Good day and welcome to today's AAON Incorporated ThirdQuarter 2007 Earnings Conference Call. Just to remind you, this call is beingrecorded. And at this time, I'd like to turn the call over to Mr.Norman Asbjornson. Please go ahead, sir.

Good afternoon. Thank you. Before I go any further, I'd like to read theforward-looking disclaimer. To the extent any statement presented herein dealswith information that is not historical, including the outlook for theremainder of the year, such a statement is necessarily forward-looking and madepursuant to the Safe Harbor provisions of the Securities Litigation Reform Actof 1995. As such, it is subject to the occurrence of many events outside AAON'scontrol that could cause AAON's results to differ substantially from thoseanticipated. Please see the risk factors contained in our most recent SECfilings, including the annual report on Form 10-K and the quarterly report onForm 10-Q. Thank you. I would like to introduce Kathy Sheffield, ourVice President and CFO, and turn it over to her. Thank you. Kathy?

Good afternoon and welcome to our conference call. We appreciateyour attendance today. I'd like to begin by discussing the results of the threemonths that ended September 30th, 2007 compared to September 30th, 2006. Our revenues were up 11% to $70.9 million from $64.2million. Our gross profit remained constant at $13.6 million for both periodsand was 19.2% of sales for 2007 compared to 21.2% for 2006. Selling, generaland administrative expenses decreased for the third quarter by 7.9% to $5.5million or 7.7% of sales from $6 million or 9.3% of sales for the same timelast year. Operating income increased 6.8% to $8.2 million or 11.5% ofsales from $7.6 million or 11.9% of sales. Net income went down to $5.4 millionor 7.6% of sales compared to 8.4% of sales last year. Diluted EPS for bothquarters of 2007 and 2006 were $0.28 per share. Now, for the nine months that ended September 30th, revenueswere up 13.3% to $200.4 million from $176.9 million. Gross profit increased31.9% 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 by7.3% to $16.5 million or 8.2% of sales from $15.4 million or 8% of sales for2006. Operating income increased 52% to $28.5 million or 14.2% ofsales from $18.7 million or 10.6% of sales. Net income increased 47.5% to $18.6million or 9.3% of sales from $12.6 million or 7.1% of sales. Diluted EPS forthe 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 periodof both years were based on approximately 19 million shares and are reflectiveof the company's three-for-two stock split that occurred on August 21st. Moving to the balance sheet now, the current asset ratioincreased to 2:5 from 1:7 for the same period last year due primarily to higheraccrued liabilities based on our higher sales that are related to both warrantyand commissions payable. Our capital expenditures for the nine months ending September30th were $8.7 million. Expenditures were related to new equipment purchased toincrease production efficiency and also to some renovations to our Tulsa facility. Shareholders equity per share as of September 30th was $5.69compared to $4.85 for the same period a year ago. Also, the company paid cashdividends of $5 million in 2007 and also bought back stocks from certainretirement incentive plans in the amount of $7.1 million. I'd now like to turn the call back over to Norm who willdiscuss our results in further detail along with new product information andthe outlook for the remainder of the year. Norm?

Thank you. There are a number of things which need to bediscussed here relative to what's happening in the economy and also in ourCanadian facility; to the economy first. In the month of July, we found that there was some sort ofhappening occurring. We don't know what is happening in the marketplace. And wehad 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 theywere sure they were getting, but for whatever reasons the contractors weren'tplacing the orders as fast as it was anticipated. It caused us some concern and we started not replacingworkers 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 ordersstarted coming in and we were moving forward at a brisker pace. Augustcontinued into September and in October there was the same thing. So what happened? To give you some percentages that reflectwhat happened, over the four-month period, starting from the end of June in the1st of July through the end of October, our total input of orders wasup 12.9% even with that weak month of July. If we just take the three months and discount the Julynumbers altogether, in the last three months, our orders compared to 2006 wereup 44.5%. So you can see there's been a remarkable switch. Whatever was occurringin July didn't continue. In fact, everything got much healthier than what wehad anticipated. So as that was occurring, we had already started reducing ourworkforce. Of course, we had a little higher drop-off than what we wereanticipating in the way of revenue. We thought and should have gotten upsomewhere around 15% revenue growth, instead we…

Yes, sir. Are you ready for questions?

Yes, I am.

Thank you. (Operator Instructions) And we'll take our first question from Frank Magdlen withThe Robbins Group. Please go ahead, sir.

Good afternoon, Norm.

Hi, Frank. How are you?

Good.

