FORM 10-Q UNITED STATES 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, 2004 Commission file number: 0-18953 AAON, INC. ---------- (Exact name of registrant as specified in its charter) Nevada 87-0448736 ------ ---------- (State or other jurisdiction (IRS Employer of incorporation or organization) 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 by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes |X| No ------------- ---------- As of May 1, 2004, Registrant had outstanding a total of 12,470,958 shares of its $.004 par value Common Stock.
PART I - FINANCIAL INFORMATION Item 1. Financial Statements. On pages 8 through 15 of this report. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. AAON engineers, manufactures and markets air-conditioning and heating equipment consisting of rooftop units, chillers, air-handling units, condensing units and coils. The Company currently has five groups of rooftop products: its RM and RN series offered in 21 cooling sizes ranging from two to 70 tons (the RM and RN units replaced the RK Series in 2003); its RL Series, which is offered in 15 cooling sizes ranging from 40 to 230 tons; its HA Series, which is a horizontal discharge package for either rooftop or ground installation, offered in nine sizes ranging from four to 50 tons; and its HA/HB Series, which is offered in 11 sizes ranging from two to 50 tons. The Company manufactures a Model LL chiller, which is available in both air-cooled condensing and evaporative cooled configurations. The Company's air-handling units consist of the H/V Series and the Celebrity Series. The Company's condensing units consist of the CA and CB Series. AAON sells its products to property owners and contractors through a network of manufacturers' representatives and its internal sales force. Demand for the Company's products is influenced by national and regional economic and demographic factors. The commercial and industrial new construction market is subject to cyclical fluctuations in that it is generally tied to housing starts, but has a lag factor of 6-18 months. Housing starts, in turn, are affected by such factors as interest rates, the state of the economy, population growth and the relative age of the population. When new construction is down, the Company emphasizes the replacement market. The principal components of cost of goods sold are labor, raw materials, component costs, factory overhead, freight out and engineering expense. The principal raw materials used in AAON's manufacturing processes are steel, copper and aluminum. The major component costs include compressors, electric motors and electronic controls. Selling, general, and administrative ("SG&A") costs include the Company's internal sales force, warranty costs, profit sharing and administrative expense. Warranty expense is estimated based on historical trends and other factors. The Company's warranty on its products is: for parts only, the earlier of one year from the date of first use or 15 months from date of shipment; compressors (if applicable), an additional four-years; on gas-fired heat exchangers (if applicable), 15 years; and on stainless steel heat exchangers (if applicable), 25 years. The office facilities of AAON, Inc. consist of a 337,000 square foot building (322,000 sq. ft. of manufacturing/warehouse space and 15,000 sq. ft. of office space) located at 2425 S. Yukon Avenue, Tulsa, Oklahoma (the "original facility"), and a 457,000 square foot manufacturing/warehouse building and a 22,000 square foot office building (the "expansion facility") that is located across the street from the original facility. The Company utilizes 25% of the expansion facility and the remaining 75% is leased to a third party. The operations of AAON Coil Products are conducted in a plant/office building at 203-207 Gum Springs Road in Longview, Texas, containing 226,000 square feet (219,000 sq. ft. of manufacturing/warehouse and 7,000 sq. ft. of office space). -1-
Set forth below is income statement information with respect to the Company for the periods ended March 31, 2004, and 2003: AAON, Inc. Consolidated Statements of Operations Three Months Ended March 31, 2004* March 31, 2003* --------------------- --------------------- Net Sales $37,494 $32,856 Cost of sales 29,793 24,159 --------------------- --------------------- Gross profit 7,701 8,697 Selling, general and administrative expenses 3,967 3,196 --------------------- --------------------- Income from operations 3,734 5,501 Interest expense 17 6 Interest income (81) (58) Other income (2) (84) --------------------- --------------------- Income before income taxes 3,800 5,637 Income tax provision 1,463 2,142 --------------------- --------------------- Net income $ 2,337 $ 3,495 ===================== ===================== *Unaudited Results of Operations. Net sales increased $4.6 million (14.1%) to $37.5 million from $32.9 million for the three months ended March 31, 2004, compared to the same period in 2003. Increased sales were attributable to the introduction of new products and the improving outlook for the U.S. economy. Gross margins were 20.5% compared to 26.5% for the three months ended March 31, 2004 and March 31, 2003, respectively. Gross profit decreased $996,000 (11.5%) to $7.7 million from $8.7 million for the three months ended March 31, 2004, compared to the same period in 2003. The decrease in margins was due principally to the start-up costs associated with a new coil project and price increases in steel and copper. Selling, general and administrative expenses increased $771,000 (24.1%) to $4.0 million from $3.2 million for the three months ended March 31, 2004, compared to the same period in 2003, due primarily to an increase in warranty and bad debt expense. -2-
