AAR Corp (AIR) 2009 Q2 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the AAR Corporation's fiscal 2009 second quarter conference call. At this time, all participants are in a listen only mode. Later we will conduct a question and answer session and instructions will follow at that time. (Operator Instructions). As a reminder this conference call is being recorded.

I would now like to introduce your host for today's presentation. Ms. Miriam Barreto. Ms. Barreto, you may begin, ma'am.

Thank you, Howard. Good morning, ladies and gentlemen, and thank you for joining this morning's conference call. Before we begin, we would like to remind you that certain of the comments made today relate to future events, which are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995.

Please refer to the forward-looking statement disclaimer contained in the press release issued yesterday as well as those factors discussed under Item 1 A entitled Risk Factors included in the May 31, 2008 Form 10-K. By providing forward-looking statements, the Company assumes no obligation to update the forward-looking statements to reflect events or circumstances after the date of such statements, or to reflect the occurrence of anticipated or unanticipated events. At this time, I'd like to turn the call over to our Chairman and CEO, David Storch.

Thank you, Miriam and good morning, everyone. Joining me today in the boardroom at AAR is Tim Romenesko, our President and Chief Operating Officer, and Rick Poulton, our Chief Financial Officer. Since we last spoke in mid September, the economy has been upside down and we formally entered a recession. Unemployment continues to rise and there's been unprecedented weakness in credit markets. Further, certain large well known enterprises have either failed or sought federal assistance and the nation's auto industry has come under acute pressure. Closer to our markets, many airlines reduced capacity in the Fall and some are announcing new cuts for 2009.

In spite of these current events, we delivered a solid quarter. Sales increased 14% over the prior year to $354 million and diluted earnings per share from continuing operations increased a very respectable 21% to $0.51 per share. Virtually all of the sales growth was from acquisitions with organic sales increasing 3.5%, excluding aircraft sales and leasing. Sales to defense customers increased a robust 32% and represented 43% of total sales for the second quarter. Sales to commercial customers increased 3% while excluding the aircraft sales and leasing segment, the commercial sales growth was 10%.

Let me begin today by addressing our cash and liquidity position. We're very focused on maintaining a strong balance sheet and liquidity position. We generated $18.6 million of cash from operations and ended the quarter with almost $122 million of cash on hand. Cash on hand and borrowing available under our credit agreement totaled $281 million. We have $9.6 million of debt for an equipment purchase that is due in the fourth quarter, and after that, our next significant debt maturity is for $42 million and is not due until May 15, 2011.

As we get into the businesses in the aviation supply chain segment, sales were relatively flat and grew by 1% to $146 million and the gross profit margin improved to 24.6%. We experienced double digit sales growth at our defense-related performance base logistics business and nearly double digit sales growth in our largest after market parts business and we continue to invest in that to support our leadership positions in both these businesses. Consistent with our communications in September, we experienced reduced volumes to Mesa Airlines during the period. and foreign currency translation also unfavorably impacted sales numbers. Together, these had an approximate three percentage point impact on the growth rate in the segment. Sales were also impacted by lower sales of big ticket items. such as engines and major structural components. and sales pressure at our European component repair shop. and we are currently evaluating a number of different alternatives to improve this business over in Amsterdam.

Sales in our maintenance repair and overhaul segment increased 27% to $87 million, and our gross profit margin improved to 15.4% compared to 14.4% last year. The sales increase was attributable to the inclusion of sales from Avborne, which was acquired in March 2008, and which reported improved results over the first quarter of this year. Our landing gear business produced record results and is benefiting from expanded relationships with numerous US carriers as well as productivity initiatives implemented in prior quarters.

In our structures and systems segment, sales increased 44% to $115 million and the gross profit margin improved to 16.4% from 13.5% last year, so nice improvement. The sales increase was driven by the inclusion of SUMMA, which was acquired in December 2007, and continued strength in our mobility systems unit, reflecting increased market penetration. We announced a number of new contracts in this segment, including a contract for up to $300 million to repair pallets for the US Army in which we not currently count in our backlog because of the nature of the contract and the work, $115 million contract to manufacture shelters as a subcontractor for BAE Systems for its family of tactical vehicles, and a $40 million contract to manufacture containerized roll in, roll out platforms for the US Army.

