FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
-----------------------
{X} QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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 001-11549
BLOUNT INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 63-0780521
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4520 Executive Park Drive 36116-1602
Montgomery, Alabama (Zip Code)
(Address of principal executive offices)
(334) 244-4000
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
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, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Outstanding at
Class of Common Stock March 31, 1998
--------------------- ------------------
Class A Common Stock $.01 Par Value 25,925,228 shares
Class B Common Stock $.01 Par Value 11,619,936 shares
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BLOUNT INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX
Page No.
------------
Part I. Financial Information
Condensed Consolidated Balance Sheets -
March 31, 1998 and December 31, 1997 3
Condensed Consolidated Statements of Income -
three months ended March 31, 1998 and 1997 4
Condensed Consolidated Statements of Cash Flows -
three months ended March 31, 1998 and 1997 5
Condensed Consolidated Statements of
Changes in Stockholders' Equity 6
Notes to Condensed Consolidated Financial Statements 7
Management's Discussion and Analysis 10
Part II. Other Information
Item 6(b) - Reports on Form 8-K 13
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BLOUNT INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
March 31, December 31,
1998 1997
--------- ------------
(Unaudited)
ASSETS
------
Current assets:
Cash and cash equivalents, including short-term
investments of $2,615 and $2,965 $ 4,314 $ 4,848
Accounts receivable, net of allowance for
doubtful accounts of $4,136 and $3,652 157,278 135,668
Inventories 140,556 132,852
Deferred income taxes 22,017 21,988
Other current assets 5,672 5,859
-------- --------
Total current assets 329,837 301,215
Property, plant and equipment, net of accumulated
depreciation of $194,223 and $188,274 188,139 188,506
Cost in excess of net assets of acquired businesses, net 116,759 116,371
Other assets 30,164 31,719
-------- --------
Total Assets $664,899 $637,811
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Notes payable and current maturities of
long-term debt $ 7,720 $ 1,464
Accounts payable 64,979 56,618
Accrued expenses 71,399 72,052
-------- --------
Total current liabilities 144,098 130,134
Long-term debt, exclusive of current maturities 140,426 138,837
Deferred income taxes, exclusive of current portion 14,979 15,177
Other liabilities 36,863 37,575
-------- --------
Total liabilities 336,366 321,723
-------- --------
Commitments and Contingent Liabilities
Stockholders' equity:
Common Stock: par value $.01 per share
Class A: 27,281,739 and 27,277,969 shares issued 273 273
Class B, convertible: 11,619,936 and 11,620,552
shares issued 116 116
Capital in excess of par value of stock 37,743 37,663
Retained earnings 310,706 300,272
Accumulated other comprehensive income 7,033 7,050
Less Class A treasury stock at cost,
1,356,511 and 1,453,180 shares (27,338) (29,286)
-------- --------
Total stockholders' equity 328,533 316,088
-------- --------
Total Liabilities and Stockholders' Equity $664,899 $637,811
======== ========
The accompanying notes are an integral part of these statements.
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BLOUNT INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except share data)
Three Months Ended March 31,
----------------------------
1998 1997
---------- ----------
(Unaudited)
Sales $ 199,734 $ 170,063
Cost of sales 139,229 113,794
---------- ----------
Gross profit 60,505 56,269
Selling, general and administrative expenses 35,565 33,163
---------- ----------
Income from operations 24,940 23,106
Interest expense (3,031) (2,205)
Interest income 378 576
Other income (expense), net (25)
---------- ----------
Income before income taxes 22,287 21,452
Provision for income taxes 8,580 7,860
---------- ----------
Net income $ 13,707 $ 13,592
========== ==========
Earnings per share:
Basic $ .37 $ .36
========== ==========
Diluted $ .36 $ .35
========== ==========
Cash dividends declared per share:
Class A Common Stock $ .071 $ .063
========== ==========
Class B Common Stock $ .067 $ .059
========== ==========
The accompanying notes are an integral part of these statements.
