Compass Diversified Holdings (CODI) 2008 Q3 法說會逐字稿

Good morning, and welcome to Compass Diversified Holdings 2008 third quarter conference call. Today's call is being recorded. All lines have been placed on mute. (Operator Instructions).

At this time, I'd like to turn the conference over to Tyler Wilson of the IGB Group for introductions and the reading of the Safe Harbor statement. Please go ahead, sir.

Thank you, and welcome to Compass Diversified Holdings third quarter 2008 conference call. Representing the Company today are Joe Massoud, CEO, and Jim Bottiglieri, CFO.

Before we begin, I would like to point out that the Q3 press release, including the financial tables, is available on the Company's website at www.CompassDiversifiedHoldings.com. In addition, management will file the Form 10-Q for the quarter ended September 30, 2008 with the SEC later today. Please note throughout this call we will refer to Compass Diversified Holdings as CODI or The Company. Now, allow me to read the Safe Harbor statement.

During the conference call, we may make certain forward-looking statements, including statements with regard to the future performance of CODI. Words such as believes, expects, projects and future or similar expressions are intended to identify forward-looking statements. These forward-looking statements are subject to the inherent uncertainties in predicting future results and conditions.

Certain factors could cause actual results to differ materially from those projected in these forward-looking statements, and some of these factors are enumerated in the Risk Factor discussion in the Form 10-K filed by CODI with the Securities and Exchange Commission for the year ended December 31, 2007 and other filings with the Securities and Exchange Commission.

In particular, the domestic and global environment has a significant impact on our subsidiary companies. Furthermore, we are uncertain as to the ability to consummate acquisitions, which are accretive to shareholders, either in 2008 or beyond. CODI undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

At this time, I would like to turn the call over to Joe Massoud for his opening remarks.

Thanks, and welcome to our third quarter 2008 earnings conference call. We'll start today's call by offering some general comments on CODI's performance during the third quarter and trailing twelve-month period as it relates to our cash flow, available for distribution reinvestment, our cash flow, and our distribution increase. I will then give some insight into how CODI's unique business model has positioned the Company to continue to both generate sizable cash flows and seek growth opportunities in this challenging environment.

After that, I will turn the call over to Jim to discuss our operating results and review our portfolio of businesses for the third quarter and nine months ended September 30, 2008.

During the three and 12-month period ended September 30, 2008, we once again posted solid results and increased our distribution while positioning the Company for strong operating performance through economically difficult times. During the quarter, we increased cash available for distribution and reinvestment, which we refer to as cash flow or CAD, by approximately 22.5% to $15.7 million from $12.8 million for the year-ago quarter. For the trailing 12-month period, CODI increased cash flow by approximately 48.8% to $57.1 million from $38.4 million in the year-ago period.

Drawing upon our growing and sizable cash flows, on October 14, 2008, we announced that our Board of Directors declared a 5% increase in our third quarter distribution for $0.34 per share -- the third increase in our distribution since the Company's IPO in May 2006. The ongoing ability of our diverse portfolio of subsidiary companies to consistently generate stable cash flows in excess of our distribution levels has enabled us to successfully expand our quarterly distribution by approximately 30% and declare cumulative distributions of approximately $3.28 per share since going public.

Notably, we have increased our quarterly distribution at a time when many other companies are looking to reduce, or suspend, or eliminate their dividends, as a result of the successful application of our unique and different business model and our strong financial position.

Let me take a moment to talk about the current economic environment and why we believe CODI is well-positioned over the long-term.

While near-term macroeconomic conditions are challenging and will impact certain subsidiary businesses more than others, our overall portfolio remains strong, and we'll continue to generate cash flow that will allow us to both pay sizable distribution to our shareholders as well as reinvest in our business. In addition, it is important to note that several of our subsidiary businesses continue to perform well in this environment and have very good prospects for the coming year.

To date, we've had a strong 2008 on a combined basis. We still expect to meet our guidance of $51 million to $56 million in cash flow available for distribution reinvestment, albeit at the low end of the range.

We monetized two of our subsidiaries in a very timely fashion, selling Aeroglide and Silvue in June for an approximate average of over 10 times cash flow. As a result of these sales as well as our equity and debt offerings in 2007, we find ourselves flush with cash and prepared to make attractive acquisitions at a time when others are making announcements regarding their liquidity crunch.

But we know what is of interest to investors today is not 2008; it's our expectation for 2009. Our operational expectations, which to us are perhaps the most important, are that each of the six of our businesses will outperform their competitors and that they will prudently manage costs without cutting the ability to capitalize on revenue opportunities with which they are presented.

Specifically, we expect that three of our companies, Anodyne Medical Device, Advanced Circuits, and Fox Shox, will show growth in cash flow in 2009 as compared to 2008. For the other three, HALO, American Furniture, and CBS Personnel, we expect the economy to cause the cash flows of each of these businesses to decline. In the case of HALO and American Furniture, we expect these declines to be somewhat muted. In the case of CBS, while we expect the company to continue to outperform its peers, the nature of the staffing industry leads us to believe that declines in cash flow will be more sharp.

Later in the call, Jim will expand upon how we believe the current market will affect each of our individual businesses. On a combined basis, if you assume that we reinvest our cash in hand without even taking into account the accretive use of our revolver to make acquisitions, we would expect to cover and exceed our distribution substantially next year. In fact, even if we were simply to use our cash on hand next year to retire long-term debt for the full year, we expect our cash flows to exceed our distribution, even in the face of a very difficult economic environment.

However, if we assume we choose to retain the cash on our balance sheet and do not find acquisition opportunities to meet our strict acquisition, valuation, and diligence criteria for the full year, it is likely that in a continued recession, we will fall just short of creating operating cash flow as we measure it in an amount equal to our distribution.

However, we fully expect to continue paying this distribution and it's very important that no one misconstrues my message here. I fact, I would reiterate that it's our Board of Directors' goal to, over time, to continue to increase our distribution, and there's nothing that I've said here that changes that outlook or our view whatsoever.

We are one of the only entities I know that does not include gains from sale of businesses in their cash flow available for distribution reinvestment. We have had over $3.00 per share of such gains since our IPO in May 2006, with an absolute number of over $100 million. We don't include any of that in CAD.

We are now sitting on a substantial amount of cash plus availability under revolver, totaling over $400 million with no real maturities until 2012. From our point of view, we couldn't be more financially solid. We believe we are poised to make attractive and accretive acquisitions in the coming year or two.

In 2007, we had two businesses that created cash flow in the first half in the year that we monetized at significant gains, and from which we continue to hold cash prudently in order to reinvest at the most opportune time. This should not be interpreted or construed as a negative for the business or for the prospects of distributions and distribution growth in the future. If anything, we are hoping that investors will see that this is, in fact, an execution against our predefined strategy.

At the risk of reiterating concepts with which most of you are familiar, we'd now like to take some time to reinforce a few key points of our unique business model as it relates to our ability to both produce strong results and grow in this difficult environment.

First and foremost, we acquire businesses that are niche market leaders with a reason to exist. When we acquire them, we underwrite them as best we can to worst-case economic scenarios. For cyclical businesses, this means declines, which in some cases, are significant in near-term cash flows. But critical to our analysis is also whether these businesses have the management and capabilities to strengthen their core businesses through downturns and to emerge stronger. This typically means growing overall market share by using their strengths as well as CODI financial capability to capitalize on less committed or less financially capable competitors.

