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, 2003 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 October 31, 2003, Registrant had outstanding a total of 12,812,508 shares of its $.004 par value Common Stock.
PART I - FINANCIAL INFORMATION Item 1. Financial Statements. On pages 6 through 12 of this report. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. The Company engineers, manufactures and markets commercial rooftop air-conditioning, heating and heat recovery equipment, chillers, air-conditioning coils, air handlers and condensing units. The Company's primary products are its RK, RL, RM and RN Series units. The RM and RN units, which were introduced in 2002, are replacing the RK. AAON has also introduced an expanded air handler product and a Modulating Hot Gas Reheat feature for the rooftop product lines, condensing units and air handlers. The Company's newest product is the Model LL Chiller available in both air cooled condensing and evaporative cooled configurations. AAON sells its products to property owners and contractors through a network of manufacturers' representatives and its internal sales force. Demand for AAON'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 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 plant and 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 third parties. 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 three and nine months ended September 30, 2003, and 2002: <TABLE> AAON, Inc. Consolidated Statements of Operations <CAPTION> Three Months Ended Nine Months Ended Sept. 30, 2003* Sept. 30, 2002* Sept. 30, 2003* Sept. 30, 2002* ------------------------------------------------------------------------------------ (in thousands) <S> <C> <C> <C> <C> Net sales $ 41,003 $ 41,702 $ 111,081 $ 117,873 Cost of sales 31,491 31,301 84,064 88,118 ------------------- ------------------- ------------------ ----------------- Gross profit 9,512 10,401 27,017 29,755 Selling, general and administrative expenses 3,861 3,992 10,569 12,007 ------------------- ------------------- ------------------ ----------------- Income from operations 5,651 6,409 16,448 17,748 Interest expense 6 1 21 72 Interest income (84) (83) (259) (124) Other income (45) (80) (167) (237) ------------------- ------------------- ------------------ ----------------- Income before income taxes 5,774 6,571 16,853 18,037 Income tax provision 2,139 2,385 6,366 6,538 ------------------- ------------------- ------------------ ----------------- Net income $ 3,635 $ 4,186 $ 10,487 $ 11,499 =================== =================== ================== ================= *Unaudited </TABLE> Results of Operations. Net sales decreased $699,000 (1.7%) to $41,003,000 from $41,702,000 for the three months ended September 30, 2003, and $6,792,000 (5.8%) to $111,081,000 from $117,873,000 for the nine months ended September 30, 2003, compared to the same periods in 2002. The decrease in sales for the three and nine months ended September 30, 2003, compared to the same period in 2002, was primarily due to economic conditions in the United States. However, there was an improvement noted in the third quarter compared to the first and second quarters. Sales to existing customers in the nine months ended September 30, 2003, accounted for 85% of the Company's business, with the balance coming from new business. Gross profit decreased $899,000 (8.6%) to $9,512,000 from $10,401,000 for the three months ended September 30, 2003, and $2,738,000 (9.2%) to $27,017,000 from $29,755,000 for the nine months ended September 30, 2003, compared to the same periods in 2002. The decrease for the three months ended September 30, 2003, was primarily due to efficiency issues related to the manufacturing of new products. The decrease in margins for the first nine months of the year was primarily attributable to lower sales volume of higher margin orders and higher sales volume of lower margin orders. Selling, general and administrative expenses decreased $131,000 (3.3%) to $3,861,000 from $3,992,000 for the three months ended September 30, 2003, compared to September 30, 2002, primarily due to a decrease in warranty expense related to the introduction of new products in 2002, and improved product quality. SG&A expenses decreased $1,438,000 (12.0%) to $10,569,000 from $12,007,000 for the nine months ended September 30, 2003, compared to the same period in 2002, due to a decrease in warranty expenses and agency certification costs related to the introduction of new products in the earlier periods. -2-
The Company's effective tax rate increased by 1% to 38% from 37% in 2003 compared to 2002. Financial Condition and Liquidity. The Company generated $15,915,000 and $14,647,000 cash from operating activities during the nine months ended September 30, 2003, and September 30, 2002, respectively. The cash generated allowed for the repurchase of company stock totaling $9,132,000 and capital expenditures totaling $3,964,000 in 2003. These funds and subsequent cash flows will be retained for general working capital purposes, continuance of the company stock buyback program, capital expenditures which include machinery, equipment and buildings, and future business opportunities. Accounts receivable increased $2,100,000 from $22,306,000 to $24,406,000 at September 30, 2003, compared to December 31, 2002, due to an increase in sales in the third quarter as compared to the fourth quarter 2002, and timing of receipts. Inventories decreased $158,000 from $14,338,000 to $14,180,000 at September 30, 2003, compared to December 31, 2002, due to an increase in sales in the third quarter of 2003, resulting in lower inventory levels as compared to the fourth quarter 2002. Property, plant and equipment increased $3,964,000 from $62,345,000 to $66,309,000 at September 30, 2003 compared to December 31, 2002. The additions were comprised of $1,136,000 of building renovations, $2,624,000 of manufacturing equipment additions, primarily due to the purchase of sheet metal and refrigeration equipment, and $204,000 of furniture and fixtures additions. All capital expenditures and building renovations were financed out of cash generated from operations. Accounts payable and accrued liabilities increased $3,967,000 from $21,767,000 to $25,734,000 at September 30, 2003, compared to December 31, 2002, due primarily to an increase in income taxes and commissions payable. 