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, 1998
Commission file number: 33-183336-LA
AAON, INC.
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(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. 6,211,949 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
$20,372,000 (from $58,181,000 to $78,553,000) during the nine-
month period ended September 30, 1998, compared to the same
period in 1997, and by $7,841,000 (from $21,248,000 to
$29,089,000) during the third quarter of 1998 compared to 1997.
Net income increased by $1,847,000 [from $1,927,000,
$.31 per share (Diluted), to $3,774,000, $.59 per share] during
the nine-month period ended September 30, 1998, compared to the
same period in 1997, and by $890,000 (from $500,000, $.08 per
share, to $1,390,000, $.22 per share) during the third quarter of
1998 compared to 1997.
The increase in sales during the first nine months of
1998 compared to 1997 resulted from higher sales to the Company's
entire customer base. 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 continue to be well ahead of last year and management
anticipates record sales and earnings for the year.
Financial Condition and Liquidity. While there were
material increases in current assets ($5,927,000) and current
liabilities ($3,772,000) at September 30, 1998, compared to
December 31, 1997, these increases mainly reflect the higher sale
volume. The Company made capital expenditures totalling
$4,486,000 during the nine months ended September 30, 1998.
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 September 30, 1998, see Note 3 to the Financial Statements on
pages 7 and 8 of this report.
<PAGE 2>
Year 2000 Disclosure ("Y2K"). The Company believes
that it is now fully compliant in regard to the "Year 2000
Problem", insofar as its internal operations are concerned,
except for embedded technology in two major sheet metal
fabricating machines which are scheduled to be corrected in the
first quarter of 1999. With regard to its suppliers, in
September, 1998, the Company sent 800 questionnaires to determine
their state of readiness and the readiness of the suppliers'
suppliers. To date approximately 200 responses have been
received, most indicating that they are in compliance. The
Company will follow up with those not in compliance and those who
have not responded. On or before the start of the fourth quarter
of 1999, the Company will be doing business only with suppliers
who are in compliance.
The Company does not anticipate incurring material
costs in addressing Y2K issues.
Subject to timely correction of the embedded technology
in the sheet metal fabricating machines mentioned above, the
Company does not believe it will experience any material adverse
consequences to its manufacturing operations, internally or
externally, due to Y2K, but management can conceive of problems
in receiving payments from customers if there should be wide-
spread defects affecting the financial/banking industry.
If the Company has any concerns as to specific
suppliers, it would commence a buildup of inventory of such parts
starting in the third quarter of 1999 and establish alternate
suppliers for those in question.
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.
Not applicable
<PAGE 3>
<TABLE>
AAON, Inc.
Consolidated Balance Sheets
SEPTEMBER 30, DECEMBER 31,
1998 * 1997
(In Thousands, except share amounts)
<CAPTION>
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 13 $ 26
Accounts receivable 19,397 14,018
Inventories 10,995 10,652
Prepaid expenses 621 403
Deferred income tax 1,043 1,043
-------- --------
Total current assets 32,069 26,142
-------- --------
PROPERTY, PLANT, AND EQUIPMENT, at cost:
Land 874 874
Buildings 12,053 11,865
Machinery and equipment 16,145 11,906
Furniture and fixtures 1,968 1,909
-------- --------
31,040 26,554
Less-accumulated depreciation 12,014 9,969
-------- --------
Net property, plant and equipment 19,026 16,585
OTHER ASSETS 3 42
-------- --------
$ 51,098 $ 42,769
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 8,594 $ 7,137
Accrued liabilities 5,460 3,727
Current maturities of long-term debt 757 175
-------- --------
Total current liabilities 14,811 11,039
-------- --------
LONG-TERM DEBT 13,441 12,857
-------- --------
STOCKHOLDERS' EQUITY:
Common stock, $.004 par, 50,000,000
shares authorized 25 25
Preferred stock, 5,000,000 shares
authorized, no shares issued
Additional paid-in capital 8,115 7,916
Retained earnings 14,706 10,932
-------- --------
Total stockholders' equity 22,846 18,873
-------- --------
$ 51,098 $ 42,769
======== ========
* Unaudited
</TABLE>
<PAGE 4>
<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,
1998* 1997* 1998* 1997*
(In Thousands, except per share amounts)
<CAPTION>
<S> <C> <C> <C> <C>
Sales, net $ 29,089 $ 21,248 $ 78,553 $ 58,181
Cost of sales 23,737 18,283 64,168 48,775
-------- -------- -------- --------
Gross profit 5,352 2,965 14,385 9,406
Selling, general and
administrative expenses 2,882 1,851 7,697 5,539
-------- -------- -------- --------
Income from operations 2,470 1,114 6,688 3,867
Interest expense 284 189 699 501
Amortization and other expense <63> 47 <151> 118
-------- -------- -------- --------
Income before income taxes 2,249 878 6,140 3,248
Income tax provision 859 378 2,366 1,321
-------- -------- -------- --------
Net income $ 1,390 $ 500 $ 3,774 $ 1,927
======== ======== ======== ========
Net income per share (Basic) $ .22 $ .08 $ .61 $ .31
======== ======== ======== ========
(Diluted) $ .22 $ .08 $ .59 $ .31
======== ======== ======== ========
* Unaudited
</TABLE>
<PAGE 5>
<TABLE>
AAON, Inc.
