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, 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. 6,176,449 shares of $.004 par value Common Stock. <PAGE 2> 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 $12,235,000, 27% (from $45,946,000 to $58,181,000), during the nine-month period ended September 30, 1997, compared to the same period in 1996, and by $4,075,000, 24% (from $17,173,000 to $21,248,000), during the third quarter of 1997 compared to 1996. These increases were primarily from "rep" sales. Net income increased by $511,000, 36% (from $1,416,000, $.23 per share, to $1,927,000, $.31 per share), during the nine- month period ended September 30, 1997, compared to the same period in 1996. Net income decreased by $22,000, 4% (from $522,000, $.09 per share, to $500,000, $.08 per share), during the third quarter of 1997 compared to 1996. The increase in sales during the first nine 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, partially offset by lower margins during the second and third quarters compared to the first quarter of 1997 due to increased overtime and labor costs in the very tight Tulsa labor market and increased selling, general and administrative costs ("SG&A"). SG&A costs increased $830,000, 18% to $5,539,000 for the nine- month period ended September 30, 1997, from $4,709,000 for the same period in 1996. This increase was due to higher administrative costs associated with the increase in revenues. SG&A increased $55,000, 3%, to $1,851,000 for the quarter ended September 30, 1997, from $1,796,000 for the same quarter in 1996. This increase was due to an increase in administrative costs offset by a decrease in warranty expenses. Orders are well ahead of last year and management anticipates increased sales and earnings for the remainder of the year. Financial Condition and Liquidity. The $2,971,000 increase in inventories (from $9,140,000 to $12,111,000) at September 30, 1997, compared to December 31, 1996, reflects the higher sales volume. Machinery and equipment increased by $2,521,000 due to the purchase of a computerized and automated sheering, punching and bending machine to enhance the Company's sheet metal production. Long-term debt increased by $3,391,000 since year end due to the purchase of the above-referenced machine and a higher amount of cash at September 30, 1997, due primarily to the timing of payment to creditors. Equipment purchases during the third quarter of 1997 totalled $1.2 million. The Company has commitments to purchase additional equipment of $300,000 in December, 1997, and $1 million and $2.3 million in January and April, 1998, respectively. 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. <PAGE 3> For information concerning the Company's long-term debt at September 30, 1997, see Note 3 to the Financial Statements on pages 7 and 8 of this report. Item 3. Quantitative and Qualitative Disclosures About Market Risk. Not applicable <PAGE 4> <TABLE> AAON, Inc. Consolidated Balance Sheets SEPT 30, DEC 31, 1997 * 1996 (In Thousands) <CAPTION> <S> <C> <C> ASSETS CURRENT ASSETS: Cash $ 1,117 $ 138 Accounts receivable 13,871 13,539 Inventories 12,111 9,140 Prepaid expenses 273 160 Deferred income tax 1,604 1,604 -------- -------- Total current assets 28,976 24,581 -------- -------- PROPERTY, PLANT, AND EQUIPMENT, at cost: Land 274 274 Buildings 7,364 7,278 Machinery and equipment 11,454 8,933 Furniture and fixtures 1,867 1,516 -------- -------- 20,959 18,001 Less-accumulated depreciation 9,618 7,868 -------- -------- Net property, plant and equipment 11,341 10,133 OTHER ASSETS 852 855 -------- -------- $ 41,169 $ 35,569 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 6,487 $ 6,097 Accrued liabilities 4,630 4,765 Current maturities of long-term debt 40 91 -------- -------- Total current liabilities 11,157 10,953 -------- -------- LONG TERM DEBT 12,367 8,976 -------- -------- STOCKHOLDERS' EQUITY: Common stock, $.004 par, 50,000,000 shares authorized, 6,170,949 issued and outstanding 25 25 Preferred stock, 5,000,000 shares authorized, no shares issued Additional paid-in capital 7,783 7,705 Retained earnings 9,837 7,910 -------- -------- Total stockholders' equity 17,645 15,640 -------- -------- $ 41,169 $ 35,569 ======== ======== * Unaudited </TABLE> <PAGE 5> <TABLE> AAON, Inc. Consolidated Statements of Operations Three Three Nine Nine Months Months Months Months Ended Ended Ended Ended Sept 30, Sept 30, Sept 30, Sept 30, 1997* 1996* 1997* 1996* (In Thousands) <CAPTION> <S> <C> <C> <C> <C> Sales, net $ 21,248 $ 17,173 $ 58,181 $ 45,946 Cost of sales 18,283 14,178 48,775 38,029 -------- -------- -------- -------- Gross profit 2,965 2,995 9,406 7,917 Selling, general and administrative expenses 1,851 1,796 