AAON

AAON, Inc. (AAON)

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AAON Inc. (AAON)

Q4 2007 Earnings Call

March 12, 2008 4:15 pm ET

Executives

Norman Asbjornson - President and CEO

Kathy Sheffield - VP, CFO and Treasurer

Analysts

Frank Magdlen - The Robins Group

Clayton Ripley - Bear Capital Management

Jon Braatz - Kansas City Capital

Rob Wilson - Tulsa World

Joe Mondello - Sidoti

Shaun Nicholson - Kennedy Capital

Anthony Raab - Perimeter Capital

Presentation

Operator

Good day, everyone, and welcome to today's AAON Incorporated fourth quarter and full year conference call. (Operator Instructions)

At this time, I'd like to turn the conference over to Mr. Norman Asbjornson. Please go ahead, sir.

Norman Asbjornson

Good afternoon. Thank you for joining us in our fourth quarter report and full year 2007. Before going forward, I'll have to read a forward-looking disclaimer.

To the extent any statement presented here in 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 Securities and Exchange Commission filings, including the annual report on Form 10-K and quarterly report on Form 10-Q.

With that being completed, I'd like to introduce Kathy Sheffield, our CFO. Kathy?

Kathy Sheffield

Good afternoon. Welcome to our conference call. I'd like to begin by discussing the results of the three months ended December 31.

Our revenues were up 13.9% to $62.1 million from $54.6 million a year ago. Gross profit was up to 26.7% to $12.4 million from $9.8 million. Gross profit was 20% of sales during the fourth quarter of 2007 compared to 18% of sales during the fourth quarter of 2006.

Selling, general and administrative expenses increased for the fourth quarter by 94% to $5.2 million or 8.4% of sales from $2.7 million or 4.9% of sales in 2006. Operating income increased 1.4% to $7.2 million or 11.6% of sales from $7.1 million or 13% of sales.

Net income increased by 0.9% to $4.6 million or 7.4% of sales from $4.5 million or 8.3% of sales. The diluted EPS for both 2007 and 2006 was $0.24 per diluted share. These shares were calculated on 18.8 million shares in 2007 versus 18.9 million shares in 2006.

Looking at the full year, revenues were up 13.4% to $262.5 million from $231.5 million. Gross profit increased to 30.7% to $57.4 million or 21.9% of sales from $43.9 million or 19% of sales in 2006. SG&A expenses increased for the year by 20.2% to $21.7 million or 8.3% of sales from $18.1 million or 7.8% of sales.

The operating income increased 38.1% to $35.7 million or 13.6% of sales from $25.8 million or 11.2% of sales. Net income for the year increased 35.2% to $23.2 million or 8.8% of sales from $17.1 million or 7.4% of sales.

The diluted EPS was $1.22 per share versus $0.90 per share a year ago. Earnings per share for the year were calculated on 18.9 million shares versus 19 million shares a year ago.

Looking at the balance sheet now our current asset ratio decreased slightly. It was approximately 2.0 due to dividends payable and higher accrued liability which came from increased warranty and increased commission.

Capital expenditures for the year were $10.9 million and related to increased equipment related to increase in production and sales efficiency, some innovations to our Tulsa facility. Our shareholders equity per share as of December 31, 2007 was $5.29 compared to $4.95 for the same period a year ago. We also paid cash dividends of $5 million and also bought back stock for a total of $20.8 million.

I would now like to turn the call back over to Norm, who will discuss our results in further detail, also along with our new products and our outlook for 2008. Norm?

Norman Asbjornson

Okay. The year of 2007 was a pretty strong year from an economy standpoint. The commercial building was strong; it grew well and we benefited from that. In addition to which, we did introduce additional new products, which were well received and grew very well for us, as did some of the renovated or new products to replace old products. Coupled with the fact that we did have price increases attributed to our inflation cost last year, it ended up giving us our total growth.

Profitability, came about more by the fact that even though there was some volatility in component costs, it went both ways. In the early part of the year, it was on a downward trend and then in the latter part of the year it started an upward trend. And some [subsistence] from the whole year from the beginning to the end, inflation was up probably somewhere in 4% to 5% on our cost of material. So, it did give us a difference on a quarterly basis, because of the changing nature of the inflation. It does on a go forward basis, appear that we are getting a little bit more inflation coming our way than we had a year ago this time. Not appreciably, but certainly it is worth mentioning.

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