)
----------- -----------
Homebuilding income before taxes 6,281 3,653
MORTGAGE:
Operating revenues 1,711 685
General, administrative and other expenses 1,700 706
----------- -----------
Mortgage income (loss) before taxes 11 (21)
Total income before taxes 6,292 3,632
Provision for income taxes 2,519 1,382
----------- -----------
Net income $ 3,773 $ 2,250
=========== ===========
NET INCOME PER SHARE DATA (See Note 9):
Basic net income per share $ .23 $ .19
=========== ===========
Diluted net income per share $ .20 $ .18
=========== ===========
Basic weighted average shares outstanding 11,706,974 11,791,464
=========== ==========
Diluted weighted average shares outstanding 19,033,066 12,518,998
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
THE FORTRESS GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
<TABLE>
<CAPTION>
For the Six For the Six
Months Ended Months Ended
June 30, 1998 June 30, 1997
------------- -------------
<S> <C> <C>
Cash flows from operating activities
Net income $ 3,773 $ 2,250
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization 4,227 1,388
Minority interest (43) 2
(Gain) loss on sale of property and equipment (118) 8
Changes in operating assets and liabilities
Accounts receivable 8,161 720
Due from related parties 1,431 527
Real estate inventories (11,917) (14,151)
Land held for resale (70)
Mortgage loans held for sale (3,243) (7,913)
Prepaid expenses and other assets 20 (375)
Accounts payable and accrued construction liabilities 515 (533)
Accrued expenses (1,546) (214)
Customer deposits 5,386 (93)
------- -------
Net cash provided by (used in) operating activities 6,576 (18,384)
------- -------
Cash flows from investing activities
Acquisition of homebuilders, net of acquired cash (27,244) (9,694)
Payment of contingent consideration (2,034)
Purchase of property and equipment (3,183) (2,203)
Proceeds from sale of property and equipment 344 57
Investment in limited partnerships (2,834) (3,609)
------- --------
Net cash used in investing activities (34,951) (15,449)
------- --------
Cash flows from financing activities
Borrowings under notes and mortgages payable 282,899 131,466
Repayment of notes and mortgages payable (274,814) (102,023)
Related party borrowings 87 45
Repayment of related party borrowings (477)
Proceeds from issuance of Class AA Preferred Stock, net 27,294
Proceeds from Employee Stock Purchase Plan 37
Deferred financing costs (1,882)
Preferred dividends (820) (82)
Common dividends (59) (29)
Purchase of treasury stock (157) (275)
------- -------
Net cash provided by financing activities 33,990 27,220
------- -------
Net increase (decrease) in cash and cash equivalents 5,615 (6,613)
Cash and cash equivalents, beginning of period 12,406 16,212
------- -------
Cash and cash equivalents, end of period $18,021 $ 9,599
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
THE FORTRESS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BUSINESS AND ORGANIZATION
The Fortress Group, Inc. ("Fortress" or the "Company") was formed in June 1995
to create a national homebuilding company for the acquisition and development of
land or improved lots and the construction of residential for-sale housing.
Four homebuilding companies were acquired by Fortress simultaneous with the
closing of its initial public offering on May 21, 1996 (the "Offering")
including Buffington Homes, Inc. ("Buffington"), doing business in Austin and
San Antonio, Texas; Christopher Homes and Affiliates ("Christopher"), doing
business in Las Vegas, Nevada; The Genesee Company ("Genesee"), doing business
in Denver and Fort Collins, Colorado and Tucson, Arizona; and Solaris
Development Corporation ("Sunstar"), doing business in Raleigh-Durham, North
Carolina. These companies as a group are referred to as the Predecessor
Companies. Prior to the Offering, Fortress was a nonoperating entity and
principally incurred costs associated with the consummation of the Offering.
Fortress has made additional acquisitions of Landmark Homes, Inc. ("Landmark"),
a Wilmington, North Carolina and Myrtle Beach, South Carolina homebuilder, on
August 31, 1996; Brookstone Homes, Inc. ("Brookstone"), a Janesville, Madison
and Milwaukee, Wisconsin homebuilder, on December 31, 1996; D.W. Hutson
Construction Company ("Hutson"), a Jacksonville, Florida homebuilder, on
February 28, 1997; Wilshire Homes ("Wilshire"), an Austin, Texas homebuilder,
effective April 1, 1997; Don Galloway Homes, Inc. ("Galloway"), a Charlotte,
North Carolina and Charleston, South Carolina homebuilder, effective August 1,
1997; The Iacobucci Organization ("Iacobucci"), a Philadelphia, Pennsylvania
homebuilder, effective October 1, 1997; WestBrook Homes ("WestBrook"), a Loudon
County, Virginia homebuilder effective January 1, 1998; Whittaker Homes
("Whittaker"), a St. Louis, Missouri homebuilder, effective March 1, 1998; and
Quail Construction, Inc. ("Quail"), a Portland, Oregon homebuilder, effective
April 1, 1998.
In January 1997, Fortress formed Fortress Mortgage, Inc. ("Fortress Mortgage"),
a wholly-owned subsidiary, to provide a mortgage lending source to the Company's
builder subsidiaries as an ancillary benefit. Fortress Mortgage currently
provides mortgage services in the Company's markets in Texas, Colorado, North
Carolina, Nevada, Pennsylvania, Wisconsin, Florida, Oregon, and Missouri.
