Good afternoon, ladies and gentlemen. I would like to welcome you to the AAON, Inc. Second Quarter Sales and Earnings Call. Mr. Asbjornson, you may begin your call.

Thank you. Thank you, ladies and gentlemen for attending our call. Without -- going forward at this point in time, I need to go through the 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. Thank you again. And I'd like to introduce you to our Chief Financial Officer, Kathy Sheffield, who will give us the first part of the report.

Good afternoon. Welcome to our conference call. Thank you for joining us today for the review of AAON's financial performance for the second quarter and 6 months of 2012. Please note that in making comparisons today, it's important to remember that 25,000 square feet of our manufacturing facility roof did not fall in on this year. So I'd now like to begin by discussing the comparative results for the 3 months ended June 30, 2012, compared to June 30, 2011. We're very pleased to announce that our revenues were up 21% to $83.3 million from $69.1 million. Revenues increased primarily as a result in gains and market share and new commercial and industrial construction, as well as the replacement markets and the favorable reception to our new and redesigned projects. Gross profit increased 79.8% to $21.1 million from $11.7 million. Gross profit was 25.3% of sales compared to 17% of sales last year. The increase in gross profit is attributable to improved productivity from our new sheet metal fabrication equipment and our revamped production lines. Selling, general and administrative expenses increased 20.8% to $6.9 million from $5.7 million. As a percent of sales, SG&A remained constant at 8.3% of sales for the 3 months ended both June 30, 2012, and 2011. Operating income increased approximately 135% to $14.2 million or 17% of sales from $6 million or 8.7% of sales. Net income increased 142.2% to $9.3 million or 11.2% of sales from $3.8 million or 5.6% of sales. Diluted earnings per share was $0.38 per share versus $0.15 per share in the same period a year ago. Earnings per shares were calculated on 24,728,000 shares versus 24,923,000 shares. The results of the 6 months ended June 30, revenues were up 15% to $148.3 million from $129 million. Gross profit increased…

Okay. We, basically, in order to get a better understanding of what is occurring for AAON, I have been -- I think break it down or talk about what the market place is doing, and then after that I'll enter in and talk about what AAON is doing, and then we'll kind of combine the 2 together as best we can. In the marketplace, there's really 2 segments to our market. There's the new construction market, then there's the renovation market. The new construction market is best typified and predicted by what is called the Architectural Billing Index. And if you work with that, you know that the 50% line is a neutral point, above 50% they are billing more work than they have the preceding year. If they're below the 50%, they're billing less work. This is the beginning point for all of our new construction, because if somebody doesn't design the building, nothing else happens. So this is an important index to watch, and it's normally the way that we try and predict what's going on. As stated by those [ph] people, when they bill that billing, it actually ends up in construction contracts approximately 9 to 12 months later. So it's always a good forward-looking index to look at. If we look at the most recent one I have available to me, which is June of this year, and try and decipher how much of the line was above the 50% and how much was below in the 2 preceding things, here's kind of the analysis that I've arrived at in trying to best judge their comparative values. In 2010, which basically affected 2011, and then 2011, which basically is affecting 2012. In trying to determine the difference between those 2, to get it [ph] to tell…

[Operator Instructions] And your first question comes from the line of Jon Braatz with Kansas City Capital.

Norm, can talk a little bit about the price environment at the moment and cost pressures, I know sometimes you get hit by some component cost increases, and you need to pass those on. But can you give me a little update on that?

Sure. The commodity portion of the marketplace has gone nowhere. If anything, it might almost be a little bit gone negative. It's a mixture between the copper, aluminum and steel and your percentage used, but basically, that's a non-story. The story is all over in the purchase of the manufacturing components. And we've gotten a little bit of the discounts in some places, but they're as not enough to overcome those, which are increasing. And the increases were happening more to us last year than they are this year, bigger ones, but there is a consistent pressure from those people just like everything else. They're having -- they're trying to improve them, their operation, pushing forward. We have had, if I had to say what we're doing and everything, I think we've had somewhere around a 3% average cost increase over the past year. And somewhere around that is what we've been able to pass through in our pricing. So we have more or less just had an offsetting pricing structure going forward. And because of the very competitiveness of the market, that's about all we felt that we could make happen. And so we've worked more on the cost structure of our company with the -- last year, I basically moved the company in my mind forward in many areas about 3 years of what I would normally have done. I pushed it all into last year, which did cause us some issues as far as over-challenging ourselves. And the equipment that we bought, the new sheet metal and the building we did and the remodeling of our production facilities and everything did have a negative on us last year without a question. Those are behind us. So basically, what most of our forward-going right now has to do with cost reductions and productivity improvements? I think we will be able to maintain price increases equal to our cost increases, but neither of them are a very big thing in life right now.

