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Q3 2007 Earnings Call

November 07, 2007 4:15 pm ET


Norman Asbjornson - President and CEO

Kathy Sheffield - VP, CFO and Treasurer


Frank Magdlen - The Robbins Group

David Woodyatt - Keeley Asset Management

Graham Ryan - Bears Capital Market

Tony Polak - Maxim Group

Anthony Rabb - Perminar Capital



Good day and welcome to today's AAON Incorporated Third Quarter 2007 Earnings Conference Call. Just to remind you, this call is being recorded.

And at this time, I'd like to turn the call over to Mr. Norman Asbjornson. Please go ahead, sir.

Norman Asbjornson

Good afternoon. Thank you.

Before I go any further, I'd like to 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 a 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 substantially 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.

Thank you. I would like to introduce Kathy Sheffield, our Vice President and CFO, and turn it over to her. Thank you. Kathy?

Kathy Sheffield

Good afternoon and welcome to our conference call. We appreciate your attendance today. I'd like to begin by discussing the results of the three months that ended September 30th, 2007 compared to September 30th, 2006.

Our revenues were up 11% to $70.9 million from $64.2 million. Our gross profit remained constant at $13.6 million for both periods and was 19.2% of sales for 2007 compared to 21.2% for 2006. Selling, general and administrative expenses decreased for the third quarter by 7.9% to $5.5 million or 7.7% of sales from $6 million or 9.3% of sales for the same time last year.

Operating income increased 6.8% to $8.2 million or 11.5% of sales from $7.6 million or 11.9% of sales. Net income went down to $5.4 million or 7.6% of sales compared to 8.4% of sales last year. Diluted EPS for both quarters of 2007 and 2006 were $0.28 per share.

Now, for the nine months that ended September 30th, revenues were up 13.3% to $200.4 million from $176.9 million. Gross profit increased 31.9% to $45 million or 22.5% of sales from $34.1 million or 9.3% of sales.

Our SG&A expenses increased for the first nine months by 7.3% to $16.5 million or 8.2% of sales from $15.4 million or 8% of sales for 2006.

Operating income increased 52% to $28.5 million or 14.2% of sales from $18.7 million or 10.6% of sales. Net income increased 47.5% to $18.6 million or 9.3% of sales from $12.6 million or 7.1% of sales. Diluted EPS for the nine months was $0.98 per share versus $0.66 per share a year ago.

Our earnings per share for the three months and nine months period of both years were based on approximately 19 million shares and are reflective of the company's three-for-two stock split that occurred on August 21st.

Moving to the balance sheet now, the current asset ratio increased to 2:5 from 1:7 for the same period last year due primarily to higher accrued liabilities based on our higher sales that are related to both warranty and commissions payable.

Our capital expenditures for the nine months ending September 30th were $8.7 million. Expenditures were related to new equipment purchased to increase production efficiency and also to some renovations to our Tulsa facility.

Shareholders equity per share as of September 30th was $5.69 compared to $4.85 for the same period a year ago. Also, the company paid cash dividends of $5 million in 2007 and also bought back stocks from certain retirement incentive plans in the amount of $7.1 million.

I'd now like to turn the call back over to Norm who will discuss our results in further detail along with new product information and the outlook for the remainder of the year. Norm?

Norman Asbjornson

Thank you. There are a number of things which need to be discussed here relative to what's happening in the economy and also in our Canadian facility; to the economy first.

In the month of July, we found that there was some sort of happening occurring. We don't know what is happening in the marketplace. And we had an unexpectedly low booking month in July, as compared to our June booking. We were talking to our representatives who said they have plenty of jobs they were sure they were getting, but for whatever reasons the contractors weren't placing the orders as fast as it was anticipated.

It caused us some concern and we started not replacing workers in our facilities, thinking that we were on the edge of the downturn. And so we started letting attrition slow the workforce down. Regarding August, all of a sudden the situation reversed itself, and these anticipated orders started coming in and we were moving forward at a brisker pace. August continued into September and in October there was the same thing.

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