For each of our businesses that we own today and for each of the businesses that we owned in 2000 and 2002, for example, I can emphatically say we believe this is true and we are confident. Warren Buffet often speaks of a moat around strong businesses, and you've all heard me repeatedly talk about reason to exist. It's times like these where reason to exist becomes even more critical.

Second, it's important to keep in mind that our cash flows derive from a diverse portfolio of leading businesses across a number of industries. This industry diversification reduces the impact, the cyclicality, of some of our individual businesses have on our overall portfolio, and ensures stability in the cash flows from which we distribute our quarterly dividend.

Furthermore, we control all these businesses and we control the Board -- that means we work with management to manage their destiny; we're not along for the ride like a lender is, waiting for a current majority shareholder to make adjustments that may or may not make sense. We control these businesses; we know how to manage through a recession. We're done it successfully before.

Third, I'd like to highlight that CODI's experienced management team is actively involved, again, to reiterate the concept. We found that collaboration with management is invaluable during downturns, in particular. Having managed middle market businesses through the last recession, we believe we can help several of our subsidiaries benefit from this environment.

We're using this difficult time to both prudently invest in select areas of our portfolio of companies, such as sales and marketing, while we seek operational efficiencies. We look at this period as a time to strengthen the businesses. We're confident that with a successful execution of the strategy, we help our subsidiaries outperform their peers and gain market share.

Fourth -- we have a unique financing structure, which gives our portfolio of companies parent company level funding, bypassing the banks that most of their middle market competitors currently use. In the current economic environment, we believe that having such a strong -- such a structure is particularly compelling for subsidiaries, as it offers them access to capital at a time when such access is scarce.

Fifth -- with almost $90 million in cash, a $340 million revolving credit facility and no significant debt maturities until 2012, we have substantial available capital and an extremely healthy liquidity position. We intend to utilize this considerable financial flexibility to both internally grow our investment portfolio and actively pursue new platform business opportunities that meet our strict valuation/diligence requirements.

Our requirements are extraordinarily strict. Without naming specific names, I think there has been a notion over the last decade that a company can over-pay for businesses, and if you have enough businesses, it somehow works its way out in the end. That turns out not to be true, and I think we're learning that on a daily basis. Every business must be valued individually and thought of in terms of its individual valuation.

Over-valuing and over-paying never works, especially in a period of recession when you find that the earnings across your portfolio go down. Our diligence in valuation and in conducting our due diligence process has paid off for us for the last 10, 11 years, and I expect we'll continue to do that for our shareholders.

We now find ourselves in an excellent position to capitalize on our conservativism in this extremely attractive environment, resulting from the current credit crunch. We continue to actively look for opportunities, and as valuations continue to come down, we are poised to purchase additional businesses at prices that further enhance the long-term value of CODI for our shareholders. This is the best time to be CODI, from my point of view.

I'd like to highlight that we continue to be a buyer of choice for sellers, and that the represented and the representatives is a result of both our committed financing structure and our certainty to close transactions.

Finally, I'd like to point something out that, again, you've heard me say over and over but perhaps it makes more sense now in a recession period than it did two years ago in the quote/unquote good times. Unlike financial buyers or private equity firms, we have no time constraints on our acquisition of our ownership of businesses. We like to own healthy and growing businesses, and all else being equal, we think it's better return on risk to continue to own a business than to monetize and acquire new business.

This flexibility enables us to manage the life cycles of our middle market businesses, enhances our ability to create long-term value for our shareholders, and means we're not looking at our businesses now with a panic mode, saying, how are we going to exit these businesses in the next 12 or 18 months? It's interesting that some of the best buying opportunities we're seeing right now are from financial sellers who are seeking exits due to artificial time constraints.

With those introductory comments complete, and I apologize that they were longer than they usually are, I'd like to turn the call over to Jim Bottiglieri to discuss our third quarter financial results.

Thank you, Joe. Today, I will discuss our financial results for the quarter and nine months ended September 30, 2008, including a review of the operating results of each of our subsidiary companies and a brief mention of some of the catalysts impacting each of our businesses.

On a consolidated basis, revenue for the quarter and nine months ended September 30, 2008 was $413.6 million and approximately $1.2 billion, respectively. Net income for the quarter was $5.3 million or $0.17 per share. For the nine months ended September 30, 2008, net income was approximately $77.1 million or $2.44 per share.

Turning to the results of our individual businesses, beginning with Advanced Circuits. For the quarter ended September 30, 2008, Advanced Circuits' revenue increased to $14.2 million compared to $13 million for the quarter ended September 30, 2007, largely due to the increased sales and quick turn production.

Income from operations for the third quarter was $4.6 million compared to $4.2 million for the same period in 2007. Increase in operating income was largely due to the operating profit generated from the increase in sales during the quarter. For the nine months ended September 30, 2008, Advanced Circuits' revenue increased to $42.7 million compared to $39.1 million for the prior period of 2007, largely due to increased sales of quick turn production and prototype PCBs.

Income from operations increased to $13.9 million compared to $13.4 million for the prior period of 2007. Operating income increased due to the operating profit generated from the increase in sales during the quarter -- for the nine months, partially offset by the recording in fiscal 2007 of lower non-cash charges for loan forgiveness arrangements provided to Advanced Circuits' management of approximately $1.2 million.

We are pleased with Advanced Circuits performance during the quarter and nine-month period. Bookings remain strong, and despite the economic conditions, we remain cautiously optimistic about the prospects going forward in 2009. We continue to see growth in both our core prototype and quick turn circuitboard production businesses, as well as in its newer and much smaller assembly business.

While we understand the negativity around the more common long-run circuitboard production business, our experience shows us first that the prototype and quick turn markets is not as cyclical; and second, the weakness in the broad circuitboard market creates opportunities for us in our core prototype and quick turns businesses, as competitors lead the market or abandon US manufacturing capabilities.

Now I'd like to turn to American Furniture Manufacturing or AFM. For the quarter ended September 30, 2008, AFM's revenues decreased to $31.4 million compared to $32.6 million in the prior-year quarter. Operating income was $0.2 million compared to $1.9 million for the third quarter of 2007.

For the nine months ended September 30, 2008, revenue decreased to $99.8 million compared to $121.2 million in the first nine months of 2007. Operating income was $5.2 million compared to $9.8 million for the nine months of 2007. This decrease in operating income was due to lower sales resulting from a combination of the fire at a facility in February 2008, and from a weakening economy, partially offset by the expected business interruptions [CODI] recognize.

I would like to highlight that in November, the rebuilding of AFM's 1.2 million square foot facility and corporate offices was completed, and the facility is now back in operation. As evidence of the company's operating strength during its rebuilding period, it's interesting to note that AFM sales decline with its top 10 customers has been approximately 1% for the year-to-date and under 10% for its top 50 customers. This is the result of the company's decision to focus on servicing its largest customers in the period and reducing manufacturing capacity. And while even on the face of it, AFM's total revenue declines would indicate that it is outperforming its industry competitors, that declined more substantially in 2008.