The accompanying consolidated financial statements of Fortress have been
prepared by the Company. Certain information and footnote disclosures normally
included in financial statements presented in accordance with generally accepted
accounting principles have been condensed or omitted. The Company believes the
disclosures made are adequate to make the information presented not misleading.
However, the financial statements should be read in conjunction with the
financial statements of the Company and notes thereto included in the 1997
Annual Report on Form 10-K.
Interim results are not necessarily indicative of fiscal year performance
because of the impact of seasonal and short-term variations.
NOTE 2 - BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
Fortress, a Delaware corporation, and its majority-owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
Due to the substantial continuing interests in the Company of the former
stockholders of the Predecessor Companies, the acquisition in May 1996 of the
Predecessor Companies has been accounted for on a historical cost
<PAGE>
basis. Each subsequent acquisition has been accounted for under the purchase
method of accounting. The purchase price of each of the acquired companies was
allocated first to record the assets and liabilities acquired at estimated fair
value on the acquisition date with any remaining balances recorded as goodwill.
The consolidated statements of operations, shareholders' equity and cash flows
include the results of Fortress, inclusive of the Predecessor Companies and all
of the companies acquired since their respective dates of acquisition.
Certain amounts in the prior period financial statements have been reclassified
to conform to the current presentation.
NOTE 3 - PRO FORMA SUMMARY CONSOLIDATED RESULTS OF OPERATIONS
The Company's unaudited pro forma summary consolidated results of operations for
the six months ended June 30, 1998 and 1997, as if the significant 1997 and 1998
acquisitions had occurred at January 1, 1997 and excluding the amortization of
the purchase accounting adjustments for the step-up of inventory, are presented
below. The issuance of 40,000 shares of Class AA convertible preferred stock,
which provided financing for the Galloway and Whittaker acquisitions, has been
factored into the earnings per share calculations for both periods. In preparing
the unaudited pro forma information, various assumptions were made, and the
Company does not purport this information to be indicative of what would have
occurred had these transactions been made as of January 1, 1997.
Six Months Ended
June 30,
1998 1997
---- ----
(unaudited, in thousands,
except per share amounts)
Revenue $296,406 $260,347
Net income 4,870 5,979
Net income per share .31 .40
Net income per share, assuming dilution .23 .28
NOTE 4 - SIGNIFICANT ACQUISITIONS
On March 6, 1998, the Company acquired the stock of Whittaker for initial
consideration of approximately $62.1 million ($26.4 million in cash and
approximately $35.7 million in assumed debt).
Effective August 1, 1997, the Company acquired the stock of Galloway for initial
consideration of approximately $34.6 million ($5.0 million in cash, $5.0 million
in a short-term note, 60,000 shares of Series D Convertible preferred stock with
a $6.0 million liquidation value, and approximately $18.6 million in assumed
debt). Additional consideration not to exceed $5.0 million is expected to be
paid over a period not to exceed four years based upon the future performance of
Galloway.
In February 1997, the Company acquired the assets of Hutson for initial
consideration of approximately $24.7 million ($9.0 million in cash, $1.2 million
in Class B preferred stock, and approximately $8.5 million in assumed debt).
Approximately $1 million in cash and $315,000 of the preferred stock was
returned to the Company based on the final accounting of the acquisition.
Additional consideration of $6.0 million is expected to be paid over a period
not to exceed six years based upon the future performance of Hutson (See Note
8).
In each of these acquisitions, the earnout consideration will be accounted for
as additional purchase price and, accordingly, increase the goodwill related to
the acquisitions when earned and be amortized over the corresponding remaining
amortization periods.
<PAGE>
NOTE 5 - REAL ESTATE INVENTORIES
Real estate inventories are summarized as follows (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
---- ----
(unaudited)
<S> <C> <C>
Work-in-progress
Sold homes $117,217 $ 81,225
Speculative 45,407 45,058
-------- --------
Total work-in-progress 162,624 126,283
Land
Finished lots 59,226 43,585
Land under development 53,628 39,666
Unimproved land held for development 4,479 1,084
-------- --------
Total land 117,333 84,335
Lumber yard inventory 2,209
Model homes 10,534 6,724
-------- --------
$292,700 $217,342
======== ========
</TABLE>
NOTE 6 - INTEREST
Information regarding interest is as follows (in thousands):
<TABLE>
<CAPTION>
For the Six Months Ended June 30,
---------------------------------
1998 1997
---- ----
(unaudited) (unaudited)
<S> <C> <C>
During the periods:
Interest incurred $ 15,603 $ 11,769
Interest capitalized (13,156) (10,895)
Interest amortized to cost of sales 9,953 7,731
-------- --------
Total interest expensed in statement of operations $ 12,400 $ 8,605
======== ========
At the end of the periods:
Capitalized interest in ending inventory $ 25,138 $ 16,394
======== ========
</TABLE>
Included in general, administrative and other expenses for Fortress Mortgage is
approximately $346,000 of interest expense for the six months ended June 30,
1998.