During the second quarter we sold two aircraft from our joint venture portfolio, which drove the $2.4 million increase in earnings from joint ventures reported on our income statement. As discussed in our release, due to the economic slowdown and credit crisis, we performed a very comprehensive assessment of our aircraft portfolio. Based on that review and the desire to enhance liquidity, we recorded a $21 million impairment charge to writedown to net realizable value three aircraft from our wholly owned portfolio. All of these aircraft were acquired before September 11, 2001. The balance of our portfolio requires no adjustment. During the second quarter one of the aircraft was sold and the other two were offered for sale. In addition to two aircraft sold from our joint venture portfolio, and the sale of one aircraft from our wholly owned portfolio, we paid off $7.8 million of non-recourse debt associated with a wholly owned A320 aircraft which is on lease to Air Canada for seven more years, and the unlevered return on the investment on this aircraft is 15%.

At November 30, our aircraft position includes 27 aircraft held in our joint venture portfolio, and seven aircraft in our wholly owned portfolio. Our equity investment on our entire aircraft portfolio declined to approximately $80 million at November 30, down from $98 million at May 31. In connection with our wholly owned aircraft portfolio, we have $32 million of non-recourse debt which we view as fully non-recourse. We feel very good about the moves we made during the quarter with nice gains on two aircraft sold from joint ventures and cash generated from the sale. Of the 34 aircraft in our portfolio, 32 are currently on lease. and we expect to close on the sale of one of the two unleased aircraft this week, and we are planning to disassemble and sell the other through our supply chain network. Based on our current view of the market, we will continue to sell down our position and monetize our investments.

During the period we also acquired $56.6 million of our convertible notes for $33.3 million in cash, which resulted in a $22 million gain. As a result of the retirement of notes, shared used to calculate diluted earnings per share will be reduced by approximately 500,000, and will be, and this transaction as a result of these purchases will be $0.03 accretive to earnings on an annual basis. As we enter the second half of the fiscal year, I'm encouraged by the company's position in its markets, investments we have made, the increase in backlog, and the general pace of activity. Thank you for joining us today in the conference call and I would like to now open up the line to any questions you may have.

(Operator Instructions). Our first question or comment comes from the line of Larry Solow from CJS Securities. Your line is open.

Hi, guys. Could you maybe discuss some trends you saw during the quarter as capacity I guess was coming off during as the quarter unfolded and kind of the body language you're seeing out of your airline customers with the price of oil falling and obviously that's offset by the worsening economy?

Yeah, I mean, the pace of activity is okay. Considering that you've had this many aircraft coming out of the system, I think we're still seeing some pretty good action in our business. I mean clearly, the growth across the segment, the Supply Chain segment was not where we would like it to be, but if you look at, if you break it down to its elements, we were impacted by some of the currency issues over in Europe.

We did have softening in some of the European inputs into our component shops but the main Supply Chain business, our engine business continues to perform very strongly, very close to double digit growth, actually 9% sales growth on a year-over-year basis and I think the guys are out there, the inputs we're seeing some decent inputs and we would expect that we have made some decent investments, here we would expect that we should start seeing decent results, decent growth. We're getting good margins out of the business, so pricing pressure hasn't been there. We are focused on cash, so we are looking to turn things a little quicker and so I think in general, the pace isn't that bad.

Your gross margins actually surprisingly held up, or even year-over-year and sequentially were both up so I guess you're not seeing any pricing pressure.

Well, I wouldn't say not seeing any. I mean, as a balance between trying to get velocity so moving things faster, our turns, inventory turns did well and they were up from 3 to 3.1, so I think we're satisfying our customers. We're giving them good service, good support and we're able to get a fair return for it.