Our results for our top customers are truly remarkable and prove that we are gaining square footage with our most important accounts. While sales have continued to be impacted by market conditions in the near-term, we believe AFM will continue to benefit in the medium to long-term in the difficulties facing many of its smaller competitors and to continue to gain market share in this downturn, repeating a theme Joe mentioned earlier in discussion of management's cyclical businesses.

In addition, it is important to note that we continue to work to control costs to help offset some of the impact of any decline in sales. Until we emerge from the current economic softness, we expect this company to produce cash flows at the levels expected when we acquired this business. That said, once the economy begins to pick up, given the steps that we have taken to grow the company's market share, we are excited about AFM's prospects for significant growth.

Moving on to Anodyne Medical Device. For the quarter ended September 30, 2008, revenue increased to $16.5 million compared to $11 million for the same period of last year, largely due to sales from new product roll-outs, with the remaining increase due principally to increased sales of its existing products to new and existing customers.

Income from operations increased to $1.7 million compared to $1.1 million for the same period in 2007. The increase in operating income is largely due to the increase in sales. For the nine months ended September 30, 2008, Anodyne's revenues increased to $41 million compared to $29.5 million for the same period last year, largely due to sales from new product roll-outs and from the inclusion of sales from its acquisition of Primatech, which occurred in June of 2007.

Income from operations increased to $3.3 million compared to $1.8 million for the same period in 2007. The increase in operating income is also largely due to the increase in sales. Anodyne maintained strong performance in the three and nine-month period ended September 30, 2008. Further, we continue to experience a strong ramp up in the sales of new products and to remain optimistic about the company's prospects going forward in 2009.

Turning to CBS Personnel, for the quarter ended September 30, 2008, the company reported revenue of $265.6 million compared to $290.1 million for the same period last year. Compared on a pro forma basis to include the acquisition of Staffmark that was completed on January 1, 2007. The reduction is primarily the result of decreased demand for staffing services, as CBS' clients were affected by weaker economic conditions.

We expect this trend to continue into 2009 as the economy continues to soften. It is important to note that our percentage decrease in revenues is once again less than the decrease reported by CBS's publicly traded peers, whose operations we continue to follow closely.

We believe this relative stress is evidence that CBS is gaining market share in the markets in which it operates, further affirming the portfolio of the company's operation model. Moreover, this industry outperformance is similar to what we saw in the 2000 to 2002 period. During this period, our market share gains led to a significant increase in account service and placements as we emerge from this recession.

Income from operations decreased to $4.8 million for the third quarter of 2008 compared to $10.1 million for the third quarter of 2007, due principally to the decrease of sales. During the quarter, we incurred approximately $1.4 million in transition integration expenses related to the Staffmark acquisition, which were offset by lower costs and achieving the planned synergies.

For the nine months ended September 30, 2008, CBS Personnel reported revenues of $800.2 million compared to $856.1 million for the same period last year. The year-over-year nine-month results is also dependent on a pro forma basis, which reflects reduced demand for staffing services, as clients were affected by weaker economic conditions. That said, similar to a three-month period, we are encouraged that this percentage decrease appears to be less than the decrease reported by most of CBS's publicly traded peers.

Income from operations decreased to $9.9 million for the nine months of 2008 compared to $22.2 million for the nine months of 2007. During the nine month period, we incurred approximately $4.8 million in transition and integration expenses related to the Staffmark acquisition, which were offset by lower costs and achieving the planned synergies.

We expect to incur total transition and integration expenses of somewhere between $7 million and $9 million, and we believe that these costs would be offset by related cost savings derived from the combined entities going forward. We expect declines in CBS's operating cash flow in 2009, as employment levels continue to decline in the near-term. In the longer-term, we are excited about the combined CBS/staff platform and are happy to have made the Staffmark acquisition, which led to the tremendous cost synergies that I just mentioned.

Turn to Fox Shox. For the quarter ended September 30, 2008, the Company's revenue was $43.3 million compared to $33.1 million in the prior-year period. The increase of revenue is attributable to increased sales in Fox's Bicycle and Power Sports division, as well as growth in the aftermarket sales and service revenue.

Income from operations was $6.4 million during the third quarter of 2008 compared to $2.9 million for the quarter ended September 30, 2007. For the nine months ended September 30, 2008, revenue was under $101.2 million compared to $75.7 million in the prior-year period. The increase in revenues is attributable to increased sales in our Bicycle and Power Sports division as well as growth in aftermarket sales and service revenues.

Income from operations was $9.4 million during the first nine months of 2008 compared to $2.7 million for the prior-year period due to the increase in sales. We are very pleased with Fox's substantial growth during the quarter and nine-month period, and are optimistic about the Company's prospects going forward into 2009, as we expect to continue to achieve both top line and bottom line growth.

In terms of top line growth, the company has a number of opportunities outside its core mountain bike sector, which should begin to materialize over the course of 2009. In addition, we expect many of the operational initiatives that we have been working on to improve cash flow margins in 2009 as compared to 2008.

Moving on to HALO, for the quarter ended September 30, 2008, the company's revenues increased to $42.6 million compared to $36.6 million for the same period last year, principally due to acquisitions made since September 30, 2007. Income from operations was approximately $1.3 million versus $1.9 million for the prior comparable period, as the increased operating profit from higher sales was offset by $0.1 million of higher amortization expense associated with the amortization of intangibles established in connection with the acquisitions made by HALO, and for $0.2 million of integration costs incurred related to the Goldman acquisition and for an unfavorable sales mix in the quarter ended September 30, 2008.

For the nine months ended September 30, 2008, HALO's revenues increased to $107.1 million compared to $92.5 million for the same period last year, principally due to increased sales from acquisitions made throughout 2008. Operating income was approximately $1 million for the current period versus $1.2 million for the prior year period, as the operating profit from the increased sales was offset by $0.2 million of higher amortization expense; by $0.6 million of integration costs related to the Goldman acquisition. I would also highlight that this business experiences the large majority of its cash flow in the fourth quarter of the year.

HALO performed as expected given the current economic conditions. That said, we believe the softening income economy may have an impact on HALO's results in 2009. We hope to maintain cash flows at the 2008 levels through the combination of small tuck-in and highly accretive acquisitions and through the recruitment of additional account representatives. The HALO management team also continues to be diligent in evaluating its infrastructure and will seek cost savings wherever possible.

Turning now to the balance sheet. We have $89.7 million in cash and cash [equivalents], and had net working capital of $203.3 million as of September 30, 2008. Subject to borrowing base restrictions at September 30, 2008, CODI had availability of over $280 million under its revolving credit facility, available to use fund acquisitions and working capital requirements.

I will now turn the call back to Joe.

Thanks, Jim. Before opening the call to questions, I'd like to do a couple of things, through the magic of technology I've been told by email here. The Bloomberg, I guess, is reporting that we did $0.17 of net income versus $0.42. Analyst expectations -- without commenting on what the analyst expectations were, because the analysts I'm sure are on the line and know what their own expectations were -- my belief is that that might have been a CAD per share number. And in fact, we did $15.7 million of CAD for the quarter on something like 31 million shares. I've also been told by Jim that I should avoid talking about CAD per share, but I don't think that math is very hard to do.