Page 4
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BLOUNT INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Three Months Ended March 31,
----------------------------
1998 1997
---------- ----------
(Unaudited)
Cash Flows From Operating Activities:
Net Income $ 13,707 $ 13,592
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, amortization and other
noncash charges 7,396 6,132
Deferred income taxes (227) 19
Gain on disposals of property, plant
and equipment (14) (429)
Changes in assets and liabilities, net of
effects of businesses acquired and sold:
Increase in accounts receivable (21,610) (20,971)
(Increase) decrease in inventories (8,335) 1,631
Decrease in other assets 1,303 2,279
Increase (decrease) in accounts payable 8,140 (511)
Decrease in accrued expenses (715) (2,124)
Increase (decrease) in other liabilities (730) 1,608
---------- ----------
Net cash provided by (used in)
operating activities (1,085) 1,226
---------- ----------
Cash Flows From Investing Activities:
Proceeds from sales of property, plant
and equipment 31 585
Purchases of property, plant and equipment (6,089) (3,509)
Acquisitions of businesses (18,599)
---------- ----------
Net cash used in investing activities (6,058) (21,523)
---------- ----------
Cash Flows From Financing Activities:
Net increase in short-term borrowings 6,386 422
Issuance of long-term debt 4,000
Reduction of long-term debt (2,541) (5,901)
Decrease in restricted funds 4 292
Dividends paid (2,620) (2,377)
Purchase of treasury stock (14,140)
Other 1,380 2,370
---------- ----------
Net cash provided by (used in)
financing activities 6,609 (19,334)
---------- ----------
Net decrease in cash and cash equivalents (534) (39,631)
Cash and cash equivalents at beginning of period 4,848 58,708
---------- ----------
Cash and cash equivalents at end of period $ 4,314 $ 19,077
========== ==========
The accompanying notes are an integral part of these statements.
Page 5
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<TABLE>
BLOUNT INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY (Unaudited)
(In thousands)
<CAPTION>
Accumulated
Common Stock Capital Other
---------------- In Excess Retained Comprehensive Treasury
Class A Class B of Par Earnings Income Stock Total
------- ------- --------- -------- ------------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1997 $ 134 $ 59 $34,813 $252,164 $ 7,878 $ (4,282) $290,766
Net income 13,592 13,592
Other comprehensive
income (loss), net (564) (564)
--------
Comprehensive income 13,028
--------
Dividends (2,360) (2,360)
Purchase of treasury stock (14,140) (14,140)
Other 2 2,368 2,370
----- ----- ------- -------- ------- -------- --------
Balance, March 31, 1997 $ 136 $ 59 $37,181 $263,396 $ 7,314 $(18,422) $289,664
===== ===== ======= ======== ======= ======== ========
Balance, January 1, 1998 $ 273 $ 116 $37,663 $300,272 $ 7,050 $(29,286) $316,088
Net income 13,707 13,707
Other comprehensive
income (loss), net (17) (17)
--------
Comprehensive income 13,690
--------
Dividends (2,625) (2,625)
Other 80 (648) 1,948 1,380
----- ----- ------- -------- ------- -------- --------
Balance March 31, 1998 $ 273 $ 116 $37,743 $310,706 $ 7,033 $(27,338) $328,533
===== ===== ======= ======== ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
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BLOUNT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 In the opinion of management, the accompanying unaudited condensed
consolidated financial statements of Blount International, Inc. and Subsidiaries
("the Company") contain all adjustments (consisting of only normal recurring
accruals) necessary to present fairly the financial position at March 31, 1998
and the results of operations and cash flows for the periods ended March 31,
1998 and 1997. These financial statements should be read in conjunction with
the notes to the financial statements included in the Company's Annual Report on
Form 10-K for the year ended December 31, 1997. The results of operations for
the periods ended March 31, 1998 and 1997 are not necessarily indicative of the
results to be expected for the twelve months ended December 31, 1998, due to the
seasonal nature of certain of the Company's operations.
Certain amounts in the prior year's financial statements and notes to
consolidated financial statements have been reclassified to conform with the
current year's presentation.
The Company's Internet home page is http://www.blount.com.
NOTE 2 Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income." SFAS
No. 130 establishes standards for the reporting and display of comprehensive
income and its components in the financial statements. Prior periods have been
reclassified to reflect the adoption of this standard. The adoption of SFAS No.