And just last question. On your backlog, you referenced it being up 28%. Is that year-over-year, or is that just six months, for six months of the year?

Yeah, that's the first six months. That's since May 31.

Got you. Thanks a lot.

Yeah, sure.

Our next question or comment comes from the line of Mr. Tyler Hojo from Sidoti & Company. Your line is open.

Hi. Good morning. You talked a little bit about the Aviation Supply Chain and what kind of drove some of the lack of sales growth this quarter, but I mean, what are your expectations there, and maybe if you could more broadly just talk about some of the growth initiatives. I know you've in the past highlighted some opportunities for us to keep our eyes on.

Yeah, Tyler, the opportunities are not too dissimilar to what they've been in the past. It's really a function at this point in time as to how much balance sheet we want to commit. There are opportunities to go ahead and support various operators and it's a function of as I said, the balance sheet that we're being asked to commit and the kind of returns that we expect against those investments, so we're looking at the world I think today appropriately. These are usual times, capital markets are unusually tight. We haven't necessarily experienced that, but our concern is that our customers may, so we're operating very defensively I would say, yet at the same token looking for those opportunities where we can put our capital to work and get a fair return, and protect the balance sheet and make sure that we're making good credit decisions and things of that nature, so the opportunity pool is I would say steady.

Clearly, we tried to communicate in today's or yesterday's earnings release and today's comments is that a couple of the segments within the supply chain are still performing quite well. We have seen some fall off in inputs in our European shop. Some of that is structural. We're in a high cost environment there in Amsterdam. Our New York component shop is flat, not up, not down, but of course, umber wise, it's a drag on the growth rate because it's 20 some odd million of revenue that's flat , but the overall, Tyler, I would say that the Company is, we're in a good position to benefit, as people look to streamline their operation and operate more efficiently and things of that nature.

Okay, thanks for that. And then if you could just talk briefly about, I don't think you mentioned this in your prepared remarks, just the composite initiative and how that's progressing.

Yeah, we are up and running in Sacramento. The business is starting to perform. I think as we've indicated before, it's going to, there's a time lapse if you will between getting up and running and starting to book significant business but I would expect that we will keep to our same committment in the five year period that this will be $100 million business.

Great. I'll let somebody else ask.

Our next question or comment comes from the line of Eric Hugel from Stephens. Your line is open, sir.

Good morning guys.

Good morning.

Can you talk about Mesa sort of, where are we in the ramp down path? I mean, have we sort of pretty much gotten down to the new run rate level, or are we still sort of heading down?

I think if their fleet stays constant, then we're probably, we'll probably see a steady flow from here on out. There might be some fall off but it's not going to be significant. And that's assuming that their situation stays steady.

Do you see potentially a resurgence maybe in RJ's given now that fuel prices have come down and demand is dropping off, sort of like what happened after 9/11, the risk of flying a larger plane sort of is higher, so you sort of moved toward a smaller plane, take less risk and fly more frequency?

Yeah, I think that's a valid assumption. I think clearly, it's easier to keep these airplanes in service than it would be to bring say the 737-300's back into service, so I think as the requirement for lift is there , I think with the low price of oil, I think these aircraft make a lot more sense.

Well, I mean, with regards to the Aviation Supply Chain, you did 1%. I mean you got the headwind. I'm just trying to figure out going forward, does the Mesa headwind become sort of a bigger or smaller headwind to growth? Should we continue to expect sort of 1% type of growth in this business or is it going to continue to deteriorate?

I would be surprised if it deteriorates, so my view is that you will see more growth in the second half of the year or third and fourth quarters than you saw in this period.

All right can you give us a sense on the Structures and Systems business, the margins were very very nice. How much of that was mix which may not be sustainable, versus the cargo system business improvement which should be sustainable?

Kind of even if you will. I mean, we had good mix, and we had nice improvement in cargo systems, so I think a combination, Eric. I think it's too hard to delineate one versus the other. I think the both kind of contribute to the improvement.