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 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 revolving credit facility at September 30, 2003, 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, 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. 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 to determine if the reserve is adequate. -3-
Allowance for Excess and Obsolete Inventories - The Company establishes an allowance for excess and obsolete inventories based on the change in inventory requirements due to product line changes, the feasibility of using parts for upgraded part substitutions, the required parts needed for part supply sales and replacement parts. Warranty - A provision is made for the estimated cost of warranty obligation 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 issues. Due to the absence of warranty history on new products, an additional provision may be made for such products. 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. Item 3. Quantitative and Qualitative Disclosures About Market Risk. While the Company is exposed to changes in interest rates, a hypothetical 10% change in interest rates on its variable rate borrowings would not have a material effect on the Company's earnings or cash flow. Foreign sales account for less than 2% of the Company's total sales 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 negotiating with each of its major suppliers on a term basis from six months to one year. -4-
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 financial reporting. 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 September 30, 2003, the Company had acquired 769,664 shares of its stock pursuant to its current buyback program. -5-
<TABLE> AAON, Inc. Consolidated Balance Sheets <CAPTION> Sept. 30, 2003* December 31, 2002 ---------------------------------------------- (in thousands, except share data) <S> <C> <C> ASSETS CURRENT ASSETS Cash and cash equivalents $ 4,616 $ 5,071 Certificate of deposit 10,000 - Accounts receivable, net 24,406 22,306 Inventories, net 14,180 14,338 Prepaid expenses 1,090 599 Deferred income tax 4,168 4,168 ------------------- ------------------- Total current assets 58,460 46,482 ------------------- ------------------- PROPERTY, PLANT AND EQUIPMENT, at cost: Land 874 874 Buildings 19,530 18,394 Machinery and equipment 42,204 39,580 Furniture and fixtures 3,701 3,497 ------------------- ------------------- Total property, plant & equipment 66,309 62,345 Less: accumulated depreciation 31,008 27,114 ------------------- ------------------- Net property, plant & equipment 35,301 35,231 CERTIFICATE OF DEPOSIT - 10,000 ------------------- ------------------- Total assets $ 93,761 $ 91,713 =================== =================== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Revolving credit facility $ - $ 3,566 Accounts payable 9,584 8,418 Accrued liabilities 16,150 13,349 ------------------- ------------------- Total current liabilities 25,734 25,333 ------------------- ------------------- DEFERRED TAX LIABILITY 4,070 4,070 ------------------- ------------------- STOCKHOLDERS' EQUITY Preferred stock, $.001 par, 5,000,000 shares authorized, no shares issued - - Common stock, $.004 par, 50,000,000 shares authorized, 12,541,233 and 13,030,916 issued and outstanding at Sept. 30, 2003 and December 31, 2002, respectively 50 52 Additional paid-in capital - - Retained earnings 63,907 62,258 ------------------- ------------------- Total stockholders' equity 63,957 62,310 ------------------- ------------------- Total liabilities and stockholders' equity $ 93,761 $ 91,713 =================== =================== *Unaudited </TABLE> -6-
<TABLE> AAON, Inc. Consolidated Statements of Operations <CAPTION> Three Months Ended Nine Months Ended Sept. 30, 2003* Sept. 30, 2002* Sept. 30, 2003* Sept. 30, 2002* ------------------------------------------------------------------------------------ (in thousands, except share data) <S> <C> <C> <C> <C> Net sales $ 41,003 $ 41,702 $ 111,081 $ 117,873 Cost of sales 31,491 31,301 84,064 88,118 ------------------- ------------------- ------------------ ----------------- Gross profit 9,512 10,401 27,017 29,755 Selling, general and administrative expenses 3,861 3,992 10,569 12,007 ------------------- ------------------- ------------------ ----------------- Income from operations 5,651 6,409 16,448 17,748 Interest expense 6 1 21 72 Interest income (84) (83) (259) (124) Other income (45) (80) (167) (237) ------------------- ------------------- ------------------ ----------------- Income before income taxes 5,774 6,571 16,853 18,037 Income tax provision 2,139 2,385 6,366 6,538 ------------------- ------------------- ------------------ ----------------- Net income $ 3,635 $ 4,186 $ 10,487 $ 11,499 =================== =================== ================== ================= Earnings Per Share: Basic $ 0.29 $ 0.32 $ 0.82 $ 0.87 =================== =================== ================== ================= Diluted $ 0.27 $ 0.30 $ 0.79 $ 0.84 =================== =================== ================== ================= Weighted Average Shares Outstanding: Basic 12,593,711 13,220,792 12,736,140 13,165,747 =================== =================== ================== ================= Diluted 13,292,444 13,794,595 13,314,563 13,746,839 =================== =================== ================== ================= *Unaudited </TABLE> -7-