5,539 4,709 -------- -------- -------- -------- Income from operations 1,114 1,199 3,867 3,208 Interest expense 189 218 501 638 Amortization and other expense 47 122 118 286 -------- -------- -------- -------- Income before income taxes 878 859 3,248 2,284 Income tax provision 378 337 1,321 868 -------- -------- -------- -------- Net income $ 500 $ 522 $ 1,927 $ 1,416 ======== ======== ======== ======== Net income per share* $ .08 $ .09 $ .31 $ .23 ======== ======== ======== ======== * Unaudited </TABLE> <PAGE 6> <TABLE> 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* 43,000 -0- 78,000 -0- 78,000 NET INCOME* -0- -0- -0- 1,927,000 1,927,000 ----------- ----------- ----------- ----------- ---------- BALANCE, Sept 30, 1997* 6,171,000 $ 25,000 $ 7,783,000 $ 9,837,000 $17,645,000 =========== =========== =========== =========== ========== *Unaudited </TABLE> <PAGE 7> <TABLE> AAON, Inc. Consolidated Statements of Cash Flow <CAPTION> Nine Nine Three Three Months Months Months Months Ended Ended Ended Ended Sept 30, Sept 30, Sept 30, Sept 30, 1997* 1996* 1997* 1996* (In Thousands) <S> <C> <C> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 1,927 $ 1,416 $ 500 $ 522 Adjustments to reconcile net income to net cash provided by operating activities- Depreciation and amortization 1,750 1,857 627 621 Change in assets and liabilities: <Increase> decrease in accounts receivable <332> <5,174> <1,193> <2,828> <Increase> decrease in inventories <2,971> <418> <1,532> 244 <Increase> decrease in prepaid expenses <113> <321> 556 <243> Increase <decrease> in accounts payable 390 5,053 <248> 4,162 Increase <decrease> in accrued liabilities <135> 1,573 74 938 ------- ------- ------- ------- Total adjustments <1,411> 2,570 <1,716> 2,894 ------- ------- ------- ------- Net cash provided by <used in> operating activities 516 3,986 <1,216> 3,416 ------- ------- ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures <2,958> <882> <2,043> <348> Payments for other assets 3 11 1 1 ------- ------- ------- ------- Net cash used in investing activities <2,955> <871> <2,042> <347> ------- ------- ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Borrowing under revolving credit agreement 28,990 24,676 11,065 9,440 Payments under revolving credit agreement <26,830> <25,209> <8,490> <9,765> Payments on long-term debt 1,180 <3,230> 1,250 <2,732> Cash from issue of stock 78 10 23 0 ------- ------- ------- ------- Net cash provided by <used in> financing activities 3,418 <3,753> 3,848 <3,057> ------- ------- ------- ------- NET CHANGE IN CASH 979 <638> 590 12 CASH, beginning of period 138 663 527 13 ------- ------- ------- ------- CASH, end of period $ 1,117 $ 25 $ 1,117 $ 25 ======= ======= ======= ======= * Unaudited </TABLE> <PAGE 8> AAON, INC. NOTES TO FINANCIAL STATEMENTS September 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 September 30, 1997 (unaudited), and December 31, 1996, consist of the following: Sept. 30, December 31, 1997 1996 ----------- ----------- Raw Materials $8,064,000 $5,510,000 Work in Process 1,994,000 1,385,000 Finished Goods 2,053,000 2,245,000 ----------- ----------- $12,111,000 $9,140,000 ----------- ----------- 3. LONG-TERM DEBT: Long-term debt at September 30, 1997 (unaudited), and December 31, 1996, consists of the following: Sept. 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 Sept. 30, 1997) collateralized by real estate $ 297,000 $ 327,000 <PAGE 9> $15,150,000 maximum bank line of credit with interest at LIBOR plus 1.85% (7.5062% at September 30, 1997) due June 30, 1999 collateralized by accounts receivable, inventory, and intangibles of AAON and CP/AAON $10,850,000 $8,690,000 Other $ -0- $ 50,000 ___________ __________ $10,850,000 $ 9,067,000 $2,140,000 GE Capital line of credit with interest at the 30 day commerical paper rate plus 1.75% (7.31% at Sept. 30, 1997) collateralized by new Salvagnini metal processing machine, payable in 84 equal monthly installments beginning one month after the loan is fully advanced (estimated to be in Feb. 1998). $ 1,260,000 $ -0- Less Current Maturities 40,000 91,000 ----------- ----------- $12,367,000 $ 8,976,000 ----------- ----------- 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 10> PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits - None. (b) Reports on Form 8-K - Registrant filed a Form 8-K dated September 12, 1997, reporting its execution of Amendment One to Second Restated Revolving Credit Loan Agreement effective June 30, 1997. 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 10, 1997 By: /s/ Norman H. Asbjornson ------------------------ Norman H. Asbjornson President Dated: November 10, 1997 By: /s/ William A. Bowen ------------------------- William A. Bowen Vice President - Finance