Okay, but so okay, but so the cargo system, that was just sort of again, you've got the new facility up and running in Greensboro, and that's beginning to crank out volume, part of that so we should be seeing sort of a structural step up in the margins versus mix can go on and off?

Well, yeah. I think the contribution from the cargo systems business is going to be with us. I think in addition to mix that some of the other Structures and Systems businesses, Eric, we're also getting some operating leverage, so I think we feel good about the sustainability of the margins in this kind of range.

All right, great. When do we see the revenue benefit? I guess first of all, of those new contracts that you talked about, I guess the FMTV shelters, the row-row containers and the pallet refurb, how much of that is sort of incremental business versus what you're doing now or have been doing in the past. Like my understanding is the pallet refurb is really just sort of continuation, you're building pallets before and now you're just refurbishing them so if I think about the revenue stream from pallets that's sort of relatively constant. How should we think about sort of when or sort of in incremental sense when do we start to see that?

Well you're going to start to see the benefits of those wins immediately and it's true that they do in some cases replace existing work that's been completed, but we are looking for some incremental results as these contracts start to deliver. Particularly the shelter award, Eric.

The shelter award should be nicely incremental?

As that ramps up, yes.

And that ramps up what over the next couple months?

It ramps up over the next couple months. It goes for longer than that.

Right, okay. And finally, I guess the question on the aircraft portfolio, the writedown. You guys said you did a comprehensive review. Now that $21 million of I guess, that's just on the three aircraft. I mean when you do the review and when you do this type of analysis, are you only writing down aircraft that you said we want to sell and if not going to sell it, you don't have to take the writedown and potentially there's still an embedded write-off on these aircraft if you in the future decide to sell them?

No. No, the aircraft that we've written down are the aircraft that we -- we have four aircraft in our inventory that are pre-9/11. One is on a leverage lease with Continental that has four more years to run and we feel that aircraft is properly valued. The other three aircraft, and keep in mind, coming out of 9/ 11 we had about 12, 15 aircraft so we've worked our way through all of the aircraft except for these remaining three aircraft so we, in assessing the overall economic environment and taking a look at our fleet, we felt that there was an opportunity here to go ahead and market these, take these things from a lease position and put them into a sale position so we had two MD-80-3's and one 737-300 and we sold, we ended up after we made this decision we sold one of the MD-80-3's towards the end of the quarter and just took the appropriate assessment, I believe, on the other two aircraft. We looked at the rest of the fleet and rest of the fleet is in good shape. I would say if anything, we have embedded gain as opposed to embedded loss in the balance of our fleet.

Can you give us an understanding of just sort of how you go about and do the valuation? Because I think a lot of investors sort of in their minds sort of see this as sort of your equivalent of maybe subprime lending in terms of older types of assets and you see a huge $21 million loss right now and they're worried about potential embedded losses. How do you go about doing the valuation? Is it discounted cash flow and then sort of, do you check that with real sort of current market prices of these assets?

Yeah, keep in mind though, in the period we also sold two airplanes with a very nice healthy return. So we had three aircraft sold. One that we've had in inventory for quite some time and the other two that we've bought in the last few years, so most of the aircraft portfolio that we have today are recently acquired aircraft and so we do an assessment on all of the things you mentioned on discounting cash flows, on market values, recent sales transactions, and our assessment of the viability of that part of our fleet. Keep in mind also now, as I've indicated, the investment that we have in this fleet is $80 million and we believe that we have to your point about embedded losses or embedded gains we believe we have embedded gains in the balance of our portfolio. At the same token I think I've indicated our goal here is to continue to sell down our fleet and based on how we view the market today, sell down our fleet and generate cash and put the cash to better use at this moment.

And better use, does that mean sort of operating or does that sort of in building out the sort of the structures and systems or the Aviation Supply Chain MRO or does that mean buying new Aviation aircraft assets or engine assets that you put out?