<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, 2002 13,031 $ 52 $ - $ 62,258 $ 62,310 Exercise of common stock options* 61 - 292 - 292 Repurchase of common stock* (551) (2) (292) (8,838) (9,132) Net income* - - - 10,487 10,487 ----------- ------------ ------------ ------------ ------------ Balance, September 30, 2003* 12,541 $ 50 $ - $ 63,907 $ 63,957 =========== ============ ============ ============ ============ *Unaudited </TABLE> -8-
<TABLE> AAON, Inc. Consolidated Statements of Cash Flows <CAPTION> Nine Months Ended Nine Months Ended Sept. 30, 2003* Sept. 30, 2002* -------------------------------------------------------- (in thousands) OPERATING ACTIVITIES <S> <C> <C> Net income $ 10,487 $ 11,499 ----------------------- ----------------------- Adjustments to reconcile net income to net cash provided by operating activities - Depreciation and amortization 3,894 3,591 Changes in assets and liabilities: Accounts receivable (2,100) (3,502) Inventories 158 (1,166) Prepaid expenses (491) (775) Accounts payable 1,166 1,219 Accrued liabilities 2,801 3,781 ----------------------- ----------------------- Total adjustments 5,428 3,148 ----------------------- ----------------------- Net cash provided by operating activities 15,915 14,647 ----------------------- ----------------------- INVESTING ACTIVITIES Capital expenditures (3,964) (2,835) Investment in certificate of deposit - (10,000) ----------------------- ----------------------- Net cash used in investing activities (3,964) (12,835) ----------------------- ----------------------- FINANCING ACTIVITIES Borrowings under revolving credit agreement 26,862 23,613 Payments under revolving credit agreement (30,428) (24,058) Payments on long-term debt - (1,424) Stock options exercised 292 718 Repurchase of common stock (9,132) - ----------------------- ----------------------- Net cash used in financing activities (12,406) (1,151) ----------------------- ----------------------- NET CHANGE IN CASH (455) 661 CASH AND CASH EQUIVALENTS, beginning of period 5,071 1,123 ----------------------- ----------------------- CASH AND CASH EQUIVALENTS, end of period $ 4,616 $ 1,784 ======================= ======================= *Unaudited </TABLE> -9-
AAON, Inc. NOTES TO FINANCIAL STATEMENTS September 30, 2003 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, 2002, 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 nine months ended September 30, 2003, are not necessarily indicative of the results that may be expected for the year ending December 31, 2003. 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 Nine Months Ended Sept. 30, Sept. 30, Sept. 30, Sept. 30, 2003 2002 2003 2002 ------------------------------------------------------------------- (in thousands, except share data) <S> <C> <C> <C> <C> Net income as reported $ 3,635 $ 4,186 $ 10,487 $ 11,499 Deduct total stock-based employee compensation: Compensation expense determined under fair value method for all awards, net of related tax effects 117 268 432 822 -------------- -------------- ------------- -------------- Pro forma net income $ 3,518 $ 3,918 $ 10,055 $ 10,677 ============== ============== ============= ============== Earnings per share: Basic, as reported $ 0.29 $ 0.32 $ 0.82 $ 0.87 ============== ============== ============= ============== Basic, pro forma $ 0.28 $ 0.30 $ 0.79 $ 0.81 ============== ============== ============= ============== Diluted, as reported $ 0.27 $ 0.30 $ 0.79 $ 0.84 ============== ============== ============= ============== Diluted, pro forma $ 0.26 $ 0.28 $ 0.76 $ 0.78 ============== ============== ============= ============== </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. -10-
4. 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 an allowance for excess and obsolete inventories based on product line changes, the feasibility of substituting parts and the need for supply and replacement parts. At September 30, 2003 (unaudited), and December 31, 2002, inventory and the related allowance for excess and obsolete inventories are as follows (in thousands): <TABLE> <CAPTION> Sept. 30, 2003 Dec. 31, 2002 --------------------- --------------------- <S> <C> <C> Raw materials $10,447 $11,508 Work in process 3,135 2,750 Finished goods 1,598 1,080 --------------------- --------------------- $15,180 $15,338 Less: allowance for excess and obsolete raw materials inventory 1,000 1,000 --------------------- --------------------- Total, net $14,180 $14,338 ===================== ===================== </TABLE> 5. 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. 6. WARRANTIES: 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. Changes in the Company's warranty liability during the three and nine months ended September 30, 2003, and 2002, are as follows (in thousands): <TABLE> <CAPTION> Three Months Ended Nine Months Ended Sept. 30, Sept. 30, Sept. 30, Sept. 30, 2003 2002 2003 2002 --------------- ------------- ------------ ------------- <S> <C> <C> <C> <C> Balance, beginning of period $ 5,943 $ 7,168 $ 7,200 $ 7,000 Warranties accrued during the period 1,033 1,164 2,259 3,807 Warranties settled during the period (844) (855) (3,327) (3,330) --------- --------- --------- --------- Balance, end of period $ 6,132 $ 7,477 $ 6,132 $ 7,477 ========= ========= ========= ========= </TABLE> 7. REVOLVING CREDIT FACILITY: The Company's $15,150,000 bank line of credit has interest payable monthly at LIBOR plus 1.60% (2.72% at September 30, 2003), with a maturity date of July 31, 2004. At September 30, 2003, the Company had no outstanding balance on the bank line of credit and had $3,566,000 outstanding at December 31, 2002. -11-