130 has no material impact on the Company's consolidated results of operations,
financial position or cash flows. Comprehensive income equals net income plus
other comprehensive income. Other comprehensive income refers to revenue,
expenses, gains and losses which are reflected in stockholders' equity but
excluded from net income. For the Company, the components of other
comprehensive income are principally foreign currency translation adjustments
and unrealized gains or losses on investments.
NOTE 3 Inventories consist of the following (in thousands):
March 31, December 31,
1998 1997
------------ ------------
Finished goods $ 87,235 $ 78,984
Work in process 20,586 20,837
Raw materials and supplies 32,735 33,031
-------- --------
$140,556 $132,852
======== ========
NOTE 4 On December 17, 1997, the Company and Blount, Inc., its wholly-owned
subsidiary, filed a Form S-3 Registration Statement with the Securities and
Exchange Commission for an issue in the first half of 1998 of $150 million
Senior Notes due 2008. The Company plans to use the proceeds of the Senior
Notes to repay outstanding indebtedness under its revolving credit agreement and
to redeem all of its outstanding 9% senior subordinated notes. The balance of
the proceeds will be used for general corporate purposes, including the post-
closing adjustment to the purchase price of Federal Cartridge Company
("Federal"). See Note 4 of Notes to Consolidated Financial Statements included
in the Company's Annual Report on Form 10-K for the year ended December 31, 1997
for information relating to the Federal acquisition.
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NOTE 5 Segment information is as follows (in thousands):
Three Months Ended March 31,
----------------------------
1998 1997
---------- ----------
Sales:
Outdoor Products $ 77,534 $ 82,212
Industrial and Power Equipment 60,889 54,256
Sporting Equipment 61,311 33,595
---------- ----------
$ 199,734 $ 170,063
========== ==========
Operating income:
Outdoor Products $ 15,953 $ 17,373
Industrial and Power Equipment 9,952 6,819
Sporting Equipment 4,061 3,515
---------- ----------
Operating income from segments 29,966 27,707
Corporate office expenses (5,026) (4,601)
---------- ----------
Income from operations 24,940 23,106
Interest expense (3,031) (2,205)
Interest income 378 576
Other income (expense), net (25)
---------- ----------
Income before income taxes $ 22,287 $ 21,452
========== ==========
NOTE 6 In 1989, the United States Environmental Protection Agency ("EPA")
designated a predecessor of the Company as one of four potentially responsible
parties ("PRPs") with respect to the Onalaska Municipal Landfill in Onalaska,
Wisconsin ("the Site"). The waste complained of was placed in the landfill
prior to 1981 by a corporation, some of whose assets were later purchased by a
predecessor of the Company. It is the view of management that because the
Company's predecessor corporation purchased assets rather than stock, the
Company is not liable and is not properly a PRP. Although management believes
the EPA is wrong on the successor liability issue, with other PRPs, the Company
made a good faith offer to the EPA to pay a portion of the Site clean-up costs.
The offer was rejected and the EPA and State of Wisconsin ("the State")
proceeded with the clean-up at a cost of approximately $12 million. The EPA and
the State brought suit in 1996 against the Town of Onalaska ("the Town") and a
second PRP, Metallics, Inc., to recover response costs. On December 18, 1996,
the United States District Court for the Western District of Wisconsin approved
and entered Consent Decrees pursuant to which the Town and Metallics, Inc.
settled the suit and will pay a total of $1.8 million to the EPA and the State.
The Company continues to maintain that it is not a liable party. The EPA has
not taken action against the Company, nor has the EPA accepted the Company's
position. The Company does not know the financial status of the other named and
unnamed PRPs who may have liability with respect to the Site. Management does
not expect the situation to have a material adverse effect on consolidated
financial condition or operating results.