<PAGE>
NOTE 7 - NOTES AND MORTGAGES PAYABLE
Notes and mortgages payable consist of the following (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
---- ----
(unaudited)
<S> <C> <C>
13.75% Senior Notes due 2003 $100,000 $100,000
Project specific land, land development and
construction loans 166,819 111,318
Mortgage warehouse lines of credit 13,376 15,546
Other 2,327 1,556
-------- --------
$282,522 $228,420
======== ========
</TABLE>
The Company pays interest on the Senior Notes in arrears on May 15 and November
15 of each year at the rate of 13.75% per annum. The Senior Notes may not be
redeemed at any time prior to maturity. The Senior Notes are unsecured and rank
pari passu with, or senior in right of payment to, all other existing and future
unsecured indebtedness of the Company. The Senior Notes, however, are
effectively subordinated to secured debt of the Company to the extent of any
collateral, as well as to the Company's subsidiaries indebtedness. The Company
is required to maintain a consolidated tangible net worth of at least $15
million and other financial covenants, as defined in the Senior Note Indenture.
The loan agreements for project specific land, land development and construction
loans are secured by a lien on the applicable residential development project or
a specific unit under construction. Repayment of the loans are generally due
upon sale of the collateral property. The loans bear interest at annual variable
rates ranging from .625% under prime rate to 2% over prime rate and fixed rates
generally from 6.15% to 12.75%.
The Company's mortgage subsidiary has a warehouse line of credit outstanding for
the purpose of originating loans. The warehouse line is secured by the mortgage
loans held for sale and is repaid upon sale of the mortgage loans. The line
bears interest at variable rates ranging from 2.0% to 3.0% over the 30-day
Federal Funds Rate. The line of credit matures March 30, 1999 but can be renewed
at the Company's option. The aggregate commitment available at June 30, 1998 was
$15 million.
One of the Company's subsidiaries has a line of credit for the purpose of
purchasing lumber yard inventory. The line of credit matures June 30, 1999. At
June 30, 1998 the total commitment available is $2 million with $1.65 million
currently outstanding. The outstanding portion of this line is included in
"other" above. The remainder of other notes and mortgages payable consists
primarily of debt financed corporate insurance policies which bear interest at
varying rates between 7.0% and 7.8%.
NOTE 8 - CONVERTIBLE PREFERRED STOCK
The following are the Company's classes and series of preferred stock, amounts
designated, and amounts outstanding at June 30, 1998 and December 31, 1997:
Class AA cumulative convertible (rate of 12% per annum decreased to 6% on
March 6, 1998), 53,333 designated, 40,000 and 11,700, respectively,
issued and outstanding ($40 million initial liquidation preference)
Series A 11% cumulative convertible, 20,000 designated, 0 and 10,000,
respectively, issued and outstanding
Series B convertible, 40,000 designated, 880 and 8,854, respectively, issued
and outstanding ($885,400 aggregate liquidation preference)
<PAGE>
Series C convertible, 70,000 designated, 39,656 and 60,000, respectively,
issuable (See below)
Series D convertible, 67,500 designated, 60,000 issued and outstanding
($6,000,000 aggregate liquidation preference)
Series E convertible, 50,000 designated, 19,881 and 0, respectively, issued
and outstanding ($1,988,100 aggregate liquidation preference)
Series F convertible, 5,000 designated, 5,000 and 0, respectively, issued and
outstanding ($500,000 aggregate liquidation preference)
In connection with the Whittaker acquisition, the Company loaned $500,000 and
then sold 5,000 shares of Series F 6% Cumulative Convertible Preferred Stock
("Series F") with a liquidation value of $100 per share to a key member of
management at Whittaker. The loan bears interest at 6% which is offset by the 6%
dividend rate on the Series F. The Series F is convertible, based on the future
earnings of the acquired business, for a period of 60 days commencing on
February 15, 1999, 2000, and 2001 at the closing price of the Common Stock on
the Closing Date and the first and second anniversaries of the Closing Date,
respectively. The loan has been accounted for as a subscription receivable in
the equity section of the Company's balance sheet and will be reduced based on
the future earnings of the acquired business.
In connection with the WestBrook and Quail acquisitions, the Company issued
19,881 shares of Series E 6% Cumulative Convertible Preferred Stock ("Series
E"). Each Series E share is convertible into ten shares of Common Stock at any
time at the option of the holder. After the Common Stock has traded for $10.00
per share or more for ten consecutive business days, the Company may require the
conversion of the Series E at the same 10-for-1 conversion rate. At the option
of the holder, the Company may be required to redeem up to 20% of the total
number of shares initially issued each year beginning with the first anniversary
of the date of issuance in cash or Common Stock at the Company's option. The
holder's redemption right is cumulative.
The Company executed the second closing related to its agreement with Prometheus
Homebuilders LLC (Prometheus) on March 6, 1998. The Company sold an additional
28,300 shares of Class AA Preferred Stock for $28.3 million.
In March 1998, the Company amended the Hutson purchase agreement to pay the 1997
earnout in cash rather than Series C Convertible Preferred Stock ("Series C").
The total cash payment was approximately $2.0 million. The remaining Series C
stock (39,656 shares) has been treated as outstanding for the purpose of
calculating earnings per share; however, it will only be legally outstanding
upon issuance.
