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, 2001 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. 5,753,074 shares of $.004 par value Common Stock.
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 $3,970,000, up 11.1% (from $35,465,000 to $39,435,000) during the three-month period ended March 31, 2001, compared to the same period in 2000. Sales to existing customers in the first quarter accounted for 88% of the Company's business, with 12% coming from new business. The increase in sales in 2001 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 2001 to 28.6% compared to 24.9% in the same quarter in 2000. The increase in margins was attributable to growth and stability of the Company's work force which contributed to a significant reduction in overtime expense and improved manufacturing efficiencies. SG&A expenses rose $1,441,000 (36.9%) during the three months ended March 31, 2001, compared to 2000, primarily due to increases in warranty reserves. Net income during the first quarter of 2001 ($3,576,000) increased at a rate 57% greater than sales (17.4% vs. 11.1%) compared to the same period in 2000, due to the improvement in gross margins. Financial Condition and Liquidity. Accounts receivable and inventories increased by $1,639,000 and $2,107,000, respectively, at March 31, 2001, compared to December 31, 2000, due to the sales increase. Property, plant and equipment increased $3,188,000 at March 31, 2001, reflecting additions to machinery and equipment, offset in part by greater depreciation. All capital expenditures in the first quarter of 2001 were financed out of cash flow and borrowings under the Company's revolving credit bank loan. Current liabilities were up $4,432,000 reflecting higher reserves related to the increase in sales and production and a greater amount of current maturities of long-term debt. 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 at least the next five years. 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 and its relationship with its existing bank lender. (1)
For information concerning the Company's long-term debt at March 31, 2001, 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 its total debt of $16,784,000, 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. (2)
<TABLE> AAON, Inc. Consolidated Balance Sheets March 31, 2001* December 31, 2000 -------------- ----------------- (In Thousands, except per share data) <CAPTION> <S> <C> <C> ASSETS CURRENT ASSETS Cash $ 15 $ 17 Accounts receivable 29,886 28,247 Inventories 17,247 15,140 Prepaid expenses 743 245 Deferred income tax 3,709 3,709 --------------- ------------------ Total current assets 51,600 47,358 --------------- ------------------ PROPERTY, PLANT AND EQUIPMENT, at cost: Land 885 885 Buildings 16,610 16,594 Machinery and equipment 31,906 27,869 Furniture and fixtures 3,239 3,175 --------------- ------------------ Total Property, Plant & Equipment 52,640 48,523 Less: accumulated depreciation 19,992 19,063 --------------- ------------------ Net property, plant & equipment 32,648 29,460 --------------- ------------------ Total Assets $ 84,248 $ 76,818 =============== ================== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 8,093 $ 11,691 Accrued liabilities 17,049 12,351 Current maturities of long-term debt 11,192 7,860 --------------- ------------------ Total current liabilities 36,334 31,902 --------------- ------------------ DEFFERED TAX LIABILITY 2,051 2,051 --------------- ------------------ LONG-TERM DEBT 5,592 5,853 --------------- ------------------ STOCKHOLDERS' EQUITY Common Stock, $.004par, 50,000,000 shares 23 23 authorized, 5,753,074 issued and outstanding Preferred Stock, 5,000,000 shares authorized, no shares issued Retained earnings 40,248 36,989 --------------- ------------------ Total stockholders' equity 40,271 37,012 --------------- ------------------ Total Liabilities and Stockholders' Equity $ 84,248 $ 76,818 =============== ================== * unaudited </TABLE> (3)
<TABLE> AAON, Inc. Consolidated Statements of Operations Three Months Ended March 31, 2001* March 31, 2000 --------------- -------------- (In Thousands, except per share data) <CAPTION> <S> <C> <C> Sales, net $ 39,435 $ 35,465 Cost of Sales 28,173 26,630 --------------- --------------- Gross Profit 11,262 8,835 Selling, general and administrative expenses 5,350 3,909 --------------- --------------- Income from operations 5,912 4,926 Interest expense 296 174 Other (income) expense (100) (108) --------------- --------------- Income before income taxes 5,716 4,860 Income tax provision 2,140 1,815 --------------- --------------- Net Income $ 3,576 $ 3,045 =============== =============== Earnings Per Share: Basic $ 0.62 $ 0.51 =============== =============== Diluted $ 0.59 $ 0.49 =============== =============== Weighted Average Shares Outstanding: Basic 5,751,773 5,954,207 =============== =============== Diluted 6,043,275 6,251,962 =============== =============== *unaudited </TABLE> (4)