Under the provisions of Washington State environmental laws, the Washington
State Department of Ecology ("WDOE") has notified the Company that it is one of
many companies named as a Potentially Liable Party ("PLP"), for the Pasco
Sanitary Landfill site, Pasco, Washington ("the Site"). Although the clean-up
costs are believed to be substantial, accurate estimates will not be available
until the environmental studies have been completed at the Site. However, based
upon the total documented volume of waste sent to the Site, the Company's waste
Page 8
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volume compared to that total waste volume should cause the Company to be
classified as a "de minimis" PLP. In July 1992, the Company and thirty-eight
other PLPs entered into an Administrative Agreed Order with WDOE to perform a
Phase I Remedial Investigation at the Site. In October 1994, WDOE issued an
administrative Unilateral Enforcement Order to all PLPs to complete a Phase II
Remedial Investigation and Feasibility Study ("RI/FS") under the Scope of Work
established by WDOE. The results of the RI/FS investigation are not expected
until later in 1998. The Company is unable to determine, at this time, the
level of clean-up demands that may be ultimately placed on it. Management
believes that, given the number of PLPs named with respect to the Site and their
financial condition, the Company's potential response costs associated with the
Site will not have a material adverse effect on consolidated financial condition
or operating results.
The Company is a defendant in a number of product liability lawsuits, some of
which seek significant or unspecified damages, involving serious personal
injuries for which there are retentions or deductible amounts under the
Company's insurance policies. In addition, the Company is a party to a number
of other suits arising out of the conduct of its business. While there can be
no assurance as to their ultimate outcome, management does not believe these
lawsuits will have a material adverse effect on consolidated financial condition
or operating results.
See Note 8 to the Consolidated Financial Statements included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1997 for other
commitments and contingencies of the Company which have not changed
significantly since that date.
NOTE 7 Income taxes paid during the three months ended March 31, 1998 and 1997
were $4.8 million and $3.0 million. Interest paid during the three months ended
March 31, 1998 and 1997 was $1.2 million and $0.4 million.
NOTE 8 For the periods ended March 31, 1998 and 1997, net income and shares
used in the earnings per share ("EPS") computations were the following amounts:
Three Months Ended March 31,
----------------------------
1998 1997
---------- ----------
Net income (in thousands) $ 13,707 $ 13,592
========== ==========
Shares:
Basic EPS - weighted average common
shares outstanding 37,503,917 38,201,578
Dilutive effect of stock options 1,083,632 866,446
---------- ----------
Diluted EPS 38,587,549 39,068,024
========== ==========
During the first quarter of 1998, the Company's Board of Directors adopted a new
non-qualified stock option plan under which options to purchase the Company's
Class A Common Stock may be granted to officers or other key employees. The
number of shares which may be issued under the plan may not exceed 1,200,000
shares and the option price per share may not be less than the fair market value
of one share of Class A Common Stock on the date of grant. Options to purchase
562,550 shares were granted during the first quarter of 1998.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
Operating Results
Sales for the three months ended March 31, 1998, were $199.7 million compared to
$170.1 million for the comparable period of the prior year. Net income for the
first quarter of 1998 was $13.7 million ($.36 per diluted share) compared to net
income of $13.6 million ($.35 per diluted share) for the comparable period of
the prior year. These operating results reflect improved operating income from
the Industrial and Power Equipment and the Sporting Equipment segments, and
lower income from the Outdoor Products segment. Selling, general and
administrative expenses were higher during the current year's first quarter,
reflecting the addition of Federal, acquired during the fourth quarter of the
prior year. Higher interest expense during the three months ended March 31,
1998, reflects higher debt levels during the current year, principally due to
the Federal acquisition. The principal reasons for these results and the status
of the Company's financial condition are set forth below and should be read in
conjunction with the Company's Annual Report on Form 10-K for the year ended
December 31, 1997.
Sales for the Outdoor Products segment for the first quarter of 1998 were $77.5
million compared to $82.2 million during the first three months of 1997.
Operating income was $16.0 million during the first quarter of 1998 compared to
$17.4 million in the first three months of the prior year. The lower sales and
operating income resulted principally from a lower volume of saw chain sales,
primarily due to poor economic conditions in Asia, and lower lawn mower sales,
reflecting unfavorable weather conditions.
Sales for the Industrial and Power Equipment segment were a first quarter record
of $60.9 million during the first quarter of 1998 compared to $54.3 million
during the same period last year. Operating income was $10.0 million for the
first quarter compared to $6.8 million for the comparable period of the prior
year. The improved sales and operating income resulted primarily from higher
sales of forestry harvesting equipment due to improved market conditions.