Good.

And I guess I'm more encouraged from your talking about theorder rate. But could you help quantify a little bit where the backlog standsnow or, say, at the end of the quarter?

I sure can. One moment. Backlog at the end of the quarterwas $55.4 million.

All right. And what you do think you could reasonably shipin the fourth quarter? And I say that because you brought your workforce down alittle bit and now you've ramped it back up a bit. And if I've heard you right,you would have shipped about $73 million or $74 million in the quarter. But youmissed by about $3 million or $4 million missed sales or missed shipments,because you just didn't have the labor to put it through the factories. Is thatcorrect?

That is pretty much correct and we were a little hesitant.We didn't want to throw a lot of overtime on it because that July scared us.And so, we were starting to ramp it back up, but more on standard, regular timeand throwing a lot of overtime out. So we could put overtime into the equationif we get that to thinking that this continuation of the order input goes upthat will happen.

Okay. And then what is your CapEx for '08?

It's going to be approximately where it is this year, andwe've told you all along about $10 million and right now we are at $8.7 millionroughly. Depending upon the arrival of the couple of pieces of equipment forour coil facility, we will be in the $10 million range plus or minus a littlebit perhaps this year. And next year, I don't see us exceeding that.

Okay. I'll jump in queue, and then I'll come back with somemore.

The net result, to answer you a little bit further, Frank,that's roughly what our depreciation is. So on a cash flow basis, thedepreciation and the CapEx are going to be about the same area. And so,profitability will go toward paying dividends plus buying back stock. And thedividends are somewhere in the $6 million area and the profitability is goingto be over $20 million. So we're going to have some excess money around.

Right. And I'll jump back in queue and come back to you witha couple of more questions.

Thank you.

Thank you. We will now take our next question from David Woodyattwith Keeley Asset Management.

What was the backlog a year ago?

A year ago for the same period it was $59.3 million. It'sroughly $4 million down.

Okay. I also wanted to ask you about, in the press releasewhere you're talking about buying back stock, your quote is just saying that ifyou make purchases at current levels that's going to enhance book value andearnings per share. It may enhance earnings per share, but it won't enhancebook value, either absolutely or per share. I wouldn't want to challenge you onyour knowledge of your business, but I think that's erroneous.

Where did you see that I was quoted on something like whatyou mentioned? I don't remember making those statements.

There is a paragraph where you mentioned that you're goingto repurchase up to 10% of the outstanding shares. It was approved by theBoard.

Correct.

The following paragraph.

Okay. We've talked about that it's currently substantiallyundervalued, the effect -- okay, the book value and earnings per shareremaining on the outstanding shares. If we lower the outstanding shares, thatwill have an effect upon the things relative to the outstanding shares.

Well, I think what you're missing is if you, for instance,bought $10 million worth of your own stock, you have to subtract $10 millionfrom shareholders' equity.

Yeah, that's out of earnings.

Shareholders' equity for the remaining shares actually goesdown, you have to pay less than book value per share to increase the book valueper share on the remaining shares. And you're still well above book value pershare of the stock. Just wanted…

All right.

In any event, it sounds like business is going very well.And I greatly appreciated your visiting the subs in Chicago.

Thank you.

And we'll now take our next question from Graham Ryan with BearsCapital Market.

Hi, Norm.

Hi.

Could you provide a little bit more detail about what newproducts you might be rolling out in the near future?

Well, as I said, I wouldn't depend upon them for bottomline,but I will tell you what we're doing. We're working on continuing what we begana few years ago, updating all of our present product line. And we've done thaton the two larger sizes of our rooftop units, and we are now going to do themix size down. Probably during the next year, we will probably get two sizesdown. We may still get the third one, which would mean our entire rooftopproduct line will be then redesigned and updated. And the updating is very significant. We're going from oneinch of fiberglass insulation with one piece of sheet metal to two pieces ofsheet metal and two inches of foam insulation. We're upping the R-value, theenergy saving part of the cabinetry by about two to three times better, 200% to300% better cabinet. And we're improving the air-moving efficiency, the waywe're going to move the air will take less horsepower, as well as well thecooling of the air takes less horsepower. So it's a significant upgrade of theproduct line. As we've been telling you, we've been bringing you new airhandling unit online, and we have got it online and are just beginning toexperience the sales. And so that's going to have a definite impact on ourvolume and bottomline because, I think, we've got an excellent product that'scompetitively priced for what it offers. And we will get growth out of that. We're also into, but just playing within, we're not reallygoing seriously after the residential part, which we've been talking about forsometime. Since that is a depressed market, everybody who's in it is fightingpretty heavily for market share. And it's not a place for us to spend lot ofour effort while that is going on. That's basically the two big things. And then, the otherone, I'll give you a feel for one of the other issues. Some of the other largethings that we've introduced and the kind of growth we've gotten out of them,it would appear that on a order booking case, the water chillers which weintroduced a few years back are going to our bookings. There are going to beabout 100% growth on bookings this year over last year. On the large tonnage rooftop, which we've introduced severalyears ago now, it looks like its somewhere in the 15% or 20% growth from lastyear to this year. So those things which are growing rapidly right now haveonly been out there for a little while. And we would expect continued heavygrowth in those bigger tonnage products. Does that answer your question?