NOTE 9 - EARNINGS PER SHARE
The following table reconciles the numerators (income) and the denominators
(shares) of the basic and diluted per-share computations (in thousands):
<PAGE>
<TABLE>
<CAPTION>
For the Three Months For the Three Months
Ended June 30, 1998 Ended June 30, 1997
------------------- -------------------
Per-Share Per-Share
Income Shares Amount Income Shares Amount
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Net income $3,176 $1,255
Less: Preferred stock dividends (630) (27)
Less: Imputed preferred stock
dividend (17)
------ ------
Basic EPS
Income available to common
shareholders $2,529 11,803,650 $.21 $1,228 11,822,706 $.10
Effect of Dilutive Securities
Preferred stock $ 647 9,013,259 $ 27 954,127
Options 8,928
Restricted stock 20,000
Warrants 314,866
------ ---------- ------- ----------
Diluted EPS
Income available to common
shareholders plus assumed
conversions $3,176 21,160,703 $.15 $1,255 12,776,833 $.10
<CAPTION>
For the Six Months For the Six Months
Ended June 30, 1998 Ended June 30, 1997
------------------- -------------------
Per-Share Per-Share
Income Shares Amount Income Shares Amount
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Net income $3,773 $2,250
Less: Preferred stock dividends (1,072) (55)
Less: Imputed preferred stock
dividend (34)
------ ------
Basic EPS
Income available to common
shareholders $2,667 11,706,974 $.23 $2,195 11,791,464 $.19
Effect of Dilutive Securities
Preferred stock $1,074 7,022,302 $ 55 727,534
Options 6,382
Restricted stock 22,265
Warrants 275,143
------ ---------- ------- ----------
Diluted EPS
Income available to common
shareholders plus assumed
conversions $3,741 19,033,066 $.20 $2,250 12,518,998 $.18
</TABLE>
<PAGE>
The Company's intention upon conversion or redemption (as the case may be) of
Series B, C and D preferred stock is to issue Common Stock on the basis of
10-for-1 conversion ratio contemplated in the respective agreements and to pay
cash for the difference between the $100 liquidation value per share and the
market value of the Common Stock converted at 10-for-1. Accordingly, the Company
has included, in its calculation of earnings per share, additional Common Stock
to be issued under the "if converted" method at the 10-for-1 conversion ratio.
At June 30, 1998, 19,881 shares of Series E convertible preferred stock were
outstanding and convertible into 198,810 shares of Common Stock; for EPS
purposes, the conversion features of these shares resulted in Common Stock
equivalents totaling 112,385 shares for the six months ended June 30, 1998. None
of these shares were included in the computation of diluted EPS for the six
months ended June 30, 1998 as the effect of adding back the related dividends
and the weighted average common shares is antidilutive.
Additional options to purchase approximately 528,000 shares of Common Stock at
various prices between $5.00 and $6.25 per share were outstanding at June 30,
1998, and options to purchase 342,800 shares of Common Stock at $6.00 per share
were outstanding at June 30, 1997. These options were not included in the
computations of diluted EPS because the options' exercise prices were greater
than the average market price of the common shares.
NOTE 10 - SUBSEQUENT EVENTS
During July 1998, the Company's Chief Executive Officer resigned from the
Company. In accordance with the terms of his employment agreement and Statement
of Financial Accounting Standards No. 112, Employers' Accounting for
Postemployment Benefits, the Company recognized expense of approximately
$500,000 in July 1998.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The Fortress Group, Inc. (the "Company" or "Fortress") was formed in
June 1995 and completed its initial public equity and senior note offerings on
May 16, 1996 (the "Offerings"). Simultaneous with the closing of the Offerings
on May 21, 1996, the Company acquired, in a series of transactions, four
homebuilding companies (collectively, the "Founding Builders" or "Combined
Predecessor Companies") which have operations in seven separate markets. During
the period prior to May 16, 1996, the Combined Predecessor Companies were not
under common control or management. The Offerings provided the capital required
to acquire the Founding Builders.
Fortress was founded on the belief that homebuilding is localized and
is most successful when managed by experienced local managers who have developed
in depth market knowledge and strong local relationships and that that success
can be even greater when combined with operating economies of scale and
significant sharing of operational best practices within the industry.
Consistent with the Company's stated strategy of growing through
acquisitions, the Company acquired Landmark Homes, Inc. ("Landmark"), with
operations in Wilmington, North Carolina and Myrtle Beach, South Carolina and
Brookstone Homes, Inc. ("Brookstone"), with operations in the Milwaukee-Madison,
Wisconsin corridor in 1996 and the following builders in 1997: D.W. Hutson
Construction Company ("Hutson"), with operations in the Jacksonville, Florida
area; Wilshire Homes, Inc. ("Wilshire"), with operations in San Antonio and
Austin, Texas; Don Galloway Homes, Inc. ("Galloway"), with operations primarily
in Charlotte, North Carolina and Charleston, South Carolina; and The Iacobucci
Organization ("Iacobucci"), with operations in the Philadelphia, Pennsylvania
area. In 1998 the Company has acquired WestBrook Homes ("WestBrook"), with
operations in the Loudoun County, Virginia; Whittaker Homes ("Whittaker"), with
operations in St. Louis, Missouri; and Quail Construction ("Quail"),with
operations in Portland, Oregon and Vancouver, Washington. All acquired companies
are referred to as the Acquired Builders. In addition, the Company formed
Fortress Mortgage, Inc. ("Fortress Mortgage") in January of 1997 as a
wholly-owned subsidiary of the Company.
