http://yahoo.brand.edgar-online.com/disp...

It has a diversified business portfolio with different lines of business. But regional concentration is still high (62% in America).

Sale of commercial real estate is 50% off and it will only worsen.

Leasing business is volume-business. In today's environment, shrinking is the only result.

Red Flag 1: adjusted EBITDA is now around 11.9%(page 24). But the firm is so desperate for cash that in the first 6 months of 2009, it borrowed a new subordinate loan of 435m. The interest rate is 11.625% (10-Q CFS). The firm is pretty much work for the bank now.

According to historical experience during the 1991 recession, EBITDA margin will decline further. NO HOPE of rebounce in one year.

Red flag 2: negative operating cash flows and investing cash flows. First 6 months, OCF is -82.7m, inv.C.F,-63.5m. Total -146.2m.

Negative OCF will appear again in Q3 2009 report(we will see on Thursday morning). 2009 first half year's Inv.C.F. is already 80% off compared with first 6 months of 2008. It is abnormal to cut it to 0 or even lower.

Therefore, I will expect every quarter, the cash deficit will be around 73m--must be satisfied with new cash inflow.

Flag 3. Desperate financing: Paulson Co. gave 100m to the firm in Q2. Average price is around 6.5 to 7. Desperate low price. The firm works hard to reduce leverage ratio.

The firm can take advantage of the high price now to issue more stocks, but it is going to hurt stock price.

It could not borrow more since it might have to pay even higher rate now. All banks know that their CRE loan portfolio is deteriorating every day. Only bloody idiots will give more loans here.

Red flag 4. Inevitable impairment charge: hit to the equity account with potential impact of covenant breaches.

The only good news is that it fired DT as the auditor for 2008 (which charged 5.9m of audit fee) and replaced with KPMG (5.1m for 2008 audit). Really a good cost saving, or maybe even nicer auditor who will give in to the client pressure in 2009.

In sum, tough road ahead. I will expect a miserable Q3 of 2009.