Norm, looking back at all the manufacturing enhancements you've made, the new sheet milling equipment and so on, do you think you've -- like this quarter, did you capture the full benefit of those investments? Or are you still sort of in learning -- moving up the learning curve?

The bulk of them we -- were captured this past quarter. They weren't the first quarter but the second quarter most of them were. There are still a gradual increase now, but it's diminishing one from here on out.

And there are no more questions in queue at this time. We have a question come in, and it's from the line of Joe Mondillo with Sidoti & Company.

Norm, yes, so I was wondering if you could talk about what kind of end markets you're seeing, on the strength in the first half of the year.

Yes, again, our biggest market that we pursue is the educational market, and it's taken a pretty big hit over the past few years. It lost -- a lot of the states and everything are having their financial problems, whatever. And they've backed off on building first grade through 12th grade buildings, which is our biggest marketplace. So that's taken a big hit. There's been a surprising little bit more activity over in the manufacturing, particularly in that area of the arena that -- but it was -- it had really deteriorated very badly, and it is showing some surprising strength. And then the rest of our marketplace is modestly going -- health, of course, is doing very well. And the retail and offices is somewhere in between the rest of them, so that's kind of where I think I see the marketplace working.

Do you have an idea of what the sort of current breakout, I guess, in the first half of the year was for new construction demand versus replacement as a percent of sales?

I think we're still running somewhere in the upper 50% area on replacement compared to new construction. I believe that's still occurring. We've done a few things that really, I don't know, that they're going to have a big impact, but I'll mention one to you that we did embark upon. There's a considerable concern in certain geographical areas in the United States over making buildings as earthquake proof as they can make them, and therefore, they are setting standards about the ability of the equipment to operate after it's been subjected to an earthquake shake. And there's various levels of standards, the most severe one being shaker test in which you put your product on a shaker table, and it shakes it very hard for 30 seconds, very hard it shakes it. Every direction you can imagine. And if you watch a video of it, it looks like it's shaking the machine apart. We have gone through that. We've put about $1 million into doing that, in all of our products up to 70-ton in the rooftop line and several of our split systems and some air handlings have also been done. So we're kind of in one of the leadership positions of getting ready for that. I wasn't sure whether, how's -- what the payoff was going to be, how fast, in other words that this was going to be decided [ph]. But we did in July of this year, ship to a major manufacturer of both defense and commercial products about over $1.5 million worth of the replacement units for a factory. And that was one of the considerations, that was one of the big considerations that got us the job -- was all of our product had been over the shaker tester. So there are things like that, that are coming into play in the renovation market that kind of distort even our ability to say, well, we're going parallel that market or whatever, because if that for instance becomes a more important thing to people, well, we have a decided advantage, because we're already qualified with our product line in that regard. I don't know if that gives you any flavor of what's going on, but it's a definite game changer in the replacement market. Things of that nature. And, of course, the energy thing is playing a huge benefit in that. And we are right up either in the lead or right up with the leaders in the energy segment of our product line.

All right. And then in terms of your gross margin. Is there any way that you could quantify how much the gross margin was driven related to productivity improvements versus just the increased volume?

You're right. The over absorption of our fixed costs definitely played a part in that improved margin that we had. I'd say that, that was -- this is really searching -- maybe, Kathy can give me a better idea. Do you have a better one? I'm going to say that 80% of it was due to improved productivity and 20% -- and I am searching a little here, Joe. About 20% maybe from the over absorption, 20% of that improvement.

Okay, that's helpful. And then lastly, could you just address or talk about the geothermal opportunities that you guys have been sort of tapping into over the last year or 2?

