FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2000 Commission file number: 33-183336-LA AAON, INC. ---------- (Exact name of registrant as specified in its charter) Nevada 87-0448736 ------ ---------- (State or other jurisdiction (IRS Employer of incorporation) Identification No.) 2425 South Yukon, Tulsa, Oklahoma 74107 --------------------------------------- (Address of principal executive offices) (Zip Code) (918) 583-2266 -------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date. 5,891,549 shares of $.004 par value Common Stock. <PAGE 1> PART I - FINANCIAL INFORMATION Item 1. Financial Statements. On pages 3 through 8 of this report. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Results of Operations. Net sales increased by $4,494,000, up 15.0% (from $30,036,000 to $34,530,000) during the three-month period ended March 31, 2000, compared to the same period in 1999. Sales to existing customers in the first quarter accounted for 90% of the Company's business, with 10% coming from new business. The increase in sales in 2000 resulted from continuing strong demand from both manufacturers' representatives and the Company's national account base, which is expected to continue throughout the rest of the year. Gross profit increased in the first quarter of 2000 to 25.6% compared to 24.1% in the same quarter in 1999. The increase in margins was attributable to growth and stability of the Company's work force which impacted manufacturing efficiencies, and continuing efforts to automate certain areas of production which aided operating margins. SG&A expenses decreased $357,000 (8.2%) during the three months ended March 31, 2000, compared to 1999. This decrease is primarily attributable to reductions in professional fees and warranty costs. Net income during the first quarter of 2000 ($3,045,000) increased almost five times the rate of sales (73% vs. 15%) compared to the same period in 1999, due to the improvement in gross margins, which resulted primarily from improved operating efficiencies rather than price increases. Financial Condition and Liquidity. Inventories increased by $2,472,000 at March 31, 2000, compared to December 31, 1999, due to the sales increase. Property, plant and equipment increased $1,676,000 at March 31, 2000, reflecting additions to machinery and equipment, offset in part by greater depreciation. All capital expenditures in the first quarter of 2000 were financed out of cash flow and borrowings under the Company's revolving credit bank loan and equipment financing. Current liabilities were up $4,796,000 reflecting higher reserves related to the increase in sales and production. Long-term debt increased $1,836,000 due to stock repurchases totaling $5,062,000, which were largely funded by cash flows from operations. The capital needs of the Company are met primarily by its bank revolving credit facility. Management believes this bank debt (or comparable financing), term loans and projected profits from operations will provide the necessary liquidity and capital resources to the Company for the foreseeable future. The Company's belief that it will have the necessary liquidity and capital resources is based upon its knowledge of the HVAC industry and its place in that industry, its ability to limit the growth of its business if necessary, and its relationship with its existing bank lender. <PAGE 2> For information concerning the Company's long-term debt at March 31, 2000, see Note 3 to the Financial Statements on pages 7 and 8 of this report. Forward-Looking Statements This Report includes "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as "expects", "anticipates", "intends", "plans" "believes", "seeks", "estimates", "will", variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions which are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward- looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. The Company undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Important factors that could cause actual results to differ materially from those in the forward-looking statements include (1) the timing and extent of changes in material