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, 1998 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. 6,178,449 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 $6,625,000, 39% (from $16,880,000 to $23,505,000), during the three-month period ended March 31, 1998, compared to the same period in 1997. Net income increased by $388,000, 54% [from $716,000, $.12 per share (basic), to $1,104,000, $.18 per share (basic)], during the first quarter of 1998, compared to the same quarter in 1997. The increase in sales during the first three months of 1998 compared to 1997 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 due to increased labor costs in the very tight Tulsa labor market and outsourcing of sheet metal fabrication. Also, despite the much higher sales in the first quarter of 1998 compared to 1997, selling, general and administrative expenses increased only 14% (from $1,135,000 to $1,292,000). 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 $951,000 increase in inventories (from $10,652,000 to $11,603,000) at March 31, 1998, compared to December 31, 1997, reflects the higher sales volume. Although machinery and equipment increased by $983,000 during the three months ended March 31, 1998, net cash provided by operations of $1,765,000 allowed the Company to reduce its long- term debt by $665,000. 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 March 31, 1998, 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 MARCH 31, DEC 31, 1998 * 1997 (In Thousands) <CAPTION> <S> <C> <C> ASSETS CURRENT ASSETS: Cash $ 11 $ 26 Accounts receivable 14,495 14,018 Inventories 11,603 10,652 Prepaid expenses 455 403 Deferred income tax 1,043 1,043 -------- -------- Total current assets 27,607 26,142 -------- -------- PROPERTY, PLANT, AND EQUIPMENT, at cost: Land 874 874 Buildings 11,926 11,865 Machinery and equipment 12,889 11,906 Furniture and fixtures 1,911 1,909 -------- -------- 27,600 26,554 Less-accumulated depreciation 10,647 9,969 -------- -------- Net property, plant and equipment 16,953 16,585 OTHER ASSETS 42 42 -------- -------- $ 44,602 $ 42,769 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 7,452 $ 7,137 Accrued liabilities 4,875 3,727 Current maturities of long-term debt 248 175 -------- -------- Total current liabilities 12,575 11,039 -------- -------- LONG TERM DEBT 11,984 12,857 -------- -------- STOCKHOLDERS' EQUITY: Common stock, $.004 par, 50,000,000 shares authorized, 6,191,199 issued and outstanding 25 25 Preferred stock, 5,000,000 shares authorized, no shares issued Additional paid-in capital 7,981 7,916 Retained earnings 12,037 10,932 -------- -------- Total stockholders' equity 20,043 18,873 -------- -------- $ 44,602 $ 42,769 ======== ======== * Unaudited </TABLE> <PAGE 3> <TABLE> AAON, Inc. Consolidated Statements of Operations Three Three Months Months Ended Ended MARCH 31, MARCH 31, 1998* 1997* (In Thousands) <CAPTION> <S> <C> <C> Sales, net $ 23,505 $ 16,880 Cost of sales 19,655 13,666 -------- -------- Gross profit 3,850 3,214 Selling, general and administrative expenses 2,005 1,820 -------- -------- Income from operations 1,845 1,394 Interest expense 140 156 Amortization and other expense <28> 45 -------- -------- Income before income taxes 1,733 1,193 Income tax provision 629 477 -------- -------- Net income $ 1,104 $ 716 ======== ======== Net income per share (Basic) $ .18 $ .12 ======== ======== (Diluted) $ .17 $ .11 ======== ======== * Unaudited </TABLE> <PAGE 4> <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, 1997 6,176,000 $ 25,000 $ 7,916,000 $10,932,000 $18,873,000 ISSUE OF COMMON STOCK* 15,200 -0- 66,000 -0- 66,000 NET INCOME -0- -0- -0- 1,104,000 1,104,000 ----------- ----------- ----------- ----------- ----------- BALANCE, March 31, 1998* 6,191,200 $ 25,000 $ 7,982,000 $12,036,000 $20,043,000 =========== =========== =========== =========== =========== *Unaudited </TABLE> <PAGE 5> <TABLE> AAON, Inc. Consolidated Statements of Cash Flows <CAPTION> Three Three Months Months Ended Ended MARCH 31, MARCH 31, 1998* 1997* (In Thousands) <S> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 1,104 $ 716 Adjustments to reconcile net income to net cash provided by operating activities- Depreciation and amortization 678 596 Change in assets and liabilities: <Increase> decrease in: Accounts Receivable <477> 1,724 Inventories <951> <739> Prepaid Expenses <52> <104> Increase <decrease> in: Accounts Payable 315 <1,668> Accrued Liabilities 1,148 350 ------- ------- Total adjustments 661 159 ------- ------- Net cash provided by <used in> Operating Activities 1,765 875 ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital Expenditures <1,046> <388> ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Borrowing under revolving credit agreement 9,000 8,675 Payments under revolving credit agreement <10,705> <9,060> Changes in long-term debt 905 <60> Cash from issue of stock 66 31 ------- ------- Net cash provided by <used in> financing activities <734> <414> ------- ------- NET CHANGE IN CASH <15> 73 CASH, beginning of period 26 138 ------- ------- CASH, end of period $ 11 $ 211 ======= ======= * Unaudited </TABLE> <PAGE 6> AAON, INC. NOTES TO FINANCIAL STATEMENTS ----------------------------- March 31, 1998 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, 1997, filed by AAON, Inc. with the SEC. Management believes that no adjustments to the financial statements are necessary. 2. INVENTORIES: Inventories at March 31, 1998 (unaudited), and December 31, 1997, consist of the following: March 31, December 31, 1998 1997 ------------ ------------ Raw Materials $6,771,000 $7,073,000 Work in Process 2,621,000 2,136,000 Finished Goods 2,211,000 1,443,000 ------------ ------------ $11,603,000 $10,652,000 ------------- ------------- 3. LONG-TERM DEBT: Long-term debt at March 31, 1998 (unaudited), and December 31, 1997, consists of the following: March 31, December 31 1998 1997 --------- ----------- Bank Note, payable in monthly principal payments of $3,333 through February 2000, with a balloon payment in March 2000, plus interest payable monthly at bank's base rate plus 0.25% (8.75% at Sept. 30, 1997) collateralized by real estate $ 277,000 $ 287,000 <PAGE 7> $15,150,000 bank line of credit with interest payable monthly at LIBOR plus 1.85% (7.44375% at March 31, 1998) due June 30, 1999 collateralized by accounts receivable, inventory, and intangibles of AAON and AAON COIL PRODUCTS 9,780,000 11,485,000 Note payable due in 84 month equal installments estimated to begin in May, 1998, plus interest at the 30 day paper commercial rate plus 1.75% (7.47% at March 31, 1998) collateralized by machinery and equipment. 2,175,000 1,260,000 ----------- ----------- 12,232,000 13,032,000 Less Current Maturities 248,000 175,000 ----------- ----------- $11,984,000 $12,857,000 ----------- ----------- 4. FOOTNOTES INCORPORATED BY REFERENCE: Certain footnotes are applicable to the financial statements, but would be substantially unchanged from those presented in the December 31, 1997, 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 Commitment <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: May 5, 1998 By: /s/ Norman H. Asbjornson ------------------------- Norman H. Asbjornson President Dated: May 5, 1998 By: /s/ William A. Bowen ------------------------- William A. Bowen Vice President - Finance