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, 1999
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. 6,258,124 shares of
$.004 par value Common Stock.
<PAGE 1>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
On pages 4 through 9 of this report.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Results of Operations. Net sales increased by $11,534,000, up 23% (from
$49,464,000 to $60,998,000 during the six-month period ended June 30, 1999,
compared to the same period in 1998. The increase in sales in 1999 resulted from
continuing strong demand from both manufacturers' representatives and the
Company's national account base, which is expected to continue throughout the
rest of the year.
Gross profit increased in the first half of 1999 to 26.1% compared to 18.3%
in the same period in 1998. The increase in margins was attributable to growth
and stability of the Company's work force which impacted manufacturing
efficiencies, and continuing efforts to automate certain areas of production
which aided operating margins.
SG&A expenses increased $4,145,000 (86%) during the six months ended June
30, 1999, compared to 1998, due to higher expenses, including a provision for
warranty charges attributable to the sales increase.
Net income during the first half of 1999 