prices, (2) the effects of fluctuations in the commercial/industrial new construction market, (3) the timing and extent of changes in interest rates, as well as other competitive factors during the year, and (4) general economic, market or business conditions. Item 3. Quantitative and Qualitative Disclosures About Market Risk. While the Company is exposed to changes in interest rates regarding $6,735,000 of its total debt of $8,904,000, a hypothetical 10% change in interest rates on its variable rate borrowings would not have a material effect on the Company's earnings or cash flow. Foreign sales account for only 2% of the Company's total sales and the Company accepts payment for such sales only in U.S. dollars; hence, the Company is not exposed to any foreign currency exchange rate risk. Important raw materials purchased by the Company are steel, copper and aluminum, which are subject to price fluctuations. The Company attempts to limit the impact of price increases on these materials by negotiating with each of its major suppliers on a term basis from six months to three years. <PAGE 3> <TABLE> AAON, Inc. Consolidated Balance Sheets March 31, December 31, 2000 1999 --------- ------------ (In Thousands) <CAPTION> <S> <C> <C> ASSETS CURRENT ASSETS Cash $ 22 $ 25 Accounts receivable 21,970 21,327 Inventories 14,338 11,866 Prepaid expenses 1,192 566 Deferred income tax 2,693 2,693 -------- -------- Total current assets 40,215 36,477 -------- -------- PROPERTY, PLANT AND EQUIPMENT, at cost: Land 885 874 Buildings 15,164 14,336 Machinery and equipment 20,445 19,665 Furniture and fixtures 3,011 2,954 -------- -------- Total Property, Plant and Equipment 39,505 37,829 Less: accumulated depreciation 16,449 15,650 -------- -------- Net property, plant & equipment 23,056 22,179 -------- -------- Total Assets $ 63,271 $ 58,656 ======== ======== LIABILITIES AND STOCKHOLDER'S EQUITY CURRENT LIABILITIES Accounts payable $ 10,742 $ 9,045 Accrued liabilities 10,862 7,763 Current maturities of long-term debt 438 438 -------- -------- Total current liabilities 22,042 17,246 -------- -------- DEFFERED TAX LIABILITY 1,162 1,162 -------- -------- LONG-TERM DEBT 8,466 6,630 -------- -------- STOCKHOLDER'S EQUITY Common stock, $.004 par, 50,000,000 shares 23 25 authorized, 5,889,049 and 6,206,824 issued and outstanding at March 31, 2000 and December 31, 1999, respectively Preferred stock, 5,000,000 shares authorized, no shares issued Additional paid-in capital 2,674 7,734 Retained earnings 28,904 25,859 -------- -------- Total stockholder's equity 31,601 33,618 -------- -------- Total Liabilities and Stockholder's Equity $ 63,271 $ 58,656 ======== ======== *unaudited </TABLE> <PAGE 4> <TABLE> AAON, Inc. Consolidated Statements of Operations Three Months Ended Three Months Ended March 31, 2000 March 31, 1999 ------------------ ------------------ (In Thousands) <CAPTION> <S> <C> <C> Sales, net $ 34,530 $ 30,036 Cost of Sales 25,695 22,798 -------- -------- Gross profit 8,835 7,238 Selling, general and administrative expenses 3,909 4,266 -------- -------- Income from operations 4,926 2,972 Interest expense 174 194 Other (income) expense (108) (2) -------- -------- Income before income taxes 4,860 2,780 Income tax provision 1,815 1,016 -------- -------- Net Income $ 3,045 $ 1,764 ======== ======== Net income per share (Basic) $ 0.51 $ 0.28 ======== ======== (Diluted) $ 0.49 $ 0.27 ======== ======== *unaudited </TABLE> <PAGE 5> <TABLE> AAON, Inc. Consolidated Statements of Stockholder's Equity Common Stock Paid In Retained Shares Amount Capital Earnings Total ------------------------------------------------------------------------------- (in thousands) <CAPTION> <S> <C> <C> <C> <C> <C> Balance, December 31, 1999 6,206 $ 25 $ 7,734 $ 25,859 $ 33,618 Exercise of Stock Options* 28 158 158 Repurchase of Common Stock* (345) (2) (5,218) (5,220) Net Income* 3,045 3,045 ----- ---- ------- -------- -------- Balance, March 31, 2000* 5,889 $ 23 $ 2,674 $ 28,904 $ 31,601 ===== ==== ======= ======== ======== * unaudited </TABLE> <PAGE 6> <TABLE> AAON, Inc. Consolidated Statements of Cash Flows Three Months Ended