Yes, the geothermal ran up really quickly. It's kind of moderated a little bit, but -- it's a very viable market, and it's going to continue to be a very viable market. But I think one thing that's happened that has changed the geothermal and the other -- that part of our market that has had a noticeable change is air-source heat pumps. In other words, those technologies, which were trying to extract heat from the air through an air-source heat pump or extract heat out of the earth, geothermal or dump the heat into the earth, that part is still there. But the extracting of the heat has had a negative thing happen to it, and that's called frac-ing. Namely, the cost of gas has gone down considerably and, therefore, anything, any other source of energy has -- they could be displaced by gas is having a tough competitive situation, because the gas price available to you and I is considerably less than it was just a couple of years ago. And so your decision-making towards geothermal or air-source heat pumps is very noticeable. And the one that you can see it in is air-source heat pumps, which have historically been growing at faster rate than air-conditioning equipment as a whole have now gone the other way. They went into a negative position, a bigger one than the air conditioning industry as a whole. And the only thing I can think up for that, why that's happening, is price of natural gas. So geothermal, back to your question, geothermal, I think, is because it still does have a real virtue of being able to dump heat into the ground and do it in a very energy-saving fashion, that part of the equation still exists, which is an electrical-driven cost that it's saving on your electricity as opposed to saving on gas, natural gas cost, which you could have done with heating -- with natural gas. So on the air-source heat pump, of course, you get -- don't get that same benefit. You don't gain anything on the cooling side, but in geothermal, you do so it is probably -- on more of the southern part of the United States is probably holding its own better against this lower cost gas than it is in the more northern climates, where you were trying to gain on the heating side.

And how much does that makeup of your sales at this point?

Probably between 5% and 10%.

All the geothermal or the air source as well?

The air source as well.

Your next question comes from the line of DeForest Hinman with Walthausen & Co.

Just one question and I apologize if you've answered this already. But I got on the call a little bit late. Can you talk about the capital allocation strategy going forward? We've kind of moved past the heavy investment period, and we had a nice sales number and we got some receivables that are probably flowing through in the third quarter. So can you kind of update us on your thoughts for the cash?

Yes. Basically, new capital commitments, I've got to separate this out, because you're going to see things that will dispute the numbers I'm going to tell you here, so I've got to explain the number a little bit. Capital commitments that we're making this year, we think we're going to be -- we started out, I told you between $8 million and $10 million. That's a conservative number. I think it's going to be less than that on new capital commitments. However, when you look at our financial sheets, you'll see it's already up to $8 million. Well, if you look over and see how much I really committed, it's just a little over $4 million. So what's the discrepancy? Well that's something maybe I better turn over to the wiser one of the 2 of us here and let Kathy talk about where that differential is.

It's just the classification on the cash flow statement between operating and investing income based upon capital expenditures that are reclassed -- that are sitting in accounts payable, some that were sitting there at the end of June and some that were sitting there at the end of the year.

So basically, the difference between how much we're committing to cap versus the capital expenditures that show up is all the carryover from last year that was on our accounts payable portion or in some fashion and is actually showing up as a capital expenditure. So from a cash flow standpoint, it did -- it's going to be impacted by some of what we did last year, as well as what we're doing this year. And, of course, some of what we do this year may carry into next year. However, I'll tell you that even though we're just a little over $4 million so far this year, new commitments, that's diminishing. And so I'm going to be, like I said, conservative as I'm pretty sure about the $8 million. That probably is my high point for the balance of the new commitments. And it's diminishing until the picture changes in the economy and tells me I've got to do something else, because in so many areas now whether it be the equipment or the buildings or anything else, where I would normally spend capital money, it's going to require that we have a bigger marketplace and more sales before I'm going to be going forward. So my by capital expenditures going down this year and at this present time, I would say we'll continue down into next year.

So should we as shareholders anticipate continued buyback activity, or should we anticipate some cash buildup?

At this point in time, I'm looking at cash buildup because of the uncertainty of what's going to happen with whatever you want to call it, the fiscal cliff we're facing, first part of next year and how that gets handled. You can't see where they're going, and I don't feel very good about any of it. And so I want to keep some cash available. So I'm going to be sitting on the cash that we buildup for a while until I see some direction in the thing. Obviously, we're starting through an awful lot of cash. And I think that barring anything that I can see right now, we're going to finish -- continue to buildup cash fairly well. So until, say, the first part of next year, I'm not really likely to make any commitment to use that cash for anything other than putting it out there that wonderful interest rate we're getting right now.

And that this time, there are no more questions in queue.

Thank you for attending our second quarter profit and loss and business meeting, whatever all, we want to call it. But I hope that it was beneficial to you. And I welcome any more calls after we get done with this meeting, if you want to call me directly, feel free to do so. Thank you, and talk to you at the end of next quarter. Bye.

And this concludes this afternoon's teleconference. You may now disconnect your lines.