And as you know, we do not manage our business for net income. In fact, when we acquire businesses, we very specifically try to structure as much amortization to these transactions as possible, because typically it spills over into the tax shield that we're able to create, which creates a cash flow benefit for our shareholders. We are very focused on cash flow and multiples of cash flow.

So, that's something most of you probably already know, but it's been pointed out to me and I think it bears verification.

So we'll open the call here in a second, but I'd like to once again reintegrate my satisfaction with our strong performance during the third quarter. The successful application of our business model has enabled CODI to perform well in this economically difficult time as we generate substantial cash flow and increase our distribution, while positioning the Company for future growth.

Since going public in May of 2006, we have acquired nine businesses and sold three businesses for a gain of more than $105 million. In addition, we have consistently grown our cash flows, leading to an increase in our quarterly distribution of 30%, since inception, per share. We're very confident about this distribution. We continue to maintain a view that we would like to consistently grow that over time for shareholders.

We're pleased with the considerable success we've had in growing our distribution, and we'd like to highlight the fact that we continue to generate cash flows in access of those distributions. Going forward, we intend to continue to draw upon our sizable operating cash flows, as well as substantial gains from the opportunistic monetization of subsidiaries, to reinvest in our Company and provide shareholders with growing cash flows and distributions over the long-term.

Most importantly, from day one, we've always promised all of our owners a high level of communication and transparency. We try very hard to tell you what we're doing and to do what we're telling you. We look at our relationship with our owners as a long-term one built on trust and credibility, where trust and credibility can then only in turn come from confidence and communication.

We're doing exactly what we said we would do for the past 2.5 years. We're working with the management of our subsidiaries to build strong niche, leading businesses. We're monetizing them opportunistically to make sense when we believe the conditions are right, and will redefine capital in an extraordinarily patient, diligent, and methodical fashion on your behalf.

Thank you, and we'll be happy to take any questions you may have. Operator, please open the phone lines for questions.

(Operator Instructions). Larry Solow, CJS Securities.

I believe it's $0.50 CAD per year share, for your information.

Anyhow, quickly, Joe, on the acquisitions -- last quarter, you kind of mentioned that you're seeing valuations creep down a little bit. And I imagine perhaps they've come down a little more. And you'd said your target zone has widened. Can you maybe elaborate a little bit on that?

I'm going to ramble a little bit; there's a lot of factors going on. Number one, clearly valuations have gone down and they continue to go down. And that happens for a couple of reasons. Number one, lack of buyers in the market because they can't find outside financing.

And number two, to be honest with you, just kind of a general stock market malaise. Right? Like, from our point of view, while we're unhappy about our IRAs and everything like everyone else, the more the stock market declines -- these are all comps, that in the good times, private companies look at and say, well, look, our public comps trade at 10 times; how can you be offering at 6 or 6.5 times?

Well, as the public comps trade down, that becomes a less effective argument. Also, as owners of businesses, if they're individuals, see their own personal accounts go down as they trend towards retirement, they start thinking about -- let's pull some chips off the table. The market also has the impact on corporate sellers. There are people out there that have liquidity crunches who want to sell their businesses.

So we absolutely 100% continue to see valuations decline and are aggressively looking at businesses in that way. But I would say that there are not as many businesses for sale now as there were in the go-go days, because people -- it's like a house; people who can afford to hold onto their businesses are waiting for a better day. With every week and month that passes, I think it's becoming clearer that the better day is probably not December '08. And so we are starting to see more flow pick up and we are starting to see it in more rational places.

And one of the things we're also seeing is a lot of transactions that didn't get done sort of reverting back to us because we have financing capacity. So our mantra internally is that this is not a time to pursue ordinary opportunities; it's a time to pursue extraordinary opportunities. And that's how we're looking at businesses.

I will also tell you we're being very methodical in our diligence. If a normal transaction would have taken, we would have liked to have said we could close in 45 days, that's -- while we can do that, that's not the way we're looking at businesses now. Because I think everyone is worried about falling nice in every business and the answer is that one have to -- this timing, this environment, gives us the luxury to be more patient and long in our diligence process. No one is going to walk away from the only buyer with financing because that only buyer said they needed three or four months as opposed to 45 days.

So we're trying to be very methodical in understanding these businesses because nothing is unimpacted. Nothing. Right? Even the defensive businesses -- and we could -- you know these businesses better than I, Larry, because you cover a whole range of them -- but in my view, there are no businesses that are unimpacted by this economy. There are some that are more defensive, but I think it's naive to say that any are totally unimpacted.

So, we continue to see valuations drop. We are more even of a favored buyer than we were three months ago. And having said that, we are being extraordinarily diligent and careful with this cash. We don't see '09 getting a lot better. I mean, to be totally -- and I'm talking about -- I have no idea what the stock market will do, but in terms of for sellers, we don't see '09 getting better and there being sort of this influx of ready buyers and debt capital. So, we kind of think our window is going to be open for a little while here.

Right, absolutely. And then I appreciate the guidance you gave looking at '09, but just we all kind of know why CBS will be down and American Furniture and HALO. But can you maybe discuss your three that you think are going to be up -- Anodyne, Advanced Circuits and Fox? And have you seen any -- did the credit crunch impact any of these guys at all or like the hospitals funding impact Anodyne in particular? Have you seen any of that?

Yes, let me try to pull them apart and if you want more detail on any of those, I may hand the ball off.

But let's just start I guess in alphabetical, that's how we always do this. So in Anodyne, haven't seen it yet in terms of the credit crunch affecting hospital buys. In fact, the product that we've been in development with our major customers -- you remember hospitals, our customers tend to be the Stryker's and the [Hitron's] and the Covidien's of the world, who then turn around and service the hospital.

Actually, we see that our contracts and our product development with those customers are growing and coming to fruition over the course of '08 as we expected. And even just those contracts that are in place with those companies' current projections would imply a reasonably fair amount of growth into next year. We also see some products that will start to kick in next year. And this is really kind of ground work that we've been laying for the last couple of years.

Having said all of that, I return to what I said -- of course, even the medical industry will be somewhat impacted because hospitals are raising less money. Municipal budgets have been cut. So we think our growth will be more muted or less significant than it would have been in a growth economy. Having said that, given the contracts that are in place and current projections from our major customers, we still believe there's a lot of room here and that this business will grow going forward.

So, haven't seen it yet. And in every one of our businesses, I have to tell you that we've gone through a reasonably thorough process of thinking about how do you manage your receivables in this business? And one of the things you said about credit crunch, I don't know if you were thinking about receivables specifically, but that's an implication that impacts every one of our businesses.

So in every one of these businesses, we've updated, upgraded our receivables and collections policies. And we're trying to stay on top of that. So that's Anodyne.

Moving on to the next alphabetically would be ACI -- is Anodyne before? -- I guess I got it wrong. Forgive me if my alphabetization skills are --

ACI -- we're worrying about different things, I guess. Advanced Circuits, here's -- Advanced Circuits has always been a business of multiple dynamics to us. There is no doubt that long-run circuitboard production has declined and will continue to decline in 2009; anyone who looks at the publicly traded emerges with that conclusion.

There's also no doubt that our numbers continue to perform well in '08. And even if you look into current months, while the rate of growth on a year-over-year sequential basis has slowed, it's still growth. So how is that possible?

