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, 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. 6,201,949 shares of $.004 par value Common Stock. <PAGE 1> 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 $12,531,000 (from $36,933,000 to $49,464,000) during the six- month period ended June 30, 1998, compared to the same period in 1997, and by $5,906,000 (from $20,053,000 to $25,959,000) during the second quarter of 1998 compared to 1997. Net income increased by $956,000 (from $1,427,000, $.23 (Diluted) per share, to $2,383,000, $.37 per share) during the six-month period ended June 30, 1998, compared to the same period in 1997, and by $568,000 (from $711,000, $.11 per share, to $1,279,000, $.20 per share) during the second quarter of 1998 compared to 1997. The increase in sales during the first six 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 and lower costs and expenses, despite continued abnormal overtime and higher labor costs in the very tight 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 current assets ($3,540,000) and current liabilities ($4,000,000) at June 30, 1998, compared to December 31, 1997, these increases reflect the higher sale volume. Although the Company made capital expenditures totalling $3,773,000 during the six months ended June 30, 1998, net cash provided by operations of $3,940,000 allowed the Company to reduce its long-term debt by $216,000. 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 June 30, 1998, see Note 3 to the Financial Statements on Page 7 and 8 of this report. Forward-Looking Statements. Language above containing forward-looking statements is based on beliefs of the Company's management, as well as assumptions made by and information currently available to management. Actual results could differ materially from those contemplated by the forward-looking statements. <PAGE 2> Item 3. Quantitative and Qualitative Disclosures About Market Risk. Not applicable <PAGE 3> <TABLE> AAON, Inc. Consolidated Balance Sheets JUNE 30, DEC 31, 1998 * 1997 (In Thousands) <CAPTION> <S> <C> <C> ASSETS CURRENT ASSETS: Cash $ 16 $ 26 Accounts receivable 15,370 14,018 Inventories 12,777 10,652 Prepaid expenses 476 403 Deferred income tax 1,043 1,043 -------- -------- Total current assets 29,682 26,142 -------- -------- PROPERTY, PLANT, AND EQUIPMENT, at cost: Land 874 874 Buildings 12,034 11,865 Machinery and equipment 15,465 11,906 Furniture and fixtures 1,954 1,909 -------- -------- 30,327 26,554 Less-accumulated depreciation 11,379 9,969 -------- -------- Net property, plant and equipment 18,948 16,585 OTHER ASSETS 3 42 -------- -------- $ 48,633 $ 42,769 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 9,578 $ 7,137 Accrued liabilities 4,983 3,727 Current maturities of long-term debt 478 175 -------- -------- Total current liabilities 15,039 11,039 -------- -------- LONG-TERM DEBT 12,221 12,857 -------- -------- STOCKHOLDERS' EQUITY: Common stock, $.004 par, 50,000,000 shares authorized, 6,201,949 issued and outstanding 25 25 Preferred stock, 5,000,000 shares authorized, no shares issued Additional paid-in capital 8,033 7,916 Retained earnings 13,315 10,932 -------- -------- Total stockholders' equity 21,373 18,873 -------- -------- $ 48,633 $ 42,769 ======== ======== * Unaudited </TABLE> <PAGE 4> <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, 1998* 1997* 1998* 1997* (In Thousands) <CAPTION> <S> <C> <C> <C> <C> Sales, net $ 25,959 $ 20,053 $ 49,464 $ 36,933 Cost of sales 20,776 16,826 40,431 30,492 -------- -------- -------- -------- Gross profit 5,183 3,227 9,033 6,441 Selling, general and administrative expenses 2,811 1,868 4,816 3,688 -------- -------- -------- -------- Income from operations 2,372 1,359 4,217 2,753 Interest expense 275 156 415 312 Amortization and other expense <60> 26 <88> 71 -------- -------- -------- -------- Income before income taxes 2,157 1,177 3,890 2,370 Income tax provision 878 466 1,507 943 -------- -------- -------- -------- Net income $ 1,279 $ 711 $ 2,383 $ 1,427 ======== ======== ======== ======== Net income per share (Basic) $ .21 $ .12 $ .38 $ .23 ======== ======== ======== ======== (Diluted) $ .20 $ .11 $ .37 $ .23 ======== ======== ======== ======== * Unaudited </TABLE> <PAGE 5> <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* 26,000 -0- 117,000 -0- 117,000 NET INCOME -0- -0- -0- 2,383,000 2,383,000 ----------- ----------- ----------- ----------- ----------- BALANCE, June 30, 1998* 6,202,000 $ 25,000 $ 8,033,000 $13,315,000 $21,373,000 =========== =========== =========== =========== =========== * Unaudited </TABLE> <PAGE 6> <TABLE> AAON, Inc. Consolidated Statements of Cash Flows <CAPTION> Six Six Three Three Months Months Months Months Ended Ended Ended Ended June 30, June 30, June 30, June 30, 1998* 1997* 1998* 1997* (In Thousands) <S> <C> <C> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 2,383 $ 1,427 $ 1,279 $ 711 Adjustments to reconcile net income to net cash provided by operating activities- Depreciation and amortization 1,410 1,123 732 527 Change in assets and liabilities: <Increase> decrease in accounts receivable <1,352> 861 <875> <863> <Increase> decrease in inventories <2,125> <1,439> <1,174> <700> <Increase> decrease in prepaid expenses <73> <669> <21> <565> Increase <decrease> in accounts payable 2,441 638 2,126 2,306 Increase <decrease> in accrued liabilities 1,256 <209> 108 <559> ------- ------- ------- ------- Total adjustments 1,557 305 896 146 ------- ------- ------- ------- Net cash provided by <used in> operating activities 3,940 1,732 2,175 857 ------- ------- ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures <3,773> <915> <2,727> <527> Payments for other assets 39 2 39 2 ------- ------- ------- ------- Net cash used in investing activities <3,734> <913> <2,688> <525> ------- ------- ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Borrowing under revolving credit agreement 22,055 17,925 13,055 9,250 Payments under revolving credit agreement <24,090> <18,340> <13,385> <9,280> Payments on long-term debt 1,702 <70> 797 <10> Cash from issue of stock 117 55 51 24 ------- ------- ------- ------- Net cash provided by <used in> financing activities <216> <430> 518 <16> ------- ------- ------- ------- NET CHANGE IN CASH <10> 389 5 316 CASH, beginning of period 26 138 11 211 ------- ------- ------- ------- CASH, end of period $ 16 $ 527 $ 16 $ 527 ======= ======= ======= ======= * Unaudited </TABLE> <PAGE 7> AAON, INC. NOTES TO FINANCIAL STATEMENTS June 30, 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 June 30, 1998 (unaudited), and December 31, 1997, consist of the following: June 30, December 31, 1998 1997 ------------ ------------ Raw Materials $ 8,741,000 $ 7,073,000 Work in Process 1,806,000 2,136,000 Finished Goods 2,230,000 1,443,000 ------------ ------------ $ 12,777,000 $ 10,652,000 ------------ ------------ 3. LONG-TERM DEBT: Long-term debt at June 30, 1998 (unaudited), and December 31, 1997, consists of the following: June 30, 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 June 30, 1998) collateralized by real estate $ 267,000 $ 287,000 <PAGE 8> $15,150,000 bank line of credit with interest payable monthly at LIBOR plus 1.70% (7.35625% at June 30, 1998) due August 31, 2000 collateralized by accounts receivable, inventory, and intangibles of AAON and AAON COIL PRODUCTS $ 9,450,000 $11,485,000 Three notes payable due in 84 equal installments totaling $36,489 beginning in April and May, 1998, plus interest at 7.47% and 7.52% collateralized by machinery and equipment. 2,982,000 1,260,000 ----------- ----------- 12,699,000 13,032,000 Less Current Maturities 478,000 175,000 ----------- ----------- $12,221,000 $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 5. NEW ACCOUNTING PRONOUNCEMENTS: In June 1998, the Financial Standards Board issued Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities. The Company has determined that the adoption of this statement will have no effect on its financial statements. <PAGE 9> PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits - None. (b) Reports on Form 8-K - Registrant filed one report on Form 8-K (dated May 27, 1998) during the quarter ended June 30, 1998, reporting an amendment of its Bylaws to change the date of the annual meeting of stockholders to the fourth Tuesday in May of each year, commencing in 1999. 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 23, 1998 By: /s/ Norman H. Asbjornson ---------------------------- Norman H. Asbjornson President Dated: July 23, 1998 By: /s/ William A. Bowen ----------------------------- William A. Bowen Vice President - Finance