Well I think what we said is on the aircraft side, we haven't bought an aircraft since November 2007 so we saw the Markets getting a little bit squirrely if you will a year ago, so we have not added to our fleet in that time period so I don't believe that we would be looking to take the cash and buy more aircraft for lease. Now, we have made some investments in support of the supply chain. We've made investments in support of Structures and Systems and we will continue to do so. We also, as you saw, we I think advantageously acquired some of our bonds as well. So yeah, I think we have places where we can put the money to I believe better use.

Are there commitments with the United deal to buy some of their older 37's?

No. The United deal is we basically what's up with the United deal, is we've seen a world a little bit differently in terms of valuations. We have brought them certain offers against aircraft which they've rejected and we basically have gone separate ways on that transaction at this point in time, so we're still out there trying to move some stuff but we no longer have a formal relationship in that regard, and we do not have any commitments to acquire any aircraft.

Great. Thanks a lot guys.

Yes.

Our next question or comment comes from the line of Mr. JB Groh from D.A. Davidson. Your line is open.

Good morning guys.

Good morning.

Could you talk about capacity utilization in the MRO business at both Indy and Miami. How is that going and trends there? I've seen layoffs in MRO and some of the airlines and wondering if there's any potential benefit there for you.

The MROs were busy in the Second Quarter. We've been talking to customers both new and existing about some holes we have in the third quarter schedule and in the fourth quarter. We're reasonably optimistic we'll be able to fill those holes but clearly, with the fleet reductions, there's less aircraft out there to fix so like I said, I mean, I think we're holding our own but we do have some holes.

So but completely full in Indy for the quarter?

Well, in Q3, Indy was pretty close to full. They've been where they had been for the most part.

You mean --

Q2.

Right, okay. And could you guys talk, maybe how should we think about the quality of the inventory and supply chain and with the Mesa business coming down? Is all that stuff that you've got there, you think it's pretty marketable in terms of other customers and those sorts of things?

We do. We do think it's marketable. We watch our turns very closely, turns picked up a little bit in the quarter. The aging looks good. We do have, as you know, about $19 million of pre-9/11 inventory in the Supply Chain that continues to sell. We're watching it very closely, the sales activity while it's constant is still at relatively low levels so we've got a close eye on that, but apart from that we feel good about the salability of the inventory.

But how would you characterize it say relative to prior downturns? Are you in a leaner position now or about the same or how would you look at it in that context?

I think we like the platforms that we've invested in over the past 24 months. We think that it's the right place to be, so I think that we're in a good position. Let me just add a little color if I may and that is that in the last downturn our inventory was turning at about 2.4 times and our inventory now is turning to 3.1 times.

Okay. And then on the aircraft leasing, do you have any significant rollovers that happened in the next, in the second half of the year? I think last quarter you mentioned a couple but refresh my memory there.

We have one more that comes due in May. Other than that, we don't have any rollovers for a year, so we have two aircraft that are currently parked, one of which we hope to have sold as early as tomorrow. The second one probably will be going to disassembly and then another aircraft comes off lease in May.

So the two that are parked that was one that you were selling and one that you already mentioned you'll part out probably?

That's correct. They are both joint venture aircraft.

Okay. And then lastly, could you remind us what the mix is on the supply chain between military and commercial? Is that a number you've given out?

About 25% military.

Okay, great. Thanks a lot.

Yes.

Our next question or comment comes from the line of Mr. Jon Braatz from Kansas City Capital. Your line is open.

I'm curious, the writedown that you incurred on your aircraft in your wholly owned portfolio, what kind of percentage writedown was that? Can you tell us?

Relative to the carrying value of the aircraft?

Yes.

Before that?

Yes.

These were, it was relatively significant. It was a little better than half, Jon, and again the reason for that is these aircraft were a small subset that were pre- 9/11 so they required at a different time and under different kind of model that we have done over the last several years, so they were definitely outliers in the portfolio relative to the rest of the portfolio. There's no debt against these aircraft. These aircraft were not only wholly owned but no debt associated with them as well.