Yes, sir. It's very helpful. Can you provide a little bitmore detail? You're talking about how -- initially when you guys were optingaround I think Wal-Mart was a big national account you had, and they kind ofput you on the map. And then you, it sounds like, kind of moved away from thatto go into the more general market and establish your customer base there. Areyou now putting more of a renewed focus on going back and getting some of thesebig national accounts, is that what you're trying to say?

Yes, to a degree. What happened is we had a slowdown in thegeneral commercial market in the early 2000's. And during that slowdown, ofcourse, what business was out there was being fought over pretty strongly.Because of the pricing levels that were occurring in some of that nationalaccount, we chose not to take the orders at the price level that they weretaken at. And we instead were pursuing, broadening our product or our customerbase, and we got into more of the general market. And therefore, we had a slowdown in the national accountbusiness more than offset by the other part. The market now is stronger and wehave the capability now of building more product. We made a lot of capitalinvestments which have given us the ability to build more than what we'regetting in orders right now. And so, we're more seriously going after it. And I spoke just a few minutes ago about the fact that we'reintroducing a whole new line of small tonnage products. And that's where lot ofthe national account business is in those kinds of products, which goes up toabout 30 tons in a unit size. And that's where, for instance, you mentionedWal-Mart, Wal-Mart is within that scope of product line. And we think as weintroduce these new products, we're going to have a much better chance toenhance our national account business.

Okay. And then the last question: Any thoughts of hedgingthat exchange rate or taking up some sort of derivative to kind of mitigatethat risk?

I haven't gotten into that yet. It probably should, but Ihaven't at this point in time. I'm getting a lot of conflicting advice as towhat's likely to happen. And the one which we're obviously real concerned aboutis the Canadian dollar. At this point, no, I have not done anything on it.

Okay. Thanks a lot.

And we'll now go back to Frank Magdlen with The RobbinsGroup.

Norm?

Yes, Frank.

Yeah. What were the revenues in Canada? And if I understood youright, we should look for about another $0.5 million loss from Canadain the fourth quarter, is that correct?

Probably somewhere in that vicinity, Frank. Like I said,you've got to be dependent to a large degree on what happens to the exchangeratio. As I explained, a lot of that business comes back in the US. Sowhen we change the US dollar back to Canadian dollar, and we get less than weanticipate; it will have an effect on the bottomline. What has happened on the Canadian orders? Just let me tellyou in a moment here. I've got them right now. We were growing the orders.Between '05 and '06, we grew them about 15%. And because of the problems we'rehaving this year to last year it's diminishing. We've raised the price sinceMarch. We've raised the price close to 30% to try and offset the exchange rate. The problem with it is that because we have that largebacklog, which we're still working out, the new dollar or the new orders atimproved pricing, as we've raised the price since March, have not flown throughto the bottomline. They will start flowing through, and it gives us anindication by what we've gotten from a month that we just closed or closing onOctober, which we don't have the final numbers on yet, but where we are at thispoint looks like it might be having some of that impact. So it has also done one other thing. It slowed down theorder input, which was -- normally we would go and do that. It was slowing andit was (inaudible) to not take orders that shouldn't be profitable. And sowe're either going to get it profitable or we're going to take some otheraction. The profitability is going to be diminished without any question. It'sgoing to go down. It will go down this year. If I had to guess, I would saywe're going to be down somewhere around 40% on orders from what we were lastyear. So it's going to reduce the size of our operation because wehave to depend upon one or two things, either Canadian orders, which aren'taffected by the exchange rate, or those orders which we can get at the higherprice in the US. And that is unknown to us because it's changing so fast or haschanged so fast that we don't have real good fix on it. We know what hasimpacted our ability to get orders.

