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Q2 2008 Earnings Call Transcript

August 6, 2008, 4:15 pm ET


Norm Asbjornson – Chairman, President and CEO

Kathy Sheffield – VP, CFO and Treasurer


Jon Braatz – Kansas City Capital

Frank Magdlen – The Robins Group

Joe Mondello – Sidoti & Company

Graeme Rein – Bares Capital

Shaun Nicholson – Kennedy Capital

Corey McCullum [ph] – GMP Capital



Good day and welcome to today’s AAON Incorporated second quarter earnings performance conference call. Just as a reminder, this call is being recorded. At this time, I would like to turn the call over to Mr. Norman Asbjornson. Please go ahead, sir.

Norman Asbjornson

Good afternoon and welcome to AAON’s second quarter report. With me is Kathy Sheffield, but before we embark upon this I’d like to read the forward-looking disclaimer to you.

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 Securities and Exchange Commission filings including the annual report on Form 10-K and the quarterly report on Form 10-Q. Again thank you and I will turn it over to Kathy Sheffield our Vice President and in charge of finance. Thank you.

Kathy Sheffield

Good Afternoon and welcome to our second quarter conference call. I’d like to begin today by discussing the operating results for the three months ended June 30 compared to the three months ended June 30 2007. Revenues were up 6% to $74.8 million from $70.8 million. The increase in the sales was attributable to an increase in our volume, our diversified product mix, an excellent response to many of our new and redesigned products and also to price increases.

Gross profit increased 15% to $18 million or 24.1% of sales from $15.6 million or 22% of sales. The increase in the gross profit was a result of higher sales, our price increases and also production in labor efficiencies. Selling, general and administrative expenses increased for the second quarter by 15% or $6.1 million or 8.2% of sales from $5.3 million or 7.4% of sales.

The increase in the SG&A was primarily related to an increase in selling related expenses, warranty expense related to the higher increase sales; profit sharing, that’s also related to increased net income and an overall increase in general and administrative expenses.

Our operating income increased 15% to $11.9 million compared to 15.9% of sales from $10.3 million or 14.6% of sales. Net income increased to $7.8 million or 10.4% of sales from $6.9 million or 9.7% of sales. The increase in the net income resulted from our higher sales volumes and improved productivity.

Our diluted EPS was $0.43 per share versus $0.36 per share compared to the same quarter last year. Our earnings per share for the three months were based 18,145,000 shares compared to 19,336,000 shares in the same quarter a year ago.

Moving now to the six months results revenues were up 8% to $140.2 million from $129.5 million. Gross profit increased 7% to $33.6 million or 24% of sales from $31.3 million or 24.2% of sales.

Selling, general and administrative expenses increased for the six months by 9% to $12 million or 8.6% of sales from $11 million or 8.5% of sales. Operating income increased 6% to $21.6 million or 15.4% of sales from $20.3 million or 15.7% of sales. Net income increased to $14.2 million or 10.1% of sales from $13.2 million or 10.2% of sales. The diluted EPS was $0.78 per share versus $0.69 per share a year ago. Earnings per share for the six months were based on 18,302,000 shares compared to 19,492,000 shares.

Looking at the balance sheet we see that the company’s current asset ratio is approximately 1.7, that was due primarily to our dividends payable, our higher accrued liabilities and part of the higher accrued liabilities were based increased warranty expenses, accrual and our commission.

Capital expenditures for the six months were $1.4 million of the expenses related to new equipment and also office renovation in the Tulsa location. Share holders equity per share as of June 30 was $5.23 compared to $5.29 last year. We also pay cash dividends of $2.9 million and also back stock at the amount of $17.3 million.

I would now like to turn the call back to Norm who will discuss our results in further detail along with our new products and the outlook for the remainder of the year; Norm.

Norman Asbjornson

We are very pleased with the sales performance we’ve had. The economy is a little bit soft in the commercial end. It has been for most of the year and doesn’t have any defined direction at this point whether it’s going to get stronger or not, but it appears that it’s pretty stable at this point.

The energy issue has become more and more important and we have done a lot of things to address energy in a positive fashion and it’s helped our sales effort. Probably the one that is more changed than anything though is because of Montreal Protocol which the U.S. is adhering to and the things out of our older type of refrigerant by the first of January 2010 and with a new more environmentally friendly refrigerant called our 410. There’s been a dramatic switch over to 410 by all our customer base and so there has been a bolt of benefit and the problem here the benefit being that we were totally ready for it and therefore probably got some sales because we were ready for it.

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