Now it looks like in let's say this quarter there will be at least three aircraft sales hopefully, two that you just, two in your portfolio and one in the joint venture. What kind of proceeds are we talking about and maybe given that you repurchased some debt, would you, would we see that again do you think?

First of all, we're not saying we're going to sell three this quarter. We took those two and we've marketed them for sale. We have a high level of confidence in another airplane being sold tomorrow but that's not one of these two airplanes that have just recently been marked down. We do have them for sale but we don't have necessarily any takers at this moment. So we have the one aircraft that we have high level of confidence in selling. As it relates to what was it in terms of what we do with the proceeds? I think there's any number of things, any number of possibilities with the proceeds, one of which would be the buy in more debt.

Rick, can you help me with a little bit of the accounting ? You repurchased some debt, I think about $68 million, though when you look on your balance sheet your recourse debt was only down $10 million or something like that from the second quarter. Can you square that for me?

You're talking about the information we provided in the release?

Yes.

Yeah, it's, the squaring of that is we have drawn some of the revolving credit facility.

Okay.

So we've taken out some of the convert that we do have some drawn on our facility so that's why you're seeing a net difference.

Okay, thank you very much.

Sure.

Our next question or comment comes from the line of Mr. [Doug Way] From First Investor. Your line is open.

Good morning guys. Question for you, Rick on the inventories especially raw materials, work in progress and such. What are the new levels for this quarter?

What are the new levels?

The new amounts for raw materials, work in progress, purchase aircraft etc.

You're saying how decomposing our inventory balance.

Correct.

You put it out in the Q. I didn't know if I could get an early read on it.

I think you'll have to wait on that Doug. I don't have that handy now. We can look that up and try to call you off line. We should be filing the Q shortly, but I don't have that handy.

I'll follow-up with you off line. Second with raw materials coming down so much, any positive impact for you or negative impact based on your prices either falling on your inputs or the writedown of inventory. You talking about commodity prices in the market in general?

Correct.

Yeah, I mean, I think that benefits and as you and I have talked a little bit about exposure to raw material price volatility, I think there's clearly some benefit we get from falling prices and there's some challenge with rising prices but in general, we have some pretty good operational hedges against volatility price, volatility in those input costs. Again, this is an area really that just pertains to our manufacturing businesses, as you know, and our manufacturing businesses are really only about 30 to 35% of the overall enterprise. So then within that manufacturing business set, we do do a mix of both cost plus contracts as well as from fixed price bids and the risk of price changes would only be with respect to those firm fix price contracts.

So we keep shrinking it down and then within firm fixed contracts, some of that work we do on behalf as a sub to a Tier 1 prime and in those cases oftentimes we have a right to buy arrangement under their supply contract so we don't get exposed to changing prices. We basically what we bid to them we get the buy at the same price so we have a number of kind of operational related I guess hedging strategies or techniques that insulate us from the movement of these prices.

Got you. Okay, I'll follow-up more off line then. Thanks guys.

Our next question or comment comes from, we have a follow-up from Mr. Larry Solow from CJS Securities.

Can you guys maybe just elaborate a little more on your holes in Indy? Can you maybe tell us how many hangars were filled this quarter and what your current outlook is for the next quarter?

Well, I think what I would kind of do is give you more of a generic answer, in the second quarter, we were operating at levels that were similar to what we've talked about in the past. We, as you know, United pulled their aircraft and grounded their fleet or are in the process of grounding it. We were able to replace that with some additional work from customers. That customer's requirements kind of thin out in Q3 and then come back later on in latter Q4, so we're looking for other customers as well as that customer to help us fill those gaps.

Got you, so it's essentially related to United pulled out of three hangars right?

Three aircraft right.

And then just on any comments on the Delta/Northwest merger and could that net-net be positive for you considering Delta is one of your larger customers?

We think that there's a lot of opportunity there. They are a good customer, as you say and we're looking for ways to go ahead and help them succeed in their merger.