Three Months Ended March 31, 2000 March 31, 1999 ------------------ ------------------ (In Thousands) <CAPTION> <S> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES Net Income $ 3,045 $ 1,764 Adjustments to reconcile net income to net cash provided by operating activities- Depreciation and Amortization 799 732 Change in assets and liabilities: (Increase) decrease in: Accounts Receivable (643) (1,072) Inventories (2,472) 1,857 Prepaid Expenses (626) (47) Increase (decrease) in: Accounts Payable 1,697 (1,894) Accrued Liabilities 3,099 2,279 Total Adjustments 1,854 1,855 ------- ------- Net cash provided by (used in) Operating Activities 4,899 3,619 ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES Capital Expenditures (1,676) (1,447) ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES Borrowing Under Revolving Credit Agreement 16,326 13,595 Payments under Revolving Credit Agreement (14,380) (15,255) Changes in long-term debt (110) (216) Exercise of Stock Options 158 48 Repurchase of Common Stock (5,220) - ------- ------- Net cash provided by (used in) financing activities (3,226) (1,828) ------- ------- NET CHANGE IN CASH (3) 344 CASH, beginning of period 25 25 ------- ------- CASH, ending of period $ 22 $ 369 ======= ======= *unaudited </TABLE> <PAGE 7> AAON, INC. NOTES TO FINANCIAL STATEMENTS March 31, 2000 1. BASIS OF PRESENTATION: The financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. The Company believes that the disclosures made in these financial statements are adequate to make the information presented not misleading when read in conjunction with the financial statements and the notes thereto included in the Company's latest audited financial statements which were included in the Form 10-K Report for the fiscal year ended December 31, 1999, filed by AAON, Inc. with the SEC. Certain reclassifications of prior year amounts have been made to conform to current year presentations. However, management believes that no adjustments to the financial statements are necessary. 2. INVENTORIES: Inventories at March 31, 2000 (unaudited), and December 31, 1999, consist of the following: March 31, December 31, 2000 1999 ----------- ----------- Raw Materials $ 8,724,000 $ 7,975,000 Work in Process 1,955,000 1,200,000 Finished Goods 3,659,000 2,691,000 ------------ ------------ $14,338,000 $11,866,000 ------------ ------------ 3. LONG-TERM DEBT: Long-term debt at March 31, 2000 (unaudited), and December 31, 1999, consists of the following: March 31, December 31, 2000 1999 ------------ ------------ $15,150,000 bank line of credit with interest payable monthly at LIBOR plus 1.70% (7.625% at March 31, 2000) due August 31, 2001 $ 6,735,000 $ 4,790,000 <PAGE 8> Three notes payable due in 84 equal installments totaling $36,489, plus interest at 7.47%, and 7.52%, collateralized by machinery and equipment 2,169,000 2,278,000 ----------- ----------- 8,904,000 7,068,000 Less Current Maturities 438,000 438,000 ----------- ----------- $ 8,466,000 $ 6,630,000 ----------- ----------- 4. FOOTNOTES INCORPORATED BY REFERENCE: Certain footnotes are applicable to the financial statements, but would be substantially unchanged from those presented in the December 31, 1999, 10-K filed with the SEC. Accordingly, reference should be made to this statement for the following: Note Description - ---- ---------------------------- 1 Operations and Organization 2 Accounting Policies 5 Income Taxes 6 Major Customers 7 Benefit Plans <PAGE 9> PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits - None. (b) Registrant filed one report on Form 8-K during the three-month period ended March 31, 1999. It was dated March 17, 2000, reporting an earlier adopted amendment of the Company's Articles of Incorporation and the Company's execution of the Third and Fourth Amendments to Second Restated Revolving Credit Loan Agreement. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. AAON, INC. Dated: May 3, 2000 By: /s/ Norman H. Asbjornson ------------------------------- Norman H. Asbjornson President Dated: May 3, 2000 By: /s/ Kathy I. Sheffield ------------------------------- Kathy I. Sheffield Treasurer