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 September 30, 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. 5,814,374 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 $16,362,000, up 17.0% (from $96,001,000 to $112,363,000 during the nine-month period ended September 30, 2000), compared to the same period in 1999. Sales increased by $4,599,000, up 13.1%, from $35,003,000 to $39,602,000 during the third quarter ended September 30, 2000, compared to the same quarter in 1999. The increase in sales in the third quarter and year to date 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 decreased in the first nine months of 2000 to 23.4% from 25.3% in the same period in 1999. The decrease in margins was due to heavy overtime expense and rising component prices. SG&A expenses decreased $2,155,000 (17.0%) during the nine months ended September 30, 2000, compared to 1999, due to reduced professional fees and lower warranty and bad debt expenses. Net income during the first nine months of 2000 ($9,782,000) increased at more than twice the rate of sales (39.6% vs. 17.0%) compared to the same period in 1999, due to lower SG&A expenses. Net income during the third quarter of 2000 increased 20.8% compared to the same period in 1999, from $2,821,000 to $3,409,000. Financial Condition and Liquidity. The $9,670,000 increase in current assets at September 30, 2000, compared to December 31, 1999, was mainly due to an $8,138,000 increase in accounts receivable resulting from increased sales and a lengthening of the collection period. Property, plant and equipment increased $6,328,000 at September 30, 2000, reflecting additions to buildings, machinery and equipment, offset in part by greater depreciation. All capital expenditures in the first nine months of 2000 were financed out of cash flow and borrowings under the Company's revolving credit bank loan. Current liabilities were up $16,993,000 reflecting (1) a movement of a major amount of the Company's revolving credit debt from long-term to short-term and an increase in the revolving debt due to stock repurchases, and (2) higher reserves and accrued liabilities related to the increase in sales and production. <PAGE 2> 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. For information concerning the Company's long-term debt at September 30, 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 $14,270,000 of its total debt of $15,952,000, 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 less than 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 September 30, December 31, 2000 1999 (In Thousands) <CAPTION> <S> <C> <C> ASSETS CURRENT ASSETS Cash $ 30 $ 25 Accounts receivable 29,465 21,327 Inventories 12,980 11,866 Prepaid expenses 979 566 Deferred income tax 2,693 2,693 -------- -------- Total current assets 46,147 36,477 -------- -------- PROPERTY, PLANT AND EQUIPMENT, at cost: Land 885 874 Buildings 16,423 14,336 Machinery and equipment 26,201 19,665 Furniture and fixtures 3,150 2,954 -------- -------- Total Property, Plant & Equipment 46,659 37,829 Less: accumulated depreciation 18,152 15,650 -------- -------- Net property, plant & equipment 28,507 22,179 -------- -------- Total Assets $ 74,654 $ 58,656 ======== ======== LIABILITIES AND STOCKHOLDER'S EQUITY CURRENT LIABILITIES Accounts payable $ 9,644 $ 9,045 Accrued liabilities 12,719 7,763 Current maturities of long-term debt 11,876 438 -------- -------- Total Current Liabilities 34,239 17,246 -------- -------- DEFFERED TAX LIABILITY 1,162 1,162 -------- -------- LONG-TERM DEBT 4,076 6,630 -------- -------- STOCKHOLDER'S EQUITY Common Stock, $.004 par, 50,000,000 shares 23 25 authorized, 5,814,374, and 6,206,824 issued and outstanding at September 30, 2000 and December 31, 1999, respectively. Preferred Stock, 5,000,000 shares authorized, no shares issued Additional paid-in capital 0 7,734 Retained earnings 35,154 25,859 -------- -------- Total stockholder's equity 35,177 33,618 -------- -------- Total Liabilities and Stockholder's Equity $ 74,654 $ 58,656 ======== ======== * unaudited </TABLE> <PAGE 4> <TABLE> AAON, Inc. Consolidated Statements of Operations Three Months Ended Nine Months Ended ------------------ ----------------- September 30, September 30, September 30, September 30, 2000 1999 2000 1999 ------------- ------------- ------------- ------------- (In Thousands, except per share data) <CAPTION> <S> <C> <C> <C> <C> Sales, net $ 39,602 $ 35,003 $ 112,363 $ 96,001 Cost of Sales 30,713 26,650 86,076 71,754 ---------- ---------- ---------- ---------- Gross Profit 8,889 8,353 26,287 24,247 ---------- ---------- ---------- ---------- Selling, general and administrative expenses 3,396 3,696 10,502 12,657 ---------- ---------- ---------- ---------- Income from operations 5,493 4,657 15,785 11,590 ---------- ---------- ---------- ---------- Interest expense 284 126 666 459 Other (income) expense (143) (57) (330) (133 ---------- ---------- ---------- ---------- Income before income taxes 5,352 4,588 15,449 11,264 Income tax provision 1,943 1,767 5,667 4,258 ---------- ---------- ---------- ---------- Net Income $ 3,409 $ 2,821 $ 9,782 $ 7,006 ========== ========== ========== ========== Net income per share (Basic) $ 0.58 $ 0.45 $ 1.66 1.12 ========== ========== ========== ========== (Diluted) $ 0.55 $ 0.43 $ 1.57 1.09 ========== ========== ========== ========== Weighted Average Shares Outstanding: Basic 5,836 6,258 5,889 6,500 ========== ========== ========== ========== Diluted 6,182 6,242 6,211 6,452 ========== ========== ========== ========== *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 Common Stock* 97 397 397 Repurchase of Common Stock* (489) (2) (8,131) (487) (8,620) Net Income* 9,782 9,782 ------- ------- -------- ---------- --------- Balance, September 30, 2000* 5,814 $ 23 $ - $ 35,154 $ 35,177 ======= ======= ======== ========== ========= * unaudited </TABLE> <PAGE 6> <TABLE> AAON, Inc. Consolidated Statements of Cash Flows Nine Months Ended Nine Months Ended September 30, 2000 September 30, 1999 ------------------ ------------------ (In Thousands) <CAPTION> <S> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES Net Income $ 9,782 $ 7,006 Adjustments to reconcile net income to net cash provided by operating activities- Depreciation and Amortization 2,502 2,222 Change in assets and liabilities: (Increase) decrease in: Accounts Receivable (8,138) (4,861) Inventories (1,114) 1,748 Prepaid Expenses (413) 23 Increase (decrease) in: Accounts Payable 599 (594) Accrued Liabilities 4,956 2,999 ---------- ---------- Total Adjustments (1,608) 1,537 ---------- ---------- Net cash provided by Operating Activities 8,174 8,543 ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES Capital Expenditures (8,830) (4,740) ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES Borrowing Under Revolving Credit Agreement 50,370 43,830 Payments under Revolving Credit Agreement (44,010) (44,585) Changes in long-term debt 2,524 (2,439) Exercise of Stock Options 397 118 Repurchase of Common Stock (8,620) - ---------- ---------- Net cash provided by (used in) financing activities 661 (3,076) ---------- ---------- NET CHANGE IN CASH 5 727 CASH, beginning of period 25 25 ---------- ---------- CASH, ending of period $ 30 $ 752 ========== ========== *unaudited </TABLE> <PAGE 7> AAON, INC. NOTES TO FINANCIAL STATEMENTS September 30, 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 September 30, 2000 (unaudited), and December 31, 1999, consist of the following: September 30, December 31, 2000 1999 ------------ ------------ Raw Materials $ 8,374,000 $ 7,975,000 Work in Process 2,275,000 1,200,000 Finished Goods 2,331,000 2,691,000 ------------ ------------ $12,980,000 $11,866,000 ------------ ------------ 3. LONG-TERM DEBT: Long-term debt at September 30, 2000 (unaudited), and December 31, 1999, consists of the following: September 30, December 31, 2000 1999 ------------ ------------ $15,150,000 bank line of credit with interest payable monthly at LIBOR plus 1.70% (8.32875% at Sept. 30, 2000) due July 31, 2001 $ 11,150,000 $ 4,790,000 Three notes payable due in 84 equal installments totaling $36,489, plus interest at 7.47%, and 7.52%, collateralized by machinery and equipment 1,970,000 2,278,000 <PAGE 8> Two notes payable due in 120 equal installments totaling $24,000, plus interest at the commercial paper rate plus 1.55% (8.04% at September 30, 2000), collateralized by machinery and equipment 2,832,000 -0- ------------ ----------- 15,952,000 7,068,000 Less Current Maturities 11,876,000 438,000 ------------ ----------- $ 4,076,000 $ 6,630,000 ------------ ----------- In July 2000, the bank line of credit was amended to a maturity date of July 31, 2001. 4. NEW ACCOUNTING PRONOUNCEMENTS: In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. Companies must formally document, designate, and assess the effectiveness of transactions that receive hedge accounting. SFAS No. 133, as amended by SFAS No. 137, is effective for fiscal years beginning after June 15, 2000. SFAS No. 133 cannot be applied retroactively and must be applied to (a) derivative instruments and (b) certain derivative instruments embedded in hybrid contracts that were issued, acquired, or substantively modified after December 31, 1997. The Company has not yet quantified the impact of adopting SFAS No. 133 on its financial statements and has not determined the timing of or method of the adoption of SFAS No. 133. However, as of September 30, 2000 and December 31, 1999, the Company had no outstanding derivative instruments. 5. 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 4 Income Taxes 5 Benefit Plans 6 Shareholder Rights Plan <PAGE 9> PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits - None. (b) Registrant did not file any reports on Form 8-K during the three-month period ended September 30, 2000. 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: November 9, 2000 By: /s/ Norman H. Asbjornson ---------------------------- Norman H. Asbjornson President Dated: November 9, 2000 By: /s/ Kathy I. Sheffield ---------------------------- Kathy I. Sheffield Treasurer