8. EARNINGS PER SHARE: The following table sets forth the computation of basic and diluted earnings per share: <TABLE> <CAPTION> Three Months Ended Nine Months Ended Sept. 30, 2003 Sept. 30, 2002 Sept. 30, 2003 Sept. 30, 2002 ---------------------------------------------------------------------------- (in thousands, except share data) <S> <C> <C> <C> <C> Numerator: Income available to common stockholders $ 3,635 $ 4,186 $ 10,487 $ 11,499 Denominator: Denominator for basic earnings per share - weighted average shares 12,593,711 13,220,792 12,736,140 13,165,747 Effect of dilutive employee stock options 698,733 573,803 578,423 581,092 ---------------- ---------------- ---------------- ----------------- Denominator for diluted earnings per share - weighted average shares 13,292,444 13,794,595 13,314,563 13,746,839 Basic earnings per share $ 0.29 $ 0.32 $ 0.82 $ 0.87 ================ ================ ================ ================= Diluted earnings per share $ 0.27 $ 0.30 $ 0.79 $ 0.84 ================ ================ ================ ================= </TABLE> 9. NEW ACCOUNTING PRONOUNCEMENTS: In July 2001, the FASB issued Statement of Financial Accounting Standards No. 143, "Accounting for Asset Retirement Obligations" (Statement 143), which requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred and a corresponding increase in the carrying amount of the long-lived asset. Statement 143 is effective for fiscal years beginning after June 15, 2002. Adoption of Statement 143 did not have a material impact on AAON's financial condition or results of operations. In January 2003, the FASB issued FASB Interpretation No. 46, "Consolidation of Variable Interest Entities," (the Interpretation). The Interpretation provides guidance on how to identify a variable interest entity (VIE) and determine when the assets, liabilities, non-controlling interests, and results of operations of a VIE need to be included in a company's consolidated financial statements. The Interpretation requires additional disclosures by primary beneficiaries and other significant variable interest holders. The provisions of this interpretation were effective immediately for all variable interest entities created after January 31, 2003; for the first fiscal year or interim period beginning after June 15, 2003, for variable interest entities in which an enterprise holds a variable interest that it acquired before February 1, 2003. The adoption of the Interpretation did not have a material impact on AAON's financial position or results of operations. 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, 2002, 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 6 Income Taxes 7 Benefit Plans 8 Stockholder Rights Plan 9 Contingencies -12-
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 during the three-month period ended September 30, 2003, reporting an amendment of its Second Revolving Credit Loan Agreement on July 30, 2003. 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 11, 2003 By: /s/ Norman H. Asbjornson ------------------------- Norman H. Asbjornson President/CEO Dated: November 11, 2003 By: /s/ Kathy I. Sheffield ------------------------- Kathy I. Sheffield Treasurer -13-
Exhibit 31.1 CERTIFICATION I. 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 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 report; 3. Based on my knowledge, the financial statements, and other financial information included in this 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 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-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, of internal control over financial reporting, 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 and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Dated: November 11, 2003 /s/ Norman H. Asbjornson ------------------------ Norman H. Asbjornson President/Chief Executive Officer -14-
Exhibit 31.2 CERTIFICATION II. 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 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 report; 3. Based on my knowledge, the financial statements, and other financial information included in this 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 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-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, of internal control over financial reporting, 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 and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Dated: November 11, 2003 /s/ Kathy I. Sheffield ----------------------- Kathy I. Sheffield Chief Financial Officer -15-
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 September 30, 2003, 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 -16-
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 September 30, 2003, 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 -17-