The Company's revenues are derived primarily from the sale of the
residential homes. Revenue is generally recognized when construction of the home
is complete and title transfers from the Company to the buyer. Cost of sales
includes all direct and indirect construction costs including construction
supervision; land costs, including the purchase price of land and land
development costs, interest expense on related land acquisitions and land
development and construction loans; real estate taxes; and an accrual for
anticipated warranty and service costs. All of these costs incurred prior to
title transfer are capitalized into inventory and relieved from inventory at
time of title transfer concurrent with revenue recognition. Sales and marketing
costs, such as advertising and promotion expenses, as well as general and
administrative costs are recognized as expense when incurred.
The following table sets forth for the periods indicated certain items of the
Company's unaudited consolidated financial statements in dollars (expressed in
thousands) and as a percentage of the Company's total and segment revenues:
<TABLE>
<CAPTION>
For the Six Months For the Six Months
Ended Ended
June 30, 1998 June 30, 1997
------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Total revenues $287,011 100.0% $176,311 100.0%
Homebuilding revenues 285,300 99.4% 100.0% 175,646 99.6% 100.0%
Homebuilding gross profit including
step-up 42,382 14.8% 14.9% 25,724 14.6% 14.6%
Homebuilding gross profit excluding
step-up 43,453 15.1% 15.2% 26,137 14.8% 14.9%
Homebuilding income before taxes 6,281 2.2% 2.2% 3,653 2.1% 2.1%
Mortgage revenues 1,711 .6% 100.0% 685 .4% 100.0%
Mortgage expenses 1,700 .6% 99.4% 706 .4% 103.1%
Mortgage income before taxes 11 - .6% (21) - (3.1)%
Net income 3,773 1.3% 2,250 1.3%
<PAGE>
<CAPTION>
For the Three Months For the Three Months
Ended Ended
June 30, 1998 June 30, 1997
------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Total revenues $166,484 100.0% $105,992 100.0%
Homebuilding revenues 165,818 99.6% 100.0% 105,581 99.6% 100.0%
Homebuilding gross profit including
step-up 25,103 15.1% 15.1% 15,257 14.4% 14.5%
Homebuilding gross profit excluding
step-up 25,632 15.4% 15.5% 15,494 14.6% 14.7%
Homebuilding income before taxes 5,292 3.2% 3.2% 2,009 1.9% 1.9%
Mortgage revenues 666 .4% 100.0% 411 .4% 100.0%
Mortgage expenses 661 .4% 99.2% 401 .4% 97.6%
Mortgage income before taxes 5 - .8% 10 - 2.4%
Net income 3,176 1.9% 1,255 1.2%
</TABLE>
Acquisitions
The Company's actual results of operations reflect the operating
activity of the acquisitions from their respective effective dates of
acquisition.
Acquisition of WestBrook Homes
Effective January 1, 1998, the Company acquired WestBrook, a
homebuilder in Loudoun County, Virginia. Located west of the District of
Columbia, Loudoun County, Virginia is part of the Washington PMSA. WestBrook
builds first and second time move-up single-family homes and townhomes.
Acquisition of Whittaker Homes
Effective March 1, 1998, the Company acquired Whittaker, a homebuilder
in St. Charles County, Missouri. The largest single-family homebuilder in the
St. Louis MSA, Whittaker builds single-family detached and attached homes
targeting entry level and first and second move-up buyers.
Acquisition of Quail Construction
Effective April 1, 1998, the Company acquired Quail, a homebuilder
based in Vancouver, Washington with operations in the greater Portland, Oregon
market area marking the Company's expansion into the Pacific Northwest. Quail is
a single-family homebuilder whose product targets the entry level, first move-up
and empty-nester market segments.
<PAGE>
Consolidated Results of Operations
Comparison of the Company's Results of Operations for the Six and Three Months
Ended June 30, 1998 and 1997.
Homebuilding Operations
General
<TABLE>
<CAPTION>
New Orders, Net Closings Backlog/1 at June 30,
--------------- -------- ---------------------
Six Months Three Months Six Months Three Months
1998 1997 1998 1997 1998 1997 1998 1997 1998 1997
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
State
-----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Arizona 34 17 21 7 15 13 7 6 28 12
Colorado 232 199 112 83 171 163 97 94 244 174
Florida 500 265 183 204 329 251 174 192 322 234
Missouri 205 N/A 149 N/A 158 N/A 121 N/A 214 N/A
Nevada 83 70 47 41 49 39 34 17 98 52
North Carolina 410 219 207 119 315 212 161 119 346 171
Oregon 9 N/A 9 N/A 4 N/A 4 N/A 19 N/A
Pennsylvania 123 N/A 49 N/A 101 N/A 54 N/A 71 N/A
South Carolina 103 3 32 3 91 N/A 32 N/A 91 3
Texas 544 467 315 267 394 333 212 203 399 382
Virginia 29 N/A 9 N/A 14 N/A 9 N/A 27 N/A
Washington 22 N/A 22 N/A 17 N/A 17 N/A 14 N/A
Wisconsin 139 85 84 36 64 55 42 37 97 48
------ ----- ----- --- ----- ----- --- --- ----- -----
Total 2,433 1,325 1,239 760 1,722 1,066 964 668 1,970 1,076
</TABLE>
As seen in the above chart, the Company achieved new orders of 2,433
units for the six months ended June 30, 1998 as compared to 1,325 units in the
six months ended June 30, 1997, an increase of 83.6%. New orders for the quarter
ended June 30, 1998 and 1997 were 1,239 and 760, an increase of 63.0%. This
increase is attributable to the recent acquisitions and significant increases in
new orders in the Company's Denver, Fort Collins, Jacksonville, Austin, and
Janesville-Milwaukee operations. While 1997 was a sluggish year for the Austin
market, the Company has begun to see recovery in this market in 1998.