Number one, the impact on the quick turn and prototype business, which is what we're in, is far lower. So if you actually look nationwide, what has quick turn and prototype circuitboard manufacturing done? It's actually up significantly year-over-year and in recent months, it's sort of flattened out.

So even the segment that we're in has been protected versus the long-run, which is really impacted by consumer and corporate buying patterns, which are down, as opposed to R&D, where you have corporations that are actually trying to R&D their way into spurring consumer interests -- you know, what can we produce here that might make this company want to upgrade its lathe? Or that makes this person want to buy a new Blu-ray DVD machine or something.

And then beyond that, we continue to see smaller players in this industry just disappear. And the number of -- the actual number of circuitboard manufacturers in the US has declined by over 10% in just the last six or nine months. And that's really good news for us, because we think -- we know we're the largest quick turn and prototype manufacturer. We also think we're the most efficient -- it's hard to find that data, but we know we're able to price competitively and still -- our EBITDA margins in this business are almost 40% or a little over 40%.

So that leads us to the conclusion that we're, if not the most efficient, pretty efficient at doing this. And so that's a positive dynamic for us -- the shrinkage of the number of producers and the continuing to move offshore. So you've all got this kind of negative and the positive.

And then we've also got some new business concepts here, like our assembly, our circuitboard assembly, while still a small portion of our business, is definitely a growth portion of our business. And next year we'll do -- $0.5 million of EBITDA, Jim?

Yes.

And so that's not a huge number, but that's a positive factor. So we feel like ACI is going to certainly curtail -- understand that this business since 2004 when we've been involved with it has grown from something like $14 million to $25 million of EBITDA. That's a pretty good four-year growth pattern for a business in the circuitboard industry. There is no chance organically this business will continue that growth rate in '09. We think it's an extraordinarily high level -- high chance that it will grow in '09, but not at that pace.

So, then Fox, Fox is interesting. No doubt that there are some people out there who would have otherwise gotten a high end mountain bike that are going to slow that down or not upgrade. But what we're seeing in terms of actual real-time data is that the slowdown is not as significant as you would think in other luxury goods, which is consistent with our view on enthusiasts' products. At one point, we owned the largest BB gun manufacturer in the world and had a very similar dynamic in terms of enthusiasts do what enthusiasts do.

There is no doubt that in Europe and in Asia, particularly in Europe, that this is a growing sport. And notwithstanding the impact of the economy, the shift from road biking to mountain biking, even in small increments, has provided a huge amount of growth in mountain biking. There's also no doubt that if you look at the largest four or five OEM manufacturers, that at their high end, we are spec'ed on a higher portion of those bicycles than we have been historically.

And then the final is there is also a lot of -- Ford just announced on their Ford F-150 -- not Stryker -- Raptor, thank you. I'm not an F-150 driver -- but on the Raptor that they're coming out with a partnership with Fox. That's going to be in addition to being good promotion, going to be a reasonably, hopefully decent number of units for us.

We continue our work in other non-mountain bike segments. Our work with the US and foreign military continues. So there's a lot of positive -- it's funny for us, and funny and interesting and thought-provoking, that among our businesses, we certainly have a business, like CBS, where you have conflicting views like this is the time to really capitalize when competitors are going out of business; at the same time, because of declining revenues, you have to sort of control your costs.

And then you look at Fox, and the real issue with Fox is kind of which of these opportunities -- you know, Bob Fox built a great business. And we hope that we're being very good ongoing stewards of that business. And it has grown from $11 million or $12 million of EBITDA to this year, it will do -- I don't know what we're saying, but $18 million plus -- probably $18 million plus-plus. And that's because there's some very exciting things going on there.

And then the final thing I will say about Fox is there's still some significant operating initiatives at our team, and I think on our side, our team that's managing this business is to be highly commended. And we've begun to take some very interesting (technical difficulty) various costs out of this business that won't reflect themselves for a full year, until '09. And interestingly, we've been able to do that while also strengthening the core fundamental business there. Meaning, if you go seek second suppliers, second and third suppliers for your key componentry, two things happen.

Number one is you're likely to get some cost efficiencies. But number two, you're also likely to being able to extract product that's more timely delivered. You might be able to get improvements in service; might even get some improvement in the product; some improvement in the coordination and design.

So there's a lot of positive things going on at Fox, none of which is to deny the notion that there are certainly people who would have otherwise upgraded their mountain bikes or acquired new high end mountain bikes with this impact, with this economy impact. That must and can only be a fact. But we think the momentum in the business clearly points to charging right through that dynamic.

I appreciate the color. Just one quick follow-up -- one question for Jim, not a follow-up. The working -- use of working capital, I know you guys kind of -- we balance it off because it's usually seasonal and it usually comes back kind of close to even for the year, but the last two quarters kind of total over 30 million and change in operating assets. Any concern there? Or is that just a --?

No, actually, the biggest item was that we paid the profit allocation for the manager. So that's just a little bit unusual that it's in working capital. That's from the gain on our sales; the manager is entitled to its profit allocation. [So it] pays in the quarter.

Okay. So you expect that in the long run to basically balance out?

I think it's going to be close to being even for the year.

Got it. Great. Thanks a lot, guys. Appreciate it.

Greg Mason, Stifel Nicolaus.

First, could you talk about your credit facility? Is there anything in there that could prevent you from accessing your unused credit line? Or anything that -- covenants that -- is anything to be pulled there?

The answer to number one is number two, which is the thing that would keep us from accessing is going through a covenant. There are no covenant violations. There are no covenants right now -- we can go through them one by one if you want -- there are no covenants that we're really within any distance to. And if you think about it, we've got $50 million or $70 million of net debt. It puts us in a less than -- well less than one times EBITDA, you know, 0.7 times EBITDA or something. That I think is --

A little higher because the letter of credits count.

Okay, the letters of credit. Okay, so they're one times EBITDA or something. And that tends to be the most constrictive. So, no, some people have said, what about bank funding? We've tested the line and drawn it and paid it back.

There's actually no examples, to our knowledge, of banks that have remained in business, that remain solvent, that have failed to fund. But we've also tested the notion if one of our banks were to go insolvent, does it have any impact? It would clearly reduce the total availability, because there's a $20 million chunk that's no longer available, but it has no impact on the commitment of the other lenders to fund. We've met with personally six of our lenders, five or six of our lenders in the last month. And have talked to many more.

And our view actually is that they seem to think that this is an interesting credit among their spread universe credits. And would like to see us use it more and draw more. And we actually just recently added a lender that couldn't get in when he initially closed the deal in November and added a [$15 million] additional piece to it -- two months ago? August? So it was three months ago.

So, no. The thing that impacts our ability to draw on it would be getting through a covenant. And the way we would do that, which we don't intend to do, is to overpay for a business in such a dramatic fashion that it turned that equation upside-down. Now that would be mismanagement of the business. But that's not how we think about the world, as you know.

And then on HALO, you said one of the reasons for the sales decline was an unfavorable sales mixture. Could you talk a little bit about that? And your thoughts on holiday sales as we approach the big fourth quarter in this business.