Financial Condition and Liquidity. Inventories increased $2.5 million to $22.2 million at March 31, 2004, compared to $19.7 million at December 31, 2003, due to production issues with the manufacturing of new products and the procurement of additional raw material and purchased parts required to manufacture units that had extended ship dates. The bulk of the increase in inventories is committed for future manufacturing. Accounts payable and accrued liabilities decreased $679,000 to $23.2 million at March 31, 2004, compared to $23.9 million at December 31, 2003, due primarily to timing of payment to vendors. The Company generated $1.2 million and $8.7 million cash from operating activities during the three months ended March 31, 2004, and March 31, 2003, respectively. The decrease in 2004 was due primarily to a decrease in net income and an increase in inventories. The increase in 2003 was due primarily to increased accounts receivable collections and timing of payments to vendors. Cash flows used in investing activities were $663,000 for the three months ended March 31, 2004, and $1.3 million for the three months ended March 31, 2003. Cash flows used in investing activities in 2004 were related primarily to capital expenditures for additions of machinery and equipment, and the Company's sheet metal facility at the Tulsa plant. Cash used in investing activities in 2003 were related primarily to machinery and equipment additions and renovations to the Company's manufacturing and office facilities. All capital expenditures and the building expansion were financed out of cash generated from operations. Approximately $1.8 million is committed to the completion of the sheet metal facility at the Tulsa plant and will be financed out of income from operations. On May 4, 2004, the Company finalized an acquisition of certain assets of a manufacturing operation in Canada. The preliminary purchase of the acquisition was approximately $1,749,600 and was financed out of income from operations. Cash flows used in financing activities were $6.5 million and $7.5 million during the three months ended March 31, 2004, and March 31, 2003, respectively. The cash used in 2004 and 2003 was related primarily to the repurchase of Company stock and net payments under the revolving credit agreement. The Company's revolving credit facility provides for maximum borrowings of $15.2 million. Interest on borrowings is payable monthly at the Wall Street Journal prime rate less .5% or LIBOR plus 1.6%, at the election of the Company. Borrowings under the revolving credit facility at March 31, 2004 were $882,000; there were no borrowings under the revolving credit facility at March 31, 2003. Management believes the Company's bank revolving credit facility (or comparable financing) and projected cash flows 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 the 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 revolving credit facility at March 31, 2004, see Note 7 to the financial statements included in this report. Critical Accounting Policies The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Because these estimates and assumptions require significant judgment, future actual results could differ from those estimates and could have a significant impact on the Company's results of operations, financial position and cash flows. The Company re-evaluates its estimates and assumptions on a monthly basis. -3-
The following accounting policies may involve a higher degree of estimation or assumption: Allowance for Doubtful Accounts - The Company establishes an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends in collections and write-offs, current customer status, the age of the receivable, economic conditions and other information. Aged receivables are reviewed on a monthly basis to determine if the reserve is adequate and adjusted accordingly at that time. Inventory Reserves - The Company establishes a reserve for inventories based on the change in inventory requirements due to product line changes, the feasibility of using obsolete parts for upgraded part substitutions, the required parts needed for part supply sales, replacement parts, and for estimated shrinkage. Warranty - A provision is made for estimated warranty costs at the time the product is shipped and revenue is recognized. The warranty period is: for parts only, the earlier of one year from the date of first use or 15 months from date of shipment; compressors (if applicable), an additional four years; on gas-fired heat exchangers (if applicable), 15 years; and on stainless steel heat exchangers (if applicable), 25 years. Warranty expense is estimated based on the Company's warranty period, historical warranty trends and associated costs, and any known identifiable warranty issue. Due to the absence of warranty history on new products, an additional provision may be made for such products. Historically, warranty costs have been within management's expectations. Stock Compensation - The Company has elected to follow Accounting Principles Board Opinion No. 25 ("APB 25"), Accounting for Stock Issued to Employees and related interpretations in accounting for stock options because the alternative fair value accounting, provided for under the Statement of Financial Accounting Standards No. 123 ("FAS 123"), Accounting for Stock-Based Compensation, requires the use of option valuation models that were not developed for use in valuing employee stock options and are theoretical in nature. Under APB 25, because the exercise price of the Company's options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. 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," "believes," "seeks," "estimates," "will," or 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. -4-
Item 3. Quantitative and Qualitative Disclosures About Market Risk. The Company is subject to interest rate risk on its revolving credit facility, which bears variable interest based upon a prime or LIBOR rate. Foreign sales accounted for only 2% of the Company's sales in 2003 and the Company accepts payment for such sales only in U.S. dollars; hence, the Company is not exposed to 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 entering into cancelable fixed price contracts with its major suppliers for periods of 6-12 months. However, the Company has experienced sharp increases in steel and copper prices during the three months ended March 31, 2004, and expects to be further impacted by increases for the remainder of the year. The Company does not utilize derivative financial instruments to hedge its interest rate or raw materials price risks. Item 4. Controls and Procedures. Evaluation of Disclosure Controls and Procedures At the end of the period covered by this Quarterly Report on Form 10-Q, the Company's management, under the supervision and with the participation of the Company's Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company's disclosure controls and procedures. Based on that evaluation, the Company's Chief Executive Officer and Chief Financial Officer believe that: o The Company's disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports it files under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms; and o The Company's disclosure controls and procedures operate such that important information flows to appropriate collection and disclosure points in a timely manner and are effective to ensure that such information is accumulated and communicated to the Company's management, and made known to the Company's Chief Executive Officer and Chief Financial Officer, particularly during the period when this Quarterly Report was prepared, as appropriate to allow timely decisions regarding the required disclosure. Changes in Internal Controls There have been no significant changes in the Company's internal controls or other factors that could significantly affect the Company's internal controls subsequent to their evaluation, nor has there been any need for any corrective actions with regard to significant deficiencies or material weaknesses in internal controls related to financial reporting. -5-
Item 5. Other Events. On October 17, 2002, the Company announced a stock buyback program to repurchase up to 10% (1,325,000 shares) of its outstanding stock. Through March 31, 2004, the Company had acquired 918,464 shares of its stock pursuant to its current buyback program. On May 4, 2004, the Company acquired certain assets and assumed certain liabilities of Air Wise Inc. of Mississauga, Ontario, Canada. Air Wise is engaged in the engineering, manufacturing, and sale of custom air-handling units, makeup air units and packaged rooftop units for commercial and industrial buildings. The preliminary purchase price totaled approximately $1,749,600. -6-
PART II - OTHER INFORMATION Item 2. Issuer Purchases of Equity Securities. Stock repurchases during the first quarter of 2004 were as follows: <TABLE> ISSUER PURCHASES OF EQUITY SECURITIES <CAPTION> - ----------------- ------------------- ---------------- --------------------- -------------------------------- (c) Total Number of Shares (or Units) (d) Maximum Number or (a) Total Number (b) Average Purchased as Approximate Dollar Value of Shares Price Paid Part of Publicly of Shares (or Units) that (or Units) Per Share Announced Plans May Yet Be Purchased Period Purchased (or Unit) Or Programs Under the Plans or Programs - ----------------- ------------------- ---------------- --------------------- -------------------------------- <S> <C> <C> <C> <C> Month #1 January 1-31 85,000 $22.00 85,000 427,036 2004 - ----------------- ------------------- ---------------- --------------------- -------------------------------- Month #2 February 1-29 20,500 $19.16 20,500 406,536 2004 - ----------------- ------------------- ---------------- --------------------- -------------------------------- Month #3 March 1-31 - - - 406,536 2004 - ----------------- ------------------- ---------------- --------------------- -------------------------------- Total 105,500 $21.45 105,500 - ----------------- ------------------- ---------------- --------------------- -------------------------------- </TABLE> -7-
<TABLE> AAON, Inc. Consolidated Balance Sheets <CAPTION> March 31, December 31, 2004* 2003 ----------------------------------------------- (In thousands, except share and per share data) <S> <C> <C> ASSETS CURRENT ASSETS Cash and cash equivalents $ 201 $ 6,186 Certificate of deposit 10,000 10,000 Accounts receivable, net 22,123 22,553 Inventories, net 22,223 19,711 Prepaid expenses 2,948 2,653 Deferred income tax 3,532 3,532 -------------------- ------------------ Total current assets 61,027 64,635 -------------------- ------------------ PROPERTY, PLANT AND EQUIPMENT Land 874 874 Buildings 19,837 19,588 Machinery and equipment 44,704 44,329 Furniture and fixtures 3,976 3,944 -------------------- ------------------ Total property, plant & equipment 69,391 68,735 Less: accumulated depreciation 32,834 31,285 -------------------- ------------------ Net property, plant & equipment 36,557 37,450 -------------------- ------------------ Total Assets $ 97,584 $102,085 ==================== ================== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Revolving credit facility $ 882 $ 5,356 Accounts payable 10,987 11,553 Accrued liabilities 12,244 12,357 -------------------- ------------------ Total current liabilities 24,113 29,266 -------------------- ------------------ DEFERRED TAX LIABILITY 5,391 5,391 -------------------- ------------------ STOCKHOLDERS' EQUITY Preferred Stock, $.001 par, 5,000,000 shares authorized, no shares issued - - Common Stock, $.004 par, 50,000,000 shares authorized, and 12,469,158 and 12,519,733 issued and outstanding at March 31, 2004, and December 31, 2003, respectively 50 50 Additional paid-in capital - - Retained earnings 68,030 67,378 -------------------- ------------------ Total stockholders' equity 68,080 67,428 -------------------- ------------------ Total Liabilities and Stockholders' Equity $ 97,584 $102,085 ==================== ================== *Unaudited </TABLE> -8-
<TABLE> AAON, Inc. Consolidated Statements of Operations <CAPTION> Three Months Ended Three Months Ended March 31, 2004* March 31, 2003* --------------------------------------------------------- (in thousands, except share and per share data) <S> <C> <C> Net sales $ 37,494 $ 32,856 Cost of sales 29,793 24,159 ------------------------ ------------------------ Gross profit 7,701 8,697 Selling, general and administrative expenses 3,967 3,196 ------------------------ ------------------------ Income from operations 3,734 5,501 Interest expense 17 6 Interest income (81) (58) Other income (2) (84) ------------------------ ------------------------ Income before income taxes 3,800 5,637 Income tax provision 1,463 2,142 ------------------------ ------------------------ Net Income $ 2,337 $ 3,495 ======================== ======================== Earnings Per Share: Basic $ 0.19 $ 0.27 ======================== ======================== Diluted $ 0.18 $ 0.26 ======================== ======================== Weighted Average Shares Outstanding: Basic 12,482,186 12,880,299 ======================== ======================== Diluted 12,997,022 13,415,455 ======================== ======================== *Unaudited </TABLE> -9-
<TABLE> AAON, Inc. Consolidated Statements of Stockholders' Equity <CAPTION> Common Stock Paid-in Retained Shares Amount Capital Earnings Total ------------------------------------------------------------------------------ (in thousands) <S> <C> <C> <C> <C> <C> Balance, December 31, 2003 12,520 $50 $ - $67,378 $67,428 Stock options exercised, 55 - 578 - 578 including tax benefits* Repurchase of common stock* (106) - (578) (1,685) (2,263) Net income* - - - 2,337 2,337 ----------- ------------ ------------ ------------ ------------ Balance, March 31, 2004* 12,469 $50 $ - $68,030 $68,080 =========== ============ ============ ============ ============ *Unaudited </TABLE> -10-
<TABLE> AAON, Inc. Consolidated Statements of Cash Flows <CAPTION> Three Months Ended Three Months Ended March 31, 2004* March 31, 2003* ----------------------------------------------------- (in thousands) <S> <C> <C> Operating Activities Net income $ 2,337 $ 3,495 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 1,552 1,238 Provision for losses on accounts receivable 470 82 Loss on disposition of assets 4 - Changes in assets and liabilities: Accounts receivable (40) 2,171 Inventories (2,512) (1,247) Prepaid expenses (295) 20 Accounts payable (566) (126) Accrued liabilities 241 3,053 ------------------------ ------------------------ Net cash provided by operating activities 1,191 8,686 Investing Activities Proceeds from sale of property, plant and equipment 1 - Capital expenditures (664) (1,342) Asset acquisition ------------------------ ------------------------ Net cash used in investing activities (663) (1,342) Financing Activities Borrowings under revolving credit agreement 12,968 6,324 Payments under revolving credit agreement (17,442) (9,890) Stock options exercised 224 28 Repurchase of common stock (2,263) (4,008) ------------------------ ------------------------ Net cash used in financing activities (6,513) (7,546) ------------------------ ------------------------ Net decrease in cash (5,985) (202) ------------------------ ------------------------ Cash and cash equivalents, beginning of period 6,186 5,071 ------------------------ ------------------------ Cash and cash equivalents, end of period $ 201 $ 4,869 ======================== ======================== *Unaudited See accompanying notes. </TABLE> -11-
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, 2003, filed by AAON, Inc. with the SEC. In the opinion of management, the accompanying financial statements include all normal, recurring adjustments required for a fair presentation of the results of the periods presented. Operating results for the three months ended March 31, 2004, are not necessarily indicative of the results that may be expected for the year ending December 31, 2004. 2. STOCK COMPENSATION: The Company accounts for its Stock Option Plan under the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. No stock-based employee compensation cost is reflected in net income, as all options granted under the plan had an exercise price equal to the market value of the underlying common stock on the date of grant. The effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123, Accounting for Stock-Based Compensation, to stock-based employee compensation, is as follows: <TABLE> <CAPTION> Three Months Ended March 31, 2004 March 31, 2003 ------------------- ----- ------------------- (in thousands, except share data) <S> <C> <C> Net income as reported $ 2,337 $ 3,495 Deduct compensation expense determined under fair value method for all awards, net of related tax effects (157) (131) ------------------- ------------------- Pro forma net income $ 2,180 $ 3,364 =================== =================== Earnings per share: Basic, as reported $ 0.19 $ 0.27 =================== =================== Basic, pro forma $ 0.17 $ 0.26 =================== =================== Diluted, as reported $ 0.18 $ 0.26 =================== =================== Diluted, pro forma $ 0.17 $ 0.25 =================== =================== </TABLE> 3. CASH AND CASH EQUIVALENTS: Cash and cash equivalents consist of bank deposits and highly liquid, interest-bearing money market funds with initial maturities of three months or less. -12-
4. CERTIFICATE OF DEPOSIT: The $10 million certificate of deposit bears interest at 3.25% per annum and matures on June 12, 2004. There is a three-month interest penalty for early withdrawal. 5. INVENTORIES: Inventories are valued at the lower of cost or market. Cost is determined by the first-in, first-out (FIFO) method. The Company establishes a reserve for excess and obsolete inventories based on product line changes, the feasibility of substituting parts, the need for supply replacement parts, and estimated shrinkage. At March 31, 2004 (unaudited), and December 31, 2003, inventory and the related inventory reserves are as follows (in thousands): <TABLE> <CAPTION> Three Months Ended March 31, 2004 December 31, 2003 ----------------------------------------------- (in thousands) <S> <C> <C> Raw materials $ 14,440 $ 13,874 Work in process 2,584 2,700 Finished goods 6,249 4,187 ------------------ ------------------- $ 23,273 $ 20,761 Less: Inventory reserve 1,050 1,050 ------------------ ------------------- Total, net $ 22,223 $ 19,711 ================== =================== </TABLE> 6. ACCRUED LIABILITIES: At March 31, 2004, (unaudited), and December 31, 2003, accrued liabilities were comprised of the following: <TABLE> <CAPTION> Three Months Ended March 31, 2004 December 31, 2003 ----------------------------------------------- (in thousands) <S> <C> <C> Warranty $ 6,151 $ 6,020 Commissions 4,063 5,009 Payroll 1,324 1,023 Other 706 305 ------------------ ------------------- Total $ 12,244 $ 12,357 ================== =================== </TABLE> A provision is made for the estimated cost of warranty obligations at the time the related products are sold based upon the warranty period, historical trends, new products and any known identifiable warranty issues. -13-
Changes in the Company's warranty liability during the three months ended March 31, 2004, and 2003, are as follows (in thousands): <TABLE> <CAPTION> Three Months Ended March 31, March 31, 2004 2003 ------------------- ------------------- <S> <C> <C> Balance, beginning of period $6,020 $7,200 Warranties accrued during the period 979 487 Warranties settled during the period (848) (378) ------------------- ------------------- Balance, end of period $6,151 $7,309 =================== =================== </TABLE> 7. REVOLVING CREDIT FACILITY: The Company's $15,150,000 bank line of credit bears interest payable monthly at LIBOR plus 1.60% (2.70% at March 31, 2004), with a maturity date of July 31, 2004. The credit facility requires that the Company maintain a certain financial ratio and prohibits the declaration and payment of dividends. At March 31, 2004, the Company had a balance of $882,000 on the bank line of credit and had $ 5,356,000 outstanding at December 31, 2003. 8. EARNINGS PER SHARE: The following table sets forth the computation of basic and diluted earnings per share: <TABLE> <CAPTION> Three Months Ended March 31, 2004 March 31, 2003 ------------------- -------- ------------------- (in thousands, except share and per share data) <S> <C> <C> Numerator: Income available to common stockholders $ 2,337 $ 3,495 Denominator: Denominator for basic earnings per share - Weighted average shares 12,482,186 12,880,299 Effect of dilutive employee stock options 514,836 535,156 ------------------- ------------------- Denominator for diluted earnings per share - weighted average shares 12,997,022 13,415,455 =================== =================== Basic earnings per share $ 0.19 $ 0.27 =================== =================== Diluted earnings per share $ 0.18 $ 0.26 =================== =================== </TABLE> 9. SUBSEQUENT EVENT: On May 4, 2004, the Company acquired certain assets and assumed certain liabilities of Air Wise Inc. of Mississauga, Ontario, Canada. Air Wise is engaged in the engineering, manufacturing, and sale of custom air-handling units, makeup air units and packaged rooftop units for commercial and industrial buildings. The preliminary purchase price totaled approximately $1,749,600. -14-
10. FOOTNOTES INCORPORATED BY REFERENCE: Certain footnotes are applicable to the financial statements, but would be substantially unchanged from those presented in the December 31, 2003, 10-K filed with the SEC. Accordingly, reference should be made to this statement for the following: Note Description ============== ========================================================== 1 Business, Summary of Significant Accounting Policies and Other Financial Data 5 Income Taxes 6 Benefit Plans 7 Stockholder Rights Plan 8 Contingencies -15-
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 March 31, 2004. 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 5, 2004 By: /s/ Norman H. Asbjornson -------------------------------------- Norman H. Asbjornson President/CEO Dated: May 5, 2004 By: /s/ Kathy I. Sheffield -------------------------------------- Kathy I. Sheffield Treasurer -16-
Exhibit 31.1 CERTIFICATION I, Norman H. Asbjornson, certify that: 1. I have reviewed this Quarterly Report on Form 10-Q of AAON, Inc. 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of the end of the period covered by this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The Registrant's other certifying officer and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. /s/ Norman H. Asbjornson - -------------------------- Norman H. Asbjornson President/Chief Executive Officer May 5, 2004 -17-
Exhibit 31.2 CERTIFICATION I, Kathy I. Sheffield, certify that: 1. I have reviewed this Quarterly Report on Form 10-Q of AAON, Inc. 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of the end of the period covered by this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The Registrant's other certifying officer and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. /s/ Kathy I. Sheffield - ------------------------ Kathy I. Sheffield Chief Financial Officer May 5, 2004 -18-
Exhibit 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of AAON, Inc. (the "Company"), on Form 10-Q for the period ended March 31, 2004, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Norman H. Asbjornson, President/Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss.1350, as adopted pursuant to ss.906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ Norman H. Asbjornson - -------------------------- Norman H. Asbjornson President/Chief Executive Officer Dated: May 5, 2004 -19-
Exhibit 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of AAON, Inc. (the "Company"), on Form 10-Q for the period ended March 31, 2004, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Kathy I. Sheffield, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss.1350, as adopted pursuant to ss.906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ Kathy I. Sheffield - ------------------------ Kathy I. Sheffield Chief Financial Officer Dated: May 5, 2004 -20-