The Company has a combined backlog of 1,970 units with a dollar value
of $366.2 million as of June 30, 1998 as compared to 1,076 units with a dollar
value of $186.9 million as of June 30, 1997 which is consistent with the
increase in new orders as stated above. The per home value of backlog at June
30, 1998 is approximately $185,900 compared to $173,700 at June 30, 1997. This
is due to general price increases as well as a substantially higher (88.5%)
number of luxury homes in backlog at the Company's Las Vegas operations, where
homes had an average sale price of $444,800 for the first six months of 1998.
Revenues
Homebuilding revenues for the Company was $285.3 million for the six
months ended June 30, 1998 as compared to $175.6 million for the six months
ended June 30, 1997. The 62.5% increase in revenue is consistent with the 61.5%
increase in the number of units closed, 1,722 homes as compared to 1,066 homes
for the six months ended June 30, 1998 and 1997, respectively. For the quarter,
homebuilding revenues increased 57.0%, up $60.2 million to $165.8 million for
the quarter ended June 30, 1998 compared to $105.6 million for the quarter ended
June 30, 1997. This increases are attributable to moderate growth in the
founding builders and significant increases due
- --------
/1 Backlog represents homes sold but not yet closed.
<PAGE>
to the Company's recent acquisitions. Additionally, the average price of homes
closed during the first half of 1998 increased 1.2% to $163,800 from $161,900
for the first half of 1997. This is largely due to a 25.6% increase in homes
closed during the first six months of 1998 in the Las Vegas market, where, as
previously mentioned, the Company sells a high-end product.
Gross Profit
Gross profit for the six months ended June 30, 1998 was $42.4 million
compared to $25.7 million for the same period in 1997, representing an increase
of 65.0%. The Company's gross profit as a percentage of housing revenue, or
gross margin, increased to 14.9% from 14.6% for the same periods. For the
quarter, gross profit increased to $25.1 million in 1998 from $15.3 million in
1997 and the corresponding margins increased to 15.1% from 14.5%. The Company
has been able to achieve these increases in gross profits and gross margins
through our continued focus on builder integration, market acceptance of price
increases, and a strong national housing market.
Gross profits of acquired companies Landmark, Hutson, Galloway,
WestBrook, Whittaker, and Quail were lower than they ordinarily would be due to
amortization of inventory written up to fair value at their respective
acquisitions. Without this amortization, Fortress's gross profit as a percentage
of revenue would increase to 15.2% for the six months ended June 30, 1998 and
15.5% for the quarter then ended. The costs associated with purchase accounting
will decrease as the acquisition inventory is closed.
The slightly lower margins for the six months as compared to the
quarter are due to the effect of a successful concerted effort by the Company to
liquidate older, lower profit speculative housing inventory, particularly in its
Texas markets, during the first quarter of 1998.
Operating Expenses
Total operating expenses decreased as a percentage of revenue to 12.2%
($34.9 million) from 12.4% ($21.7 million) for the six months ended June 30,
1998 and 1997, respectively. Selling expenses increased to 6.7% ($19.0 million)
from 6.5% ($11.5 million). For the quarter ended June 30, 1998, total operating
expenses decreased as a percentage of revenue to 11.7% ($19.4 million) from
12.3% ($13.0 million). For the same periods, selling expenses decreased slightly
to 6.5% of revenue in 1998 from 6.6% of revenue in 1997. As discussed during the
first quarter review, the Company's Las Vegas subsidiary opened five new luxury
model homes in late December of 1997 which required extensive upgrades that are
being amortized as additional selling expenses. Without these additional costs
from this new community, selling expenses would have declined further.
Management has seen a high level of sales activity in this community since the
completion and opening of these model homes.
General and administrative expenses as a percentage of revenue
decreased to 5.2% in the first half of 1998 from 5.7% in the first half of 1997.
For the quarter, general and administrative expenses as a percentage of revenue
decreased to 4.9% in 1998 from 5.6% in 1997. This decrease is due management's
identification and utilization of opportunities to reduce costs as well as the
economies of scale gained from the Company's dramatic growth. The Company has
also been able to acquire certain builders with low general and administrative
expenses as compared to revenue.