Yes, one of our -- okay. So, let me tuck in two questions. What happened was, in this business, is that the -- one of the reasons the Company was flat or grew a little bit basically is because we didn't add on acquisitions; it was an extraordinarily accretive, the business that we acquired, though, had on balanced lower margins than in the base business.

Pat, are there other comments you would make on the margin trend in HALO?

No, I'd just say it's a couple of the customers, our larger customers, and we've had some bigger purchases from larger customers relative to other periods, which are at slightly less -- slightly lower gross margins.

Okay. And then the second question is fourth quarter -- we feel pretty good about the fourth quarter; good, meaning we think it's going to look like we expected it to look like. And now for the real question becomes -- and a lot of this is funded and budgeted earlier in the year. And so the question for us is what's '09 going to look like? Interestingly, early '09 still looks okay, but it's hard not to be cautious and defensive.

So, yes, we feel okay about the fourth quarter in terms of don't think it's going to be a big growth quarter, but think it's going to come in line with our general expectations.

Okay. And could you also talk about in Anodyne, the strong revenue growth over last year from new products, what kind of expectations do you have going forward? Should we see similar robust growth or --?

No, not next year. I would say that you would hope for -- our view on this business is that over a multi-year period, three years or something, there is no reason why revenues in this business shouldn't grow at 15% to 20% annualized. That would be kind of a broad view.

Having said that, I do think that there are wins in the economy. As I was commenting earlier to Larry, everything is affected. I don't know that we really hit that number last year from a revenue growth. And it's hard to kind of deal with your question generally, because there are a lot of new programs. And what happens is some new programs replace other new programs.

So, some of those '08 programs will actually decline into '09 because we're already developing kind of the next gen that will then replace the '08. So it's hard to kind of group all those together.

So we expect growth but not at that rate for next year. But over the multi-year period, there should certainly be well into the double digits, just given the dynamics that are happening in the industry. If we can outperform the industry, which we think we have the management team to do, it could be better, right? But what's happening in the industry with Medicare and Medicaid now really honing in more on the treatment of decubitus ulcers and the need for hospitals to kind of proactively address that issue, and the best treatment for that being the use of these dynamic mattresses, there's a very good macro tailwind behind this business. But I don't think that wind will be unaffected by the economy.

Great. And one last question. When you talked about CBS's declines versus its peers was relatively favorable, can you give to us what you view as the peer numbers were?

Yes, so, again, I don't know -- and if you have something to interrupt here with, Pat -- and Pat's out in California, that's what I keep throwing it over to him -- please do. But the last we tracked this for the six months, we were ahead of our peers. And the three primary peers we track -- and you've got to look at the US numbers, right? Because it can skew you if you look at the global numbers. We've looked at Manpower; we've looked at Kelly, and Adecco, Pat? Or who is the universe here that we typically --?

Mostly Manpower and Kelly, and I'd say on Manpower, you have look at kind of system-wide revenue and include their franchise businesses.

Okay. So franchise -- and the reason we look at Manpower and Kelly is you have a pretty broad, clerical -- you have a pretty good clerical and light industrial mix. If you looked at us versus TrueBlue or LaborReady or something, we're going to look great. But that's probably unfair because that business is very heavy industrial. If you look at us versus that financial guy, we're going to look good there too. So the truest kind of mixed comps that we think are easy to track are those two.

And I don't know that we've seen the nine-month numbers yet for both, although there have been sort of analyst estimates of what that looks like. And if the analysts are close, then we may have on the nine-month continued this trend of relative outperformance.

Great. Thanks, guys.

John Rogers, Janney Montgomery.

Just got a few questions on the different businesses. In ACI, are you still planning on building out -- adding the addition to that facility in Denver? Or are you going to hold off on that?

Yes, we're still planning on it but yes, we're going to hold off on it. So it's not imminent.

So will that depend on how the market is --?

No, it depends on the growth rate of the business. They have a pretty good growth model here, right? Which is they have subcomponent of long-run business that when there's a lot of prototyping, they kind of shift the long-run business to subcontractors. And then whenever the prototypes slow, they just take some more of the long-run in.

So they're really still have probably 30 -- if you think about the true capacity being how much quick turn, which is really the high margin stuff they want, they've probably still got 30%-ish type excess capacity.

With our view that this business was going to grow in the double digits and could grow, it clearly made sense to be thinking about an '09 addition of capacity. The good news is, the land is available, we have plans drawn. We've communicated with the municipalities about it. So it's not really that long and difficult a project. I would say for now those are on hold. But, for example, if we were to acquire the customer list of a couple of small businesses that had quite a bit of quick turn, that we thought we could do pretty efficiently, there's no reason why this wouldn't turn on again reasonably quickly. But there's no groundbreaking ceremony that anyone is being invited to right now.

Okay. Seeing the opportunity in terms of defining raw material cost, I know the margins are pretty high but with oil rations potentially falling?

Yes, for that business, it's oil rate and it's copper rate, the other big component. And for Fox, it's aluminum. And every one of these businesses has an inputs. You know, it's -- yes, we see opportunities. Yes, every single one of our businesses -- and on Anodyne and American Furniture, it's foam, which is a by-product of polyfoam, which is itself an oil-based product.

So every one of these businesses, the leaders have been taxed to go out and as aggressively try to get reductions as our suppliers were aggressive in getting the increases. And I would say that in two or three of our businesses, those reductions have started to come. We've seen a few percent decrease in the cost of polyfoam at American Furniture and Anodyne already. We're kind of starting to chip away on some of the cost components at Fox and ACI.

It's not as fast as you'd like. It doesn't move like the futures market. It's not down -- copper is not down 40% because that's where the market is, because our suppliers in turn are processing that copper and they've got to get the reductions from their suppliers. So it's absolutely a core focus. It's absolutely a core focus for a number of our businesses, particularly those four. And we've seen some, but not as much as we'd like.

Do you have some kind of idea of what kind of margin pickup you can look for, for defining raw materials?

It varies business by business. It varies business by business and the truth is -- okay, because I don't want to -- going back to the last thing I said in my talk about wanting to be very clear and transparent -- the truth is in most of these businesses, at AFM, when we go back and get a 5% reduction in foam, the blunt truth is at this point in the cycle, when we're fortunate to expand our shelf space with Bob's or Babcock or Big Lots or someone like that, right, what's probably happening is they're coming to us going, you know, we know you're getting a reduction in foam; how does that impact our pricing? And especially if you want to gain floorspace.

So I would not say that for any of these businesses -- ACI might be the exception because we have 8,000 little customers there. I'm not sure that you should go into a period of declining sales volumes and think that this reduction will do anything but maybe offset margin declines that you'd otherwise get because you're pushing less units through a plant or because you're getting pushed. There are two businesses where I hope that -- three businesses where I hope that dynamic may be slightly better.

I think Advanced Circuits could see a slight uptick due to reduction in some of its costs but in a percent range or something. I think Fox, through some of the things we're doing, could see some margin increase -- again, maybe a couple, 3% range there.

And then potentially at Anodyne, but I'm less optimistic at Anodyne, again, because our customers tend to be large customers. So, if you want to play at those two companies and play around with that, that's okay. But I wouldn't -- I don't want to over-emphasize that. We're trying to -- in some cases, you may use your cost efficiencies to try to grow market share. And AFM is a great example.