And then just any update on the Airbus A400 contract? Is it still set to begin delivering revenues in the beginning of first half of calendar '09?

I don't think so. I think they are still struggling with the propulsion system. I think they're talking 2010 and I don't know how much how much, I think they still have some issues there. It's not going to be 2009.

Got you, and then just a maintenance question. Do you have the D & A for the quarter, depreciation amortization?

It's about 10.5 million Larry.

Great. Thanks guys.

Our next question or comment is a follow-up from Mr. Eric Hugel from Stephens. Your line is open.

Yes. Have you bought back anymore of the converts in Q3?

No.

Okay. Do you have the CapEx number for the quarter and maybe what you're expecting for the year?

$8 million for the quarter, Eric, and I think our projection for the year is probably still where we had been which is, I think we've been talking about 30 to $40 million and we're probably a little lower in that range than higher in that range right now but it's still in that zip code.

Okay. I guess can you talk about how things are going with Avborne? That's mostly drop-in work so it's sort of maybe a good read on sort of conditions in the spot market for aircraft MRO.

Well, Avborne is a combination of contract and drop in and they've done a really nice job, I think, filling some of the holes that they have. They've got a customer that's large and relatively new to them that's been putting work in there but that business, you're right, more than any of the other MROs has less visibility than you'd like to see. So but they are still getting work. They're getting lease return work. They are getting some special visits, so they are doing okay. They have holes too, obviously, but they're doing okay.

Is this new customer that you're talking about for us since you bought them or were they there before you bought them or has that work accelerated since you bought them?

It's a new customer for them since we bought them to my knowledge.

So could you argue that you guys were instrumental in bringing them in the door?

Sure. Why not.

Absolutely. I guess one last question, with regards to I guess you noted awhile back with regards to this on the Aviation Supply Chain and opportunity that you had a verbal award for a military helicopter contract. I mean, is that alive, dead, what's sort of going on there?

Well, it's closer to dead than alive. It still could happen but it's not something that we're counting on or talking much about.

Okay, fair enough. Thanks guys.

Our next question or comment is a follow-up from Mr. Jon Braatz from Kansas City Capital. Your line is open.

Just one follow-up. Your bad debt increase in your bad debt allowance was that related to a specific item or was it a general increase in the allowance? Reflective of the current economic environment?

John, the increase was just to be clear was our bad debt provision, the P & L hit. When you see the balance sheet and you see our bad debt actual reserve you won't see it have changed much because frankly, we've wrote off as many things as we actually provisioned for. Just to be clear, but to the core of your question, the answer is yes, it's specific. We go through all of our outstanding receivables and determine our provisioning based on where the need is on a line item by line item basis.

Thanks, Rick. Bye.

Our next question or comment is a follow-up from Mr. Tyler Hojo from Sidoti & Company. Your line is open, sir.

Just one follow-up for me. You've given us a lot of broad strokes here throughout the conference call, but i was wondering if you could maybe update what you have told us in the past, just in regards to your 15% all in growth rate. I mean does that still stand? Does that come down? How should we look at that?

What period of time are you referring to? If you're looking at from a long haul standpoint, then I'm very comfortable in that range. If you're looking at it from an over quarter-over-quarter basis, I'm not certain because we have the injection of some of the acquisitions so I think our growth rate is going to be challenged as it relates to the overall environment and the way we're managing the business, so we're managing the business to protect the balance sheet and at the same token, we're looking at opportunities and keeping as fine a balance as we can so I think the growth rate we experienced this quarter, I think is acceptable and I think what I'm trying to signal is that we feel pretty good about our business today and where we stand, our position, the investments we've made and our goals would be to get back to that middle double digit growth rate that you're referring to.

Okay, thank you.

(Operator Instructions). I'm showing no additional questions or comments in the queue at this time.

Okay, well thank you very much for your participation today. Have a happy holidays to all.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Everyone have a wonderful day.