Amortization of goodwill for the six months increased $909,000 to $1.1
million in 1998 from $234,000 in 1997 and for the quarter increased $471,000 to
$610,000 in 1998 from $139,000 in 1997. The increase in goodwill amortization is
a function of increased acquisitions during 1997 and the first half of 1998. The
Company had acquired four builders prior to June 30, 1997 and has acquired nine
builders through June 30, 1998.
Homebuilding Income before Taxes
Homebuilding pre-tax income increased $2.6 million to $6.3 million for
the first six months of 1998 from $3.7 million for the same period in 1997,
representing an increase of 70.3%. For the quarter, homebuilding pre-tax income
increased 165.0% to $5.3 million in 1998 from $2.0 million in 1997. These
increases are due to income
<PAGE>
from acquisitions made during 1997 and 1998 and higher gross profits in the
second quarter as previously discussed.
Fortress Mortgage Operations
Fortress Mortgage, which was formed in January of 1997, continues to
open new branch operations in our builder markets. At the end of the second
quarter of 1997, Fortress Mortgage had four operating branches and, by the end
of the second quarter of 1998, has opened an additional nine branches for a
current total of thirteen branches.
Fortress Mortgage had pre-tax income increased to $11,000 during the
first six months of 1998 from a loss of $21,000 for the first half of 1997. For
the quarter, Fortress Mortgage's pre-tax income decreased to $5,000 in 1998 from
$10,000 in 1997. Fortress Mortgage's earnings have been negatively impacted by
the start-up costs incurred in conjunction with these office openings. For the
first six months of 1998, Fortress Mortgage provided mortgages to 22% of the
Company's closings in those markets which it serves. This low capture rate is
due to many of the branches being recent entrants into their respective
marketplaces and, therefore, in the initial phases of the business growth cycle.
However, in those markets which Fortress Mortgage has served for one year or
more, the capture rate, the percentage of closings for which Fortress Mortgage
provided mortgages, for the first half of the year has increased to 53% in 1998
from 49% in 1997. The Company anticipates increased capture rates as more
recently opened branches continue to grow and stabilize.
Net Income
Due to the previously described factors and the income tax effect
thereof, net income for the first six months of 1998 increased 65.2% to $3.8
million from $2.3 million in 1997. Net income for the second quarter of 1998
increased 146.2% to $3.2 million from $1.3 million for the same quarter of 1997.
Earnings per share on a diluted basis for the six and three months
ended 1998 was impacted by the dilutive effect of the $40 million of Class AA
preferred stock issued to Prometheus at the end of the third quarter of 1997
($11.7 million) and on March 6, 1998 ($28.3 million). The proceeds from this
issuance were used for the acquisitions of Galloway, Iacobucci, Whittaker, and
Quail. Management anticipates that the earnings from these companies will exceed
the dilutive effect of this acquisition financing in the coming year.
Earnings before interest, taxes, depreciation and amortization (EBITDA)
increased 63.7% to $22.1 million for the six months ended June 30, 1998 compared
to $13.5 million for the same period 1997. For the quarter, EBITDA increased
75.9% to $13.9 million in 1998 from $7.9 million in 1997. EBITDA is provided as
a supplemental measurement of the Company's operating performance. EBITDA does
not represent cash flows from operations as defined by GAAP and should not be
considered as an alternative to net income as an indicator of the Company's
operating performance or to cash flows as a measure of liquidity. In addition,
EBITDA measures presented by the Company may not be comparable to other
similarly titled measures of other companies.
Liquidity and Capital Resources
The Company's operating activities involve several components,
principally home construction, land development and mortgage loan origination
for home purchasers. During the first six months of 1998, the Company's
operating activities, taken in the aggregate, provided approximately $6.6
million of cash. This cash flow was primarily generated by home sales which was
offset in part by the Company's increasing inventories due to additional build
up consistent with the Company's growth strategy and the seasonal nature of the
homebuilding industry.
The majority of the Company's investing activities during the
quarter--net cash use of $35.0 million--related to the purchases of Whittaker,
WestBrook, and Quail. The Company also paid approximately $2.0 million as
additional consideration under the earnout provisions of prior period
acquisitions. Additionally, the Company
<PAGE>
had cash outflows of approximately $3.2 million for property and equipment
partially resulting from the continued implementation of the management
information system. The Company also continued its investments in limited land
partnerships.
The Company's financing activities generated cash of $34.0 million,
consisting of the net proceeds from the issuance of 28,300 shares of Class AA
preferred stock to Prometheus and net notes and mortgages payable borrowings of
$8.1 million (which includes the borrowings/repayments to fund the mortgage
loans held for sale) and miscellaneous other financing activities.
The Company has entered into a stock purchase agreement (the
"Agreement") with Prometheus Homebuilders LLC ("Prometheus"), a subsidiary of
Lazard Freres Strategic Realty Investors II L.P., which commits Prometheus to
purchase $75 million of Fortress preferred stock and/or debt. The second closing
under the Agreement took place on March 6, 1998 with Prometheus's purchase of
28,300 shares ($28.3 million initial liquidation value) of Class AA preferred
stock. The proceeds were used to purchase Whittaker in March and Quail in April.
The Company is required to sell the remaining $35 million preferred stock and/or
debt to Prometheus by December 31, 1998.