<TABLE> AAON, Inc. Consolidated Statements of Stockholders' Equity Common Stock Paid In Retained Shares Amount Capital Earnings Total ------ ------ ------- -------- ----- (in thousands) <CAPTION> <S> <C> <C> <C> <C> <C> Balance, December 31, 2000 5,763 $ 23 $ - $ 36,989 $ 37,012 Exercise of Common Stock* 10 73 73 Repurchase of Common Stock* (20) (73) (317) (390) Net Income* 3,576 3,576 ------------ -------------- ------------------ ------------------ --------------- Balance, March 31, 2001* 5,753 $ 23 $ - $ 40,248 $ 40,271 ============ ============== ================== ================== =============== * unaudited </TABLE> (5)
<TABLE> AAON, Inc. Consolidated Statements of Cash Flows Three Months Ended Three Months Ended March 31, 2001* March 31, 2000 ------------------ ------------------ (In Thousands) <CAPTION> <S> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES Net Income $ 3,576 $ 3,045 ------------------- ------------------ Adjustments to reconcile net income to net cash provided by operating activities- Depreciation and Amortization 929 799 Change in assets and liabilities: (Increase) decrease in: Accounts Receivable (1,639) (643) Inventories (2,107) (2,472) Prepaid Expenses (498) (626) Accounts Payable (3,598) 1,697 Accrued Liabilities 4,698 3,099 ------------------- ------------------ Total Adjustments (2,215) 1,854 ------------------- ------------------ Net cash provided by (used in) Operating Activities 1,361 4,899 ------------------- ------------------ CASH FLOWS FROM INVESTING ACTIVITIES Capital Expenditures (4,117) (1,676) ------------------- ------------------ CASH FLOWS FROM FINANCING ACTIVITIES Borrowing Under Revolving Credit Agreement 19,375 16,326 Payments under Revolving Credit Agreement (16,043) (14,380) Changes in long-term debt (261) (110) Exercise of Stock Options 73 158 Repurchase of Common Stock (390) (5,220) ------------------- ------------------ Net cash provided by (used in) financing activities 2,754 (3,226) ------------------- ------------------ NET CHANGE IN CASH (2) (3) CASH, beginning of period 17 25 ------------------- ------------------ CASH, end of period $ 15 $ 22 =================== ================== *unaudited </TABLE> (6)
AAON, INC. NOTES TO FINANCIAL STATEMENTS March 31, 2001 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 accounting principles generally accepted in the United States 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, 2000, filed by AAON, Inc. with the SEC. Certain reclassifications of prior year amounts have been made to conform to current year presentations. These reclassifications had no impact on net income. However, management believes that no adjustments to the financial statements are necessary. 2. INVENTORIES: ------------ Inventories at March 31, 2001 (unaudited), and December 31, 2000, consist of the following: March 31, 2001 December 31, 2000 -------------- ----------------- Raw Materials $ 9,303,000 $ 9,701,000 Work in Process 2,534,000 1,967,000 Finished Goods 5,410,000 3,472,000 ------------ ------------ $17,247,000 $15,140,000 ------------ ------------ 3. LONG-TERM DEBT: --------------- Long-term debt at March 31, 2001 (unaudited), and December 31, 2000, consists of the following: March 31, 2001 December 31, 2000 -------------- ----------------- $15,150,000 bank line of credit with interest payable monthly at LIBOR plus 1.60% (6.6825% at March 31, 2001) due July 31, 2001 $ 10,249,000 $ 6,917,000 Three notes payable due in 84 equal installments totaling $36,489, plus interest at 7.47%, and 7.52%, collateralized by machinery and equipment 1,751,000 6,796,000 (7)
Three notes payable due in 120 equal installments totaling $42,100, plus interest at the commercial paper rate plus 1.55% (7.29% March 31, 2001), collateralized by machinery and equipment 4,784,000 -0- ------------ ------------ 16,784,000 13,713,000 Less Current Maturities 11,192,000 7,860,000 ------------ ------------ $ 5,592,000 $ 5,853,000 ------------ ------------ 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 and No. 138, 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 adopted SFAS No. 133, on January 1, 2001. The adoption of SFAS No. 133 did not have a material impact on the Company financial statements. 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, 2000, 10-K filed with the SEC. Accordingly, reference should be made to this statement for the following: Note Description - ---- ------------------------------------------------ 1 Business and Summary of Significant Accounting Policies 4 Income Taxes 5 Benefit Plans 6 Shareholder Rights Plan 8 Litigation (8)
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, 2001. It was dated January 18, 2001, reporting the Company's execution of the Fifth Amendment 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, 2001 By: /s/ Norman H. Asbjornson -------------------------- Norman H. Asbjornson President Dated: May 3, 2001 By: /s/ Kathy I. Sheffield -------------------------- Kathy I. Sheffield Treasurer (9)