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 June 30, 1997 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. 6,164,824 shares of $.004 par value Common Stock. <PAGE 1> PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. On pages 2 through 7 of this report. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Results of Operations. Net sales increased by $8,160,000 (from $28,773,000 to $36,933,000) during the six-month period ended June 30, 1997, compared to the same period in 1996, and by $4,718,000 (from $15,335,000 to $20,053,000) during the second quarter of 1997 compared to 1996. Net income increased by $533,000 (from $894,000, $.15 per share, to $1,427,000, $.23 per share) during the six-month period ended June 30, 1997, compared to the same period in 1996, and by $236,000 (from $475,000, $.08 per share, to $711,000, $.12 per share) during the second quarter of 1997 compared to 1996. The increase in sales during the first six months of 1997 compared to 1996 resulted from higher sales to all types of customers, e.g., retail stores, schools, industrial and office buildings. The earnings increase reflects higher sales and lower costs and expenses, although gross profit margins declined during the second quarter compared to the first quarter of 1997 due to increased overtime and labor costs in the very tight Tulsa labor market. Orders are well ahead of last year and management anticipates increased sales and earnings for the remainder of the year. Financial Condition and Liquidity. While there were material increases in inventories ($1,439,000) and accounts payable ($638,000) at June 30, 1997, compared to December 31, 1996, these increases reflect the higher sale volume. The decrease in accounts receivable ($861,000) was attributable to improved collections. 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, 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 June 30, 1997, see Note 3 to the Financial Statements on pages 6 and 7 of this report. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Not applicable <PAGE 2> <TABLE> AAON, Inc. Consolidated Balance Sheets JUNE 30, DEC 31, 1997 * 1996 (In Thousands) <CAPTION> <S> <C> <C> ASSETS CURRENT ASSETS: Cash $ 527 $ 138 Accounts receivable 12,678 13,539 Inventories 10,579 9,140 Prepaid expenses 829 160 Deferred income tax 1,604 1,604 -------- -------- Total current assets 26,217 24,581 -------- -------- PROPERTY, PLANT, AND EQUIPMENT, at cost: Land 274 274 Buildings 7,331 7,278 Machinery and equipment 9,595 8,933 Furniture and fixtures 1,716 1,516 -------- -------- 18,916 18,001 Less-accumulated depreciation 8,991 7,868 -------- -------- Net property, plant and equipment 9,925 10,133 OTHER ASSETS 853 855 -------- -------- $ 36,995 $ 35,569 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 6,735 $ 6,097 Accrued liabilities 4,556 4,765 Current maturities of long-term debt 40 91 -------- -------- Total current liabilities 11,331 10,953 -------- -------- LONG TERM DEBT 8,542 8,976 -------- -------- STOCKHOLDERS' EQUITY: Common stock, $.004 par, 50,000,000 shares authorized, 6,162,824 issued and outstanding 25 25 Preferred stock, 5,000,000 shares authorized, no shares issued Additional paid-in capital 7,760 7,705 Retained earnings 9,337 7,910 -------- -------- Total stockholders' equity 17,122 15,640 -------- -------- $ 36,995 $ 35,569 ======== ======== * Unaudited </TABLE> <PAGE 3> <TABLE> AAON, Inc. Consolidated Statements of Operations Three Three Six Six Months Months Months Months Ended Ended Ended Ended June 30, June 30, June 30, June 30, 1997* 1996* 1997* 1996* (In Thousands) <CAPTION> <S> <C> <C> <C> <C> Sales, net $ 20,053 $ 15,335 $ 36,933 $ 28,773 Cost of sales 16,826 12,657 30,492 23,851 -------- -------- -------- -------- Gross profit 3,227 2,678 6,441 4,922 Selling, general and administrative expenses 1,868 1,602 3,688 2,913 -------- -------- -------- -------- Income from operations 1,359 1,076 2,753 2,009 Interest expense 156 214 312 420 Amortization and other expense 26 105 71 164 -------- -------- -------- -------- Income before income taxes 1,177 757 2,370 1,425 Income tax provision 466 282 943 531 -------- -------- -------- -------- Net income $ 711 $ 475 $ 1,427 $ 894 ======== ======== ======== ======== Net income per share* $ .12 $ .08 $ .23 $ .15 ======== ======== ======== ======== * Unaudited </TABLE> <TABLE> <PAGE 4> AAON, Inc. Consolidated Statements of Stockholders' Equity <CAPTION> COMMON STOCK