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
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 16
<SECURITIES> 0
<RECEIVABLES> 15,370
<ALLOWANCES> 0
<INVENTORY> 12,777
<CURRENT-ASSETS> 29,682
<PP&E> 30,327
<DEPRECIATION> 11,379
<TOTAL-ASSETS> 48,633
<CURRENT-LIABILITIES> 15,039
<BONDS> 12,221
0
0
<COMMON> 25
<OTHER-SE> 21,348
<TOTAL-LIABILITY-AND-EQUITY> 48,633
<SALES> 49,464
<TOTAL-REVENUES> 49,464
<CGS> 40,431
<TOTAL-COSTS> 45,247
<OTHER-EXPENSES> (88)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 415
<INCOME-PRETAX> 3,890
<INCOME-TAX> 1,507
<INCOME-CONTINUING> 2,383
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,383
<EPS-PRIMARY> .38
<EPS-DILUTED> .37
</TABLE>