The Company believes that funds available through the existing credit
facilities coupled with the cash on hand and cash generated through operations
will be adequate for the anticipated cash needs of its current operations for
the foreseeable future. As of June 30, 1998, the Company had cash and cash
equivalents on hand of $18.0 million.
At June 30, 1998, the Company had 4,098 lots in inventory, which
represent an estimated twelve month supply of land based on sales absorption
rates for the first six months of 1998. It is one of the Company's operating
strategies to keep a relatively low supply of finished lots and lots under
development in order to manage and minimize risk associated with land ownership.
The Company utilizes land options and investments in limited land partnerships
as methods of controlling and subsequently acquiring land. The Company plans to
continue these practices and expects to exercise, subject to market conditions,
substantially all of its option contracts. At June 30, 1998, the Company had an
additional 6,844 lots under option representing just under a one-and-a-half-year
supply of land based on the same absorption rates as above.
While increased emphasis will be placed upon integration and
improvements in the operations at existing divisions, the Company will continue
to pursue its strategy to increase operations through strategic acquisitions.
Such acquisitions may be funded through a combination of cash, stock (common and
preferred) and notes issued by the Company. Any cash portion will be funded by
cash from operations, availability under credit facilities (existing or newly
negotiated), the investment from Prometheus or a combination thereof.
<PAGE>
PART II -- OTHER INFORMATION
Item 2. Changes in Securities.
Effective April 1, 1998, the Company acquired the stock of Quail
Construction, Inc. ("Quail") from the shareholders of Quail. The consideration
paid by the Company consisted of cash, 17,381 shares of the Company's Series E
6% Cumulative Convertible Preferred Stock ("Series E Preferred Stock") having an
aggregate liquidation value of approximately $1.7 million, and the assumption of
Quail's debt. The Series E Preferred Stock will rank senior to the Common Stock
as to the payment of distributions upon the dissolution, liquidation or winding
up of the Company. Each share of the Series E Preferred Stock is convertible
into ten shares of Common Stock. The conversion rate is subject to certain
antidilution adjustments. Additionally, from and after the date the Common Stock
has traded on the market for $10.00 per share or more for ten consecutive
business days, the Company may, at its sole option, require the holders of the
Series E Preferred Stock to convert each share of Series E Preferred Stock into
ten shares of Common Stock. To the extent permitted under applicable law, the
Indenture governing the Company's Senior Notes, and the Class AA Preferred
Stock, each holder of Series E Preferred Stock has the right to require the
Company to redeem up to 20% of the total number of shares issued to such holder,
for a period of 30 days after each redemption date. The redemption dates are the
first trading day after the first, second, third, fourth and fifth anniversaries
of the date the Series E Preferred Stock was issued. The redemption amount will
be payable in cash, Common Stock, or a combination thereof, at the Company's
option. The Series E Preferred Stock was issued without registration under the
Securities Act of 1933, as amended (the "Securities Act"), pursuant to Section
4(2) as a transaction not involving a public offering.
Item 4. Submission of Matters to a Vote of Security Holders.
The annual meeting of the Company was held on June 17, 1998. The following items
were submitted for approval and approved by the shareholders with the voting
results as noted:
With respect to the election of the directors of the Company, all management
nominees for the Common Directors of the Board of Directors were approved as
solicited in the proxy. Each nominee received at least 16,570,559 votes.
Shareholders, representing 8,125 shares, withheld their votes from all nominees.
The highest number of shares withheld from any individual nominee was 8,625.
Additionally, the holders of the Series AA Preferred Stock have reelected Mssrs.
Freeman, Gunty and Klingbeil to the Board of Directors.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Number Description
------ -----------
27 Financial Data Schedule.
(b) Reports on Form 8-K.
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE FORTRESS GROUP, INC.
Date: 8/14/98 By: /s/ George C. Yeonas
----------------- -------------------------------------
George C. Yeonas
President and Chief Operating Officer
Date: 8/14/98 By: /s/ Jamie M. Pirrello
----------------- -------------------------------------
Jamie M. Pirrello
Chief Financial Officer
<PAGE>
EXHIBIT INDEX
Number Description Page
------ ----------- ----
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Fortress Group, Inc. Consolidated Balance Sheet as of June 30, 1998 and
from the Fortress Group, Inc. Consolidated Statement of Operations for the
Six Months Ended June 30, 1998.
</LEGEND>
<CIK> 0001010607
<NAME> The Fortress Group, Inc.
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1.00
<CASH> 18,021
<SECURITIES> 0
<RECEIVABLES> 17,401
<ALLOWANCES> 0
<INVENTORY> 292,700
<CURRENT-ASSETS> 0
<PP&E> 13,369
<DEPRECIATION> 0
<TOTAL-ASSETS> 431,987
<CURRENT-LIABILITIES> 0
<BONDS> 100,000
0
2
<COMMON> 121
<OTHER-SE> 92,749
<TOTAL-LIABILITY-AND-EQUITY> 431,987
<SALES> 285,300
<TOTAL-REVENUES> 287,011
<CGS> 242,918
<TOTAL-COSTS> 277,838
<OTHER-EXPENSES> 823
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,101
<INCOME-PRETAX> 6,292
<INCOME-TAX> 2,519
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,773
<EPS-PRIMARY> 0.23
<EPS-DILUTED> 0.20
</TABLE>