But can you just quantify a little bit as to what Canadais going to do, maybe $10 million or $12 million revenue?

In revenue? Just one moment. Yeah, I was talking orders amoment ago, and just a moment, we're going to be probably at $15 million inshipments.

For '07?

For '07.

All right.

But we're not going to be taking orders at that rate becauseof the problems we're having with the exchange rate.

Okay.

We were well on our way to getting what distance we weregetting. We were well on our way to getting that, started to be corrected andmaking a profitable company, and then we've gotten hit by this other problem.

Okay. Could you help us out a little bit in looking at yourmarkets, what percentage of your revenue is now replacement versus newconstruction?

Let's talk about what replacement is and then we'll get intonew construction. There are two types of replacement business. There is theunexpected replacement business, which, in the middle of the summer some unitfails, and they say it's not worth fixing, buy a new one, which is theunexpected type of replacement that demands that you have a product availableright away because the people need the cooling right away. And then, there isthe replacement market where somebody knows something is getting old and theydecide when it's not so hot out that they're going to change those units outand put new units on the roof. The unexpected replacement market is best served by thosepeople who have distributors as a source of marketing of their product.Positive effect there is that they have a very good shot at that unexpectedreplacement market. The bad thing is a distributor cost more than a directsales force. So they have chosen to go that way and a couple of majormanufacturers are that way. Other major manufacturers, including ourselves,have gone direct route, which is either a factory-owned sales force orindependent agency direct sales force. So on the unexpected replacement, we're not strong. We'restrong on the expected replacement. The market in general is a little morereplacement market than it is new construction. So one portion of thereplacement market we're strong in, one portion we're not. We are, however,more strong in the new construction than the people who have decided to go withdistribution or with distributors since there are sales force out there. So there are three companies, three major companies that aredirect sales force, I would say, and two who are primarilydistributor-oriented. And so what does that do to us? Instead of being a littlemore than 50% in replacement like the market is, we're a little less than 50%.How much less? I'm going to guess right now we're somewhere around 45%replacement and 55% new construction.

All right. And then just a couple of other questions:Looking at your revenue, is it about two-thirds of the revenue growth fromprice and one-third from volume as you've worked through price increases overthe last several years?

Well, it's very immensely. This year we're probably gettingabout one-third of it through price increase and two-thirds of it throughactual growth. In past years, it's been the reverse or something in thatvicinity. But this year, we're probably going to get the actual dollar increaseas we're probably going to get somewhere around 5%, and we're probably going tobe, what, right now so far this year total of nine months growth revenue. I got to check my numbers to make sure I'm telling you thetruth. We're 13.3% so far, and I think we're going to hold or increase that alittle bit, so that will kind of give a ratio.

Run that by me again. You said how much again?

Total change is 13.3% for the nine months.

All right.

And that we're probably going to hold in that percent,somewhere around that percent and possibly increase it. And of that, probably5% of that is price related.

Okay.

Although we had more price increase, some of that aren'tfollowing through the backlog just fast enough to change that.

Okay. Just a couple, simpler, questions: Kathy, how manyshares have you repurchased this year and about the average price? And thenanother thought is any major changes in tax rates?

On the shares that we've repurchased…?

Give him the dollar value, first of all.

Yeah. Keep watching just this year. That's from thebeginning.

All right, so all inclusive.

Yeah. That's the original plan. Bear with me just a secondon tiers here.

Or another way of looking at it going forward, Norm, is theplan you announced today is that a new plan and there's nothing left of the oldplan or is that…

Left in the old plan, when we went to dividend on basis ofthe new quantity of stocks, there's 100,704 shares yet authorized but not done.And the previous authorization based upon the new share quantity was 1,987,500,and we still have 100,704 shares left to buy on that. And we've announcedanother stock buyback, which we intend to start implementing after the blackoutperiod, which means we can start on Friday of this week.

Okay.

Frank, the numbers I have are available at my fingertipshere, have to do more with not just in 2007, but overall and reflect the stockssplit.

We'll take those.

On our original stock buyback, it is reflective of the stocksplit. The average price was $11.86. We've spent $22 million. And as Norm said,on that original buyback there is 100,704 shares left to repurchase on theoriginal plan. We also, in 2005 started a buyback on 401(k) investmentsfrom the employees that they would like to diversify. We have repurchasedthrough that program 467,637 shares for an aggregate price of about $7.1million and an average price of $15.14 a share. And then, we also have repurchased some stock back fromDirectors that began in November of '06. We have repurchased 260,625 shares foran aggregate price of $5.2 million and averaged at $20.08 per share. So wereally have three type programs that we have to purchase stock back. For thequarter, we purchased back 199,943 for an average price of $20.98.