Consolidated Statements of Stockholders' Equity
<CAPTION>
COMMON STOCK PAID IN ACCUMULATED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
---------- ---------- ---------- ----------- ----------
(In Thousands)
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1997 6,176 $ 25 $ 7,916 $10,932 $18,873
ISSUE OF COMMON STOCK* 36 -0- 199 -0- 199
NET INCOME* -0- -0- -0- 3,774 3,774
----------- ----------- ----------- ----------- -----------
BALANCE, September 30, 1998* 6,212 $ 25 $ 8,115 $14,706 $22,846
=========== =========== =========== =========== ===========
* Unaudited
</TABLE>
<PAGE 6>
<TABLE>
AAON, Inc.
Consolidated Statements of Cash Flows
<CAPTION>
Nine Nine Three Three
Months Months Months Months
Ended Ended Ended Ended
Sept 30, Sept 30, Sept 30, Sept 30,
1998* 1997* 1998* 1997*
(In Thousands)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,774 $ 1,927 $ 1,390 $ 500
Adjustments to reconcile net income
to net cash provided by operating
activities-
Depreciation and amortization 2,045 1,750 635 627
Change in assets and liabilities:
<Increase> decrease in
accounts receivable <5,379> <332> <4,026> <1,193>
<Increase> decrease in inventories <343> <2,971> 1,782 <1,532>
<Increase> decrease in prepaid expenses
and other <179> <110> <145> 557
Increase <decrease> in accounts payable 1,457 390 <984> <248>
Increase <decrease> in accrued liabilities 1,733 <135> 477 74
------- ------- ------- -------
Total adjustments <666> <1,408> <2,261> <1,715>
------- ------- ------- -------
Net cash provided by <used in>
operating activities 3,108 519 <871> <1,215>
------- ------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures <4,486> <2,958> <713> <2,043>
------- ------- ------- -------
Net cash used in investing activities <4,486> <2,958> <713> <2,043>
------- ------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowing under revolving credit agreement 36,580 28,990 14,525 11,065
Payments under revolving credit agreement <38,880> <26,830> <14,790> <8,490>
Borrowing to long-term debt 3,466 1,180 1,764 1,250
Cash from issue of stock 199 78 82 23
------- ------- ------- -------
Net cash provided by <used in>
financing activities 1,365 3,418 1,581 3,848
------- ------- ------- -------
NET CHANGE IN CASH <13> 979 <3> 590
CASH, beginning of period 26 138 16 527
------- ------- ------- -------
CASH, end of period $ 13 $ 1,117 $ 13 $ 1,117
======= ======= ======= =======
* Unaudited
</TABLE>
<PAGE 7>
AAON, INC.
NOTES TO FINANCIAL STATEMENTS
September 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. Certain reclassifications of prior year amounts on the
statement of cash flows have been made to conform to current year
presentations. However, management believes that no adjustments
to the financial statements are necessary.
2. INVENTORIES:
Inventories at September 30, 1998 (unaudited), and December 31,
1997, consist of the following:
Sept. 30, December 31,
1998 1997
----------- ------------
Raw Materials $ 7,649,000 $ 7,073,000
Work in Process 1,644,000 2,136,000
Finished Goods 1,702,000 1,443,000
$10,995,000 $10,652,000
----------- -----------
3. LONG-TERM DEBT:
Long-term debt at September 30, 1998 (unaudited), and December
31, 1997, consists of the following:
Sept. 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%
(8.50% at Sept. 30, 1998)
collateralized by real estate
$ 257,000 $ 287,000
<PAGE 8>
$15,150,000 bank line of credit
with interest payable monthly
at LIBOR plus 1.70% (7.36%
at September 30, 1998) due
August 31, 2000 collateralized
by accounts receivable,
inventory, and intangibles
of AAON and AAON COIL PRODUCTS
$ 9,185,000 $11,485,000
Five notes payable due in 84
equal installments totaling $59,728
beginning in April, May and Sept. 1998,
plus interest at 7.47%, 7.52% and 7.11%
collateralized by machinery
and equipment.
4,756,000 1,260,000
----------- -----------
14,198,000 13,032,000
Less Current Maturities 757,000 175,000
----------- -----------
$13,441,000 $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
<PAGE 9>
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: November 2, 1998 By: /s/ Norman H. Asbjornson
--------------------------
Norman H. Asbjornson
President
Dated: November 2, 1998 By: /s/ William A. Bowen
--------------------------
William A. Bowen
Vice President-Finance
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 13
<SECURITIES> 0
<RECEIVABLES> 19,397
<ALLOWANCES> 0
<INVENTORY> 10,995
<CURRENT-ASSETS> 32,069
<PP&E> 31,040
<DEPRECIATION> 12,014
<TOTAL-ASSETS> 51,098
<CURRENT-LIABILITIES> 14,811
<BONDS> 13,441
0
0
<COMMON> 25
<OTHER-SE> 22,821
<TOTAL-LIABILITY-AND-EQUITY> 51,098
<SALES> 78,553
<TOTAL-REVENUES> 78,553
<CGS> 64,168
<TOTAL-COSTS> 71,865
<OTHER-EXPENSES> (151)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 699
<INCOME-PRETAX> 6,140
<INCOME-TAX> 2,366
<INCOME-CONTINUING> 3,774
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,774
<EPS-PRIMARY> .61
<EPS-DILUTED> .59
</TABLE>