Sales for the Sporting Equipment segment were $61.3 million in the first quarter
of 1998 compared to $33.6 million in the comparable period of 1997. Operating
income was $4.1 million during the first three months of the current year
compared to $3.5 million during the same period of last year. The improved
results are primarily due to the additional sales and income from Federal whose
principal selling season and income normally occurs later during the year.
The Company's total backlog at March 31, 1998 was $90.9 million compared to
$117.9 million at December 31, 1997 and $75.3 million at March 31, 1997.
Financial Condition, Liquidity and Capital Resources
At March 31, 1998, the Company had $58 million outstanding under its $150
million revolving credit agreement and 9% subordinated notes of $68.8 million
outstanding which mature in 2003. The long-term debt to equity ratio was .4 to
1 at March 31, 1998 and December 31, 1997. On December 17, 1997, the Company and
Blount, Inc., its wholly-owned subsidiary, filed a Form S-3 Registration
Statement with the Securities and Exchange Commission for an issue in the first
half of 1998 of $150 million Senior Notes due 2008. The Company plans to use
the proceeds of the Senior Notes to repay outstanding indebtedness under its
revolving credit agreement and to redeem all of its outstanding 9% senior
subordinated notes. The balance of the proceeds will be used for general
corporate purposes, including the post-closing adjustment to the purchase price
of Federal. See Note 3 of Notes to the Consolidated Financial Statements
Page 10
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included in the Company's Annual Report on Form 10-K for the year ended December
31, 1997, for the terms and conditions of the $150 million revolving credit
agreement and the 9% subordinated notes.
Cash balances at March 31, 1998, were $4.3 million compared to $4.8 million at
December 31, 1997. Working capital was $185.7 million at March 31, 1998
compared to $171.1 million at December 31, 1997, reflecting increases in
accounts receivable, inventory and accounts payable, principally reflecting
seasonal selling patterns and the related inventory buildup. At March 31, 1998,
borrowings under short-term lines to meet short-term seasonal needs were $6.8
million.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS No. 131 establishes standards for the
way that public business enterprises report information about operating segments
in annual and interim financial statements. It also establishes standards for
related disclosures about products and services and geographic areas. SFAS No.
131 is required to be applied beginning with the Company's 1998 annual financial
statements. Financial statement disclosures for prior periods are required to
be restated. The Company expects that the adoption of SFAS No. 131 will have no
material impact on the Company's consolidated results of operations, financial
position or cash flows.
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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.
BLOUNT INTERNATIONAL, INC.
- ----------------------------------
Registrant
Date: May 8, 1998 /s/ Harold E. Layman
--------------------------------------
Harold E. Layman
Executive Vice President - Finance
Operations and Chief Financial Officer
Page 12
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PART II - Other Information
ITEM 6(b) - Reports on Form 8-K
On January 20, 1998, the Company filed Form 8-K/A amending the Form 8-K filed on
November 19, 1997 reporting Item 7(a), Financial Statements of Businesses
Acquired, and Item 7(b), Unaudited Pro Forma Financial Information, for the
acquisition of Federal Cartridge Company.
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF BLOUNT INTERNATIONAL, INC. FOR THE PERIOD ENDED
MARCH 31, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 4,314
<SECURITIES> 0
<RECEIVABLES> 161,414
<ALLOWANCES> 4,136
<INVENTORY> 140,556
<CURRENT-ASSETS> 329,837
<PP&E> 382,362
<DEPRECIATION> 194,223
<TOTAL-ASSETS> 664,899
<CURRENT-LIABILITIES> 144,098
<BONDS> 140,426
0
0
<COMMON> 389
<OTHER-SE> 328,144
<TOTAL-LIABILITY-AND-EQUITY> 664,899
<SALES> 199,734
<TOTAL-REVENUES> 199,734
<CGS> 139,229
<TOTAL-COSTS> 139,229
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,031
<INCOME-PRETAX> 22,287
<INCOME-TAX> 8,580
<INCOME-CONTINUING> 13,707
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,707
<EPS-PRIMARY> 0.37
<EPS-DILUTED> 0.36
</TABLE>