Okay.

Of all three programs.

All right. Well, thank you very much. And we look forward toyour continued success.

Thank you, Tony.

And we'll now go to [Tony Polak] with Maxim Group.

Good afternoon.

Hi, Tony.

On Canada,can you give us an idea of what the gross margins are without Canada in your business, and atwhat point, do you fold it up?

If we pull Canadaout of there, just the way it is right now, our gross margins would have beenin the low 20s, somewhere in the 21 area on our other portion of the business.Folding it up is one of the alternatives, and we have raised the price enough.One or the other, we are either going to have it profitable or else we aregoing to do something else with it, and folding it up is one of thepossibilities.

Okay. When you do plan on retiring?

You are asking me when I am planning on dying. I don't planon retiring. I worked my whole life to get this job and I love this business, Ilove what I am doing. As long as my mind functions, my body prevails, I amgoing to stay at it.

Okay.

I am in a very good health by the way, probably never beenin real good mental shape, but that hasn't changed.

Sounds good. Thank you.

And we'll now go to Anthony Rabb with [Perminar Capital].

Hi, Norm. How are you doing?

Just fine. Yourself sir?

Good. Thanks. A quick question what percent of your mixwould you consider counter-cyclical in nature?

Well a good question. Probably replacement business iscounter-cyclical I think, and it probably goes up because what ticked off thecontractors and the consulting engineers and everybody who is in the businessthen redirects their effort toward trying to get more of the replacementbusiness to happen. And so they probably runs counter to the building constructioncycle because I think more with during those times. And so that would be in our45% or so counter-cyclical for sure, and then certain other portions of it forother peculiar reasons probably kick in and probably get you up to 50% orslightly better.

Okay thanks, its very helpful.

Does that have answer your question?

Yes it does, thank you. The next question is on thebuybacks, and I guess just to ask Franks question in another way, is looking atyour history of buybacks, it looks to be running around 1% to 2% of theoutstanding over the last couple of years, and I guess what I'm trying tofigure out is, should we expect a similar clip going forward or is this more ofan accelerated program?

No if you remember back or you kind of check back at ourannouncements before, when we announced a dividend we also announced acessation of stock buyback on the open market. What Kathy was talking about is stock buyback that we didn'tcease doing, which was buying back if the employees wanted to sell their moneyout of their [floor] one, and reinvest it in other's, and it was also thatbecause some directors myself included had pretty big stock option plans whichwere coming due, it was decided rather than have those hit the market that wewould sell them at market price to the company if we chose to. And so thosewere the kinds of things that she was referencing, there was no buyback of thatauthorized 100,000 shares. Since - do you have the date handy, Kathy?

Yes, February 14th of 2006.

February 14th of 2006, we ceased buying back on that other100,000 shares. So this new plan is definitely going to be a much faster plan.If you look and see what that might be, you would have to go back. We've hadtwo stock buybacks. One, where we were discussing here, out of the essentially2 million shares, we bought back all but a 100,000 shares, look at that upuntil February of '06 and see the rate we were buying it back. And prior to that, we had another buyback where we boughtback 10% of our shares. I can't give you the quantities of that. I think it was12%. Just as we finished that, we implemented the one that we're talking about,and you could go back essentially through the past almost 22% buyback that wehad prior to that time, and that would tell you how fast it happened. I can tell you that 22% was bought back, just a minute Kathyis pointing it out to me here something.

This total is for both of these programs, same program atjust two different times. That's the total number of shares.

Okay. She correct me here a little bit that the 2 millionshares was for the two programs that we had before, and they started on October17th of 1999 and went till February 14th of 2006. So we bought back 2 millionshares during that time at a prevailing price then and we had stock splitsduring that time period. We've had 3 for 2 stock splits during that timeperiod.

Okay. Thank you. Have a good night.

(Operator Instructions). And it appears there are no furtherquestions. So Mr. Asbjornson, I would like to turn it back to you.

Okay. I thank all of you for participating in our call. Iappreciate your support. I want to thank you, and in summary, leave you withthe idea that, yes, we've got an issue to be addressed to get the Canadianoperation corrected in some fashion. We are very much aware of it. We areworking towards getting that correction accomplished. The rest of the companyhas continued to work beautifully, and as far as we can see, it looks that wayfor the future. Thank you.

And thank you very much. That does conclude our conferencefor today.