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Strategies & Market Trends : YEEHAW CANDIDATES -- Ignore unavailable to you. Want to Upgrade?

To: Galirayo who wrote (12967)	10/28/2005 2:23:45 PM
From: ACAN	Read Replies (1) \| Respond to of 23958

Ray; [ALY] post. From: jayt 10/28/2005 1:43:37 PM Read Replies (1) of 13766 re: ALY (Allis-Chalmers Energy) I received a return call from Victor Perez yesterday around 4:50pm ct. Let me start by saying Victor is a really nice guy and was very forthright with his answers. He caught me away from my notes so I forgot to ask about the current level of the credit facility. More important to me; I did find out about down time. We had about a week of down time and the area of business impacted was the strata drilling segment - notably the diagonal drilling...this compares to 25 days lost by SLB. Corporate tax rate should remain between 10-15% going forward, but he did say that would be ramping up to a possible full tax rate by mid to year end 2006....because of profitability. He said the storms did not effect them as much because they do not have significant exposure to offshore....inferring that west texas is redhot. When I asked about capacity he said they were at about 70-75% full capacity. The reason for this is not because of the storms, but is because of a shortage and lack of skilled labor within the industry. Victor said this is the one constraint that impedes faster growth across our segments. This was echoed by SLB in their call. Also in the SLB call they said they were more concerned about wage inflation than insurance premiums. SLB cited wage inflation would be double digit next year. The cap coiled segment is up and running, but not at 100% capacity because of manpower. You can't flat out ask about revenue, but you can ask about SGA expense. I asked if it would stay flat as a percentage of revenue - 14.7% last quarter - ...he said that would not be the case since it was a percentage of revenue and revenue would be higher. STOP --did he just say revenue would be higher this quarter?? - yeah, he did...in a round about manner. The last thing I touched on with Mr. Perez was the acquisition from RPC Inc., and how did we get all that cheap equipment. He said since they (RES) are so big that they were focusing on another area of their business and were able to sell off equipment out of that division. We benefit because we got cheap equipment and essentially increased market share in that segment because of RES's decision to focus on other areas. Victor said that the acquisition was immediately accretive because we started putting that equipment to work as soon as the deal closed. So, whereas others had significant downtime in September we were selling and renting equipment the whole month. When I commented on the timing of the deal and price paid (15m) I asked if that same deal could be done now post hurricanes. Essentially no was the answer. When asked what that equipment would sell for now (17-20m?) he did not know exactly, but the equipment is definitely worth more than they paid. Lagtimes in the capital equipment makers trickles down to ALY in the sense that they cannot keep up with customer demand because the equipment from their suppliers is tight. This translates into higher prices now, 2006, and beyond. And don't forget ALY has 90 compressors and boosters that are in high demand. What I walked away with was a sense that business is booming and that we probably have some more acquisitions in the future to bolster the growth rate that we are running at. The market is in a tricky environment at the moment. However, I think selling ALY would be the equivalent of throwing the baby out with the bath water. I hope this helped clarify some things, and I would love to hear some thoughts on this information. -JT