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Q4 2013 Earnings Conference Call

March 13, 2014 04:15 PM ET


Norman Asbjornson - President and CEO

Scott Asbjornson - VP, Finance and CFO

Rebecca Thompson - CAO


Jon Braatz - Kansas City Capital

Joe Mondillo - Sidoti & Company



Good day, ladies and gentlemen. Welcome to the AAON Fourth Quarter and Full-year Earnings Conference Call. This call is being recorded. I would like to turn the meeting over to Mr. Norman Asbjornson. At the end of the presentation we will open the call for question-and-answer. Please go ahead sir.

Norman Asbjornson

Good afternoon. Welcome to AAON’s fourth quarter report for 2013 and total year of 2013. Before going forward, I will read the forward-looking disclaimer. To the extent any statement presented herein deals with information that is not historical, including the outlook for the remainder of the year, such statement is necessarily forward-looking and made pursuant to the Safe Harbor provisions of the Securities Litigation Reform Act of 1995. As such, it is subject to the occurrence of many events outside AAON's control that could cause AAON's results to differ materially from those anticipated. Please see the risk factors contained in our most recent SEC filings, including the Annual Report on Form 10-K and the Quarterly Report on Form 10-Q.

I'd like to now introduce Scott Asbjornson, our CFO, who will take the financial portion.

Scott Asbjornson

Welcome to our conference call. I'd like to begin by discussing the comparative results of the three months ended December 31, 2013 to December 31, 2012. Net sales were down 5.9% to $73.4 million from $78.0 million. Net sales decreased due to changes in our product mix for units produced in the fourth quarter of 2013, as compared with 2012. Gross profit increased 8% to $20.2 million from $18.7 million. As a percentage of sales, gross profit was 27.5% in the quarter just ended compared to 24.0% in 2012.

The improvement in gross profit can be attributed to decreases in raw material costs and manufacturing efficiencies. Selling, general and administrative expenses increased 24.1% to $8.2 million from $6.6 million in 2012. As a percentage of sales, SG&A was 11.2% of total sales in the fourth quarter of 2013 and 8.5% in 2012. The increase in SG&A from the quarter ended December 31, 2013, was primarily due to higher profit sharing expense, warranty and employee compensation.

Income from operations decreased 1.7% to $11.9 million, or 16.2% of sales, from $12.1 million or 15.5% of sales. Our effective tax rate decreased to 35.2% from 37.3% in the fourth quarter of 2012. The income tax provision for 2013 reflected benefits related to the R&D credit and the Indian employment credit for tax years 2013 and 2012. These federal credits were retroactively reinstated on January 2, 2013. No Research & Development Credit or Indian Employment Credit benefits were recorded in 2012. Net income increased 2.6% to $7.8 million, or 10.6% of sales, from $7.6 million or 9.7% of sales. Diluted earnings per share was $0.21 per share for both fourth quarter 2013 and 2012. Diluted earnings per share were based on 37,107,000 shares versus 36,944,000 shares in the same quarter a year ago.

The results of the year ended December 31. Net sales were up 5.9% to $321.1 million from $303.1 million. Gross profit increased 27.4% to $89.8 million from $70.5 million. Gross profit as a percent of sales was 28.0% for 2013, compared to 23.3% in 2012. Selling, general and administrative expenses increased 29.4% to $34.0 million, or 10.6% of sales during 2013 from $26.3 million or 8.7% of sales, primarily due to increases in profit sharing, warranty, salaries and benefits. Income from operations increased 26.2% to $55.8 million or 17.4% of sales, from $44.2 million or 14.6% of sales. Our effective tax rate was 33.3%, compared with 38.1% in 2012 due to discrete benefits related to the Research & Development Credit and the Indian employment credit.

Net income increased 36.8% to $37.5 million or 11.7% of sales from $27.4 million or 9.1% of sales. Diluted earnings per share was $1.01 per share versus $0.74 per share. Diluted earnings per share were based on 37,058,000 shares versus 37,048,000 shares in the same period a year ago.

At this time I would like to turn it over to our Chief Accounting Officer, Rebecca Thompson, to discuss our balance sheet.

Rebecca Thompson

Thank you, Scott. Looking at the balance sheet you’ll see that we have a working capital balance of $77.3 million compared to $51.9 million a year ago. Our current ratio is approximately 3.1:1. We had no outstanding debt at December 31, 2013 or 2012. Our capital expenditures were approximately $9 million and our budget for 2014 is approximately $13 million. Shareholder equity per diluted share is $4.43 at December 31, 2013, versus $3.73 a year ago. We have total cash and investments of $49.8 million at December 31, 2013 compared to $19.3 million at December 31, 2012. We paid cash dividends of $7.4 million in 2013.

I’d now like to turn the call back over to Norm, who will discuss our results in further detail along with the new products and outlook for 2014.

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