We will emerge from this downturn, in my opinion, a much stronger, larger, higher EBITDA company. Some of that is because we are using our size and bigness to negotiate aggressively with our suppliers, which we're then turning around and using those cost advantages to expand our market share and compete effectively against our smaller customers, because we don't want to be the 30% supplier to our top 10 or 15 customers. We want to be the 40% supplier.

So, a long-winded answer but it's a kind of complicated issue.

So I guess from that question -- pricing is holding up at ACI?

Pricing is holding up fine at ACI.

How does it look -- book-to-bill look right now, say in October versus last October and last quarter?

At ACI?

Yes.

Pat, do you want to comment on that?

Yes, I mean I'd say our backlog is at -- this is a quick turn business, backlog is never as long as some of the longer lead brethren, but our backlog is at relatively high levels by any historic measure.

Okay. Great. And then I guess you talked about foam prices at Anodyne. At CBS, you touched upon receivables. Do you have any more detail on how your customers are reporting and their credit quality?

CBS, knock on wood -- and Jim and Ken, let me know if you -- look, CBS has been through this -- well, I'm sure they've been through this many times -- but under our ownership, went through a pretty serious staffing recession. Post 9-11, there were very few people hiring.

And so our credit policies have always been extraordinarily conservative. Actually, two years ago, we terminated one of our top 10 customers because we were worried about their receivables. And we're very aggressive on it. So we don't see a material lengthening of the receivables at this point. We haven't had any big one go under at this point. The good news is that there's no lead-time, right? And our customers need our people.

So, it's a pretty interesting negotiation where we said to them, you know, we need to be paid in the next week. Then they don't pay us. Then we call them and say, we're giving you two more days; we're not sending humans.

Now all of a sudden you've got a plant -- even if the company is struggling a little bit, you've got 100 people over at the plant that represent 100 out of their 250 person workforce, it's a pretty interesting dynamic. How are you going to replace 100 qualified people who have been on the job for six or nine months in a couple of days? And do they pay 100%? No, but then they start making progress payments and you work your way through.

You know what? They have big operations in Ohio, Indiana, Kentucky, as well as in Arkansas, Texas, Tennessee and a number of other states. We get that those economies are weak and while we don't necessarily have a lot of direct autoexposure, those economies have autoexposure.

So yes, we get it and we're monitoring it. I personally would be shocked if we didn't have some receivable issue with some size account in '09. And the issue is making sure that we monitor it to not exceed our reserve -- which we've been very conservative in, in accounting for and have tended to over-reserve to date -- and to make sure it's not the big customers and to be very aggressive about it. But it's not realistic to think that our customers don't look at an extra -- look at us as being -- financing their business effectively for an extra couple of days.

Okay, great. And I'm sorry, I missed this -- what was the pro forma decline at CBS?

Revenue side or --?

All in revenues.

Hang on a second. The nine-month was like $810 million to $850 million, right? It was $803 million to -- it was $856 million down to $803 million. That's the nine-month number. And the -- so that's got to be -- I think it's like 7% -- let me see when that number -- yes, it's a little under 7%.

And then the three-month number was $290 million down to $265 million, which -- let me run the number --

8.4%, yes.

Yes, more like 8%. I mean, so it's accelerated slightly.

Kelly was 9.6%.

Yes, and Kelly was 9.6%. And I've got to tell you, it doesn't get -- it's not going to get better in the fourth quarter. The good news is the fourth quarter is a strong quarter and it will still be a strong quarter. But if you're looking at year-over-year sequential declines, it's not getting better.

Right. Where is breakeven in that -- in the segment?

Oh, breakeven for our business, given our costs takeout?

Yes.

$400 million or $500 million of revenue -- no, it's more than that, right? It's hard to say, I mean, because you go into some major dramatic reductions. I mean we never -- in the '02 recession, we went down in EBITDA I think at one point by 40% -- didn't get below that. And that was pretty ugly.

What we are -- our density helps us a lot. And in fact, if you look at the operating income decline, which I encourage you to do for the comps, we tend to actually dramatically outperform those because we're so dense in tight markets that we can actually take out a higher percentage of costs versus revenues because we still serve those markets. We have 14 offices in the Cincinnati area or something, by way of example. I'm not sure that's the exact number.

You can intentionally, if you need to, have reductions in that office count while still serving the customers. And I think we're the most dense business that we are aware of. But I don't think -- it's not something that's even in our scope. As we kind of play out our biggest potential downturn, we're not thinking about that kind of a decline. I mean, we're thinking about declines in EBITDA that are in the 30% to 40% range. And that's with dramatic, dramatic scenarios in our mind.

So many of our customers now for us -- we do a lot of vendor on premise -- for so many of our customers, we are not the excess labor. I'd be more worried about that if I was like a TrueBlue or a LaborReady, where it's really true, just sort of the topping labor. I mean, in our Company, many of our customers -- we provide the kind of core workforce.

So unless you're thinking the entire business is going away, the reductions just happen to us in parallel. And most of our customers, we're not just sort of the extra few, but we're kind of the core clerical and light industrial workforce.

So, I can't actually answer that number, but I can tell you that that is not -- that's not our in our calculus. And we're as bearish as anyone I know on the economy.

Last question then I'll let somebody else get on. In Fox, where is the growth coming from? Are you still seeing it -- is it still Europe where you're seeing the most strength?

Yes, again, I think there's a couple of things. I think we have -- there is growth in Europe. There's also growth in the US in the mountain bike side from increased percentage -- increased percent of our customers spec'ing our bike. And there's also -- I'd say it's a equal component of growth in Europe and growth in spec'ing.

And I would say then in addition to the mountain bike growth, we expect next year that there will be an equal amount of non-mountain bike growth. And then all those things on revenue side, we think there's probably upwards of a couple million dollars of opportunity as you -- or not just opportunity, but sort of reflection on a full year basis of some of the operating initiatives that this Company has undertaken within the last year.

So I think it's kind of -- it's top and bottom line. So it's margin, it's EBITDA margin and it's revenues. And then on the revenue side, it's kind of a number of factors. And Pat, would you add anything there?

No, that is it.

Jon Arfstrom, RBC Capital Markets.

Most of my questions have been asked, but can you talk a little bit about how you would weigh an add-on acquisition versus an entirely new platform acquisition, given the environment?

A very interesting question in any environment. Well, the add-ons tend to be smaller, not always like Staffmark, but they tend to be smaller. And so they tend to be in extraordinarily compelling multiples. And even if you take a big one like a Staffmark, if you think about the synergies we took in, even in this environment, it turned out to be a pretty compelling multiple.

So the add-ons are always interesting. If you find the right add-on, which is one that shares -- not to sound too consulting-ish, right? -- but it's got to share your basic capabilities or your customers, and so they're ones that you can grow effectively. Those are always interesting.

So I don't want to say those are more interesting, because we tend not to look at ones to the exclusion of others, but the right add-ons make a lot of sense. Goldman Promotions at HALO, we paid about $7 million for; we think it's driving like $2 million of EBITDA to the bottom line. So that's a pretty interesting multiple -- even in this environment, it's a very interesting multiple. And then when you think about what it should do in a better environment, it becomes more interesting.