PAID IN ACCUMULATED SHARES AMOUNT CAPITAL EARNINGS TOTAL ---------- ---------- ---------- ---------- ---------- <S> <C> <C> <C> <C> <C> BALANCE, December 31, 1996 6,128,000 $ 25,000 $ 7,705,000 $ 7,910,000 $15,640,000 ISSUE OF COMMON STOCK* 35,000 -0- 55,000 -0- 55,000 NET INCOME* -0- -0- -0- 1,427,000 1,427,000 ----------- ----------- ----------- ----------- ----------- BALANCE, June 30, 1997* 6,163,000 $ 25,000 $ 7,760,000 $ 9,337,000 $17,122,000 =========== =========== =========== =========== =========== *Unaudited </TABLE> <TABLE> <PAGE 5> AAON, Inc. Consolidated Statements of Cash Flow <CAPTION> Six Six Three Three Months Months Months Months Ended Ended Ended Ended June 30, June 30, June 30, June 30, 1997* 1996* 1997* 1996* (In Thousands) <S> <C> <C> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 1,427 $ 894 $ 711 $ 475 Adjustments to reconcile net income to net cash provided by operating activities- Depreciation and amortization 1,123 1,236 527 623 Change in assets and liabilities: <Increase> decrease in accounts receivable 861 <2,346> <863> <4,160> <Increase> decrease in inventories <1,439> <662> <700> 89 <Increase> decrease in prepaid expenses <669> <78> <565> <49> Increase <decrease> in accounts payable 638 891 2,306 1,225 Increase <decrease> in accrued liabilities <209> 635 <559> 252 ------- ------- ------- ------- Total adjustments 305 <324> 146 <2,020> ------- ------- ------- ------- Net cash provided by <used in> operating activities 1,732 570 857 <1,545> ------- ------- ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures <915> <534> <527> <285> Payments for other assets 2 10 2 1 ------- ------- ------- ------- Net cash used in investing activities <913> <524> <525> <284> ------- ------- ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Borrowing under revolving credit agreement 17,925 15,236 9,250 9,541 Payments under revolving credit agreement <18,340> <15,444> <9,280> <7,470> Payments on long-term debt <70> <498> <10> <250> Cash from issue of stock 55 10 24 0 ------- ------- ------- ------- Net cash provided by <used in> financing activities <430> <696> <16> 1,821 ------- ------- ------- ------- NET CHANGE IN CASH 389 <650> 316 <8> CASH, beginning of period 138 663 211 21 ------- ------- ------- ------- CASH, end of period $ 527 $ 13 $ 527 $ 13 ======= ======= ======= ======= * Unaudited </TABLE> <PAGE 6> AAON, INC. NOTES TO FINANCIAL STATEMENTS June 30, 1997 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, 1996, filed by AAON, Inc. with the SEC. Management believes that no adjustments to the financial statements are necessary. 2. INVENTORIES: Inventories at June 30, 1997 (unaudited), and December 31, 1996, consist of the following: June 30, December 31, 1997 1996 ---------- ---------- Raw Materials $6,153,000 $5,510,000 Work in Process 2,213,000 1,385,000 Finished Goods 2,213,000 2,245,000 ----------- ---------- $10,579,000 $9,140,000 ----------- ---------- 3. LONG-TERM DEBT: Long-term debt at June 30, 1997 (unaudited), and December 31, 1996, consists of the following: June 30, December 31 1997 1996 ---------- ----------- Bank term loan agreement, payable in monthly principal payments of $3,333 through February 2000, with a balloon payment in March 2000, plus interest payable monthly at Bank One base rate plus 0.25% (8.75% at March 31, 1997) collateralized by real estate $ 307,000 $ 327,000 $15,150,000 maximum bank line of credit with interest at LIBOR plus 1.85% (7.5375% at June 30, 1997) due June 30, 1999 collateralized by accounts receivable, inventory, and intangibles of AAON and CP/AAON $ 8,275,000 $8,690,000 Other $ -0- $ 50,000 ----------- ----------- $ 8,582,000 $ 9,067,000 Less Current Maturities 40,000 91,000 ----------- ----------- $ 8,542,000 $ 8,976,000 ----------- ----------- <PAGE 7> 4. EARNINGS PER SHARE: Earnings per share have been calculated by dividing net income by the average number of common shares outstanding. 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, 1996, 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 8 Stock Dividend and Reverse Split <PAGE 8> PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits - None. (b) Reports on Form 8-K - None. 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: July 29 , 1997 By: /s/ Norman H. Asbjornson ------------------------- Norman H. Asbjornson President Dated: July 29, 1997 By: /s/ William A. Bowen ------------------------- William A. Bowen Vice President - Finance