So I guess on balance, you'd do 50 little add-ons if you could, but there's just not that many of them to make sense. I mean we're really not -- we're not big on the kind of building a disjointed company just to get a big kind of philosophy. So we look at both. But your add-ons are always interesting because they come in interesting multiples.

Now I'll tell you, the platform, again, it depends on the industry. There are industries out there where, A, you can buy at a good multiple and you think this is a good time to be entering this industry and building and maybe because it's a platform for further add-ons. So it really is -- it's case-by-case.

But we cannot to ever constrain our CEOs from looking at add-ons, because they know that they better have pretty compelling economics to pass our kind of screen. And then it's hard to turn those down.

It seems to me that in this type of environment that an add-on would be much more attractive, given the ability to take out costs and perhaps price it a little better. And that's what I was trying to get at.

Yes. No, you're right. I mean, some of them have more costs taken out than others. And yes, that's probably a fair comment.

Okay. And just -- in terms of new platform acquisitions, you have a tendency to wait and see how things would turn out at this point in time? Is it full steam ahead? My guess is that pricing will drop further and the question is really, is it status quo for the next (multiple speakers) --?

How much is it going to soften?

What's that?

How much is it going to soften?

Yes, I mean, that's the question. Is it --?

Yes. No, I agree with you. I think we're major brake/accelerator right now. We are full steam ahead because this is the time. And it would be silly to have looked back in 18 months and not have acquired any businesses. But as I was saying in my comments, we're spending more time looking at each one. And we've unfortunately walked away from a couple of situations in diligence where we're very excited because maybe the growth prospects weren't exactly what we thought or the company wasn't as resistant as we thought it would be.

So, yes. No, I think we're feeling pretty patient. And our mantra again is not ordinary opportunities, but extraordinary opportunities. Having said that, I think there's a couple of things we're looking at now that one might qualify as being somewhat extraordinary, so -- compared to what they recently traded for, compared to their long-term growth prospects.

And we're trying not to walk away from businesses just because '09 is going to be a little ugly for them, or even '09 and '10. So it's a very tricky balance. But you've seen -- I mean, John, you've seen we've been patient so far for '08. I think there's a number of people who said, wow, you're still going to be buying things in '08. And we even had this commentary I think in our first call of the year. And we said, you know, it might actually get quote/unquote better. If you look back at the transcript, I think we said it might get better and then laughed -- depends on who you are, what better is and what worse is. But it might even get better for us. And so I think that's happened and it's sort of continuing to happen.

Henry Coffey, Sterne, Agee.

Joe, you made some comments early on about your dividend prospects and expected CAD coverage. I was wondering if you could kind of revisit that and give us a sense of --?

So, I'll tell you what I said and you guys all do your own analysis. But I want to be very clear about this, because there's a lot of things that go in -- first of all, our dividend draws, our distribution prospects are very good. There are no scenarios that we can envision, including sort of worst/worst-case, in which we would reduce our distribution.

We've earned -- everyone else includes gain in what they consider their cash available distribution -- we've never done that. And we've earned over $3 of gains since our beginning. If you even look at excluding gains, we've earned like an extra year and one-half towards our distributions, in just the 2.5 years we've been in that we haven't distributed.

So all the things, we can start out with the premise that our goal in this business is to continue to increase our distribution over time. We knew what the environment looked like when we increased it by 5%. Were we trying to send a signal to the market? 100% we were trying to send a signal to the market. So we feel very good about our distribution.

What I said about coverage was that as people look at our businesses, it's kind of complicated, right? Because we're not lenders with basically a portfolio that churns and grows and we don't need to raise capital to put more in our portfolio. We have businesses. And from time to time, we exit them. Okay? And so when we sold Aeroglide and Silvue for a big number, which was over 10 times, we knew that we would reinvest them at what amounted to a diluted multiple and -- meaning if you earn 2% on your cash, it almost doesn't matter what you get paid for your businesses; that's going to be an immediately dilutive use of cash.

However, from a long-term point of view, if you can sell businesses at 10 to 11 times and enter into an environment where you're buying similar risk businesses for five or six times, that's going to make sense. So we're in a period of time now, after monetization and pre-deployment, in which the absence of those two businesses and our holding onto cash, has a dilutive effect on our cash flow.

So I was trying to point out that if we were to continue to sit on cash and be patient, as John was suggesting, because things are getting better, there is a chance that the removal of those two businesses plus the sort of flat, slightly down of our remaining businesses, will mean that we either just barely make our -- match our distribution or are actually slightly below our distribution levels; none of which are facts that haven't been heavily considered by our Board of Directors in making our distribution, and none of which really bear into our thinking about distribution, which is kind of what's the long-term earnings potential?

And to try to expand on that, what I try to do is give a couple of examples, and say, if you assume we reinvested even just the cash, the $89 million -- so forget the $300 million that's sitting on the line -- if you invested just the cash at some multiple, you pick the number, you'll find that the accretion means that we substantially earn over our distribution.

And in fact, to further make the point what I tried to say was, if we just gave up and said there are no acquisitions out there -- which I'm not saying; I'm not [going there[ -- but if we were to do that and just pay down debt, the long-term debt with our $90 million, the accretion associated with not earning 1.5% or 2% on cash but paying down our debt at a rate of what now about --?

7.5.

7.5%, that alone would get us to the point where we were earning in excess of our distribution. So I'm trying -- we're trying to be very transparent and very clear. I don't want people to be surprised when what's very logical actually happens -- which is the fact that we sold Aeroglide and Silvue, and we're sitting here hoarding cash means that the actual CAD per share number goes down next year, because that's how the math works.

And so what we're trying to kind of get that out there because we don't want anyone to be surprised. If our businesses perform worse than we expected, we'll tell you. But we do expect that the impact of our having cash instead of these two businesses, if we don't redeploy that cash by the end of the year here, which it doesn't look like we're going to, is going to be diluted. So, does that -- Henry, does that make sense?

Yes. The other thing is, can you give us -- I mean, I've heard you talk through this before, basically you've both your worst-case scenario, you put it out on the table, and you said we can afford to increase the dividend here a little bit.

Right.

The other thing is I know you can't put too much out on the table, but as you start to look around, what sort of businesses are catching your attention?

It's a risk return. So if I were to tell you that we had a business that was in the health care-related field, you'd say, oh, you must be looking at defensive. But I could also tell you we're looking at a pretty interesting capital equipment business that is having some declines in cash flow, but we think we can get our arms around what the base level of cash flow will be. And we think it's a tremendous market share leader that has real room for growth. So it's individual and it's opportunistic and each one is a different risk return dynamic.

Thank you.

And there are no further questions at this time. Mr. Wilson, I'll turn the call back over to you for any closing remarks.

It's Joe. I'll close. Again, thank you all for your time. I know that time is always money, but I know there's subsequent pressures in markets like this and I know this call went a little longer than usual.

We can't be more excited to be managing capital on your behalf. We're doing our best. We think the model is working out here over the last couple of years and we think it's a real exciting time. So we appreciate your questions and your time and we look forward to working with all of you guys as owners and analysts and whatever for the next several years. Thanks. Bye.

Again, ladies and gentlemen, that does conclude today's conference. Thank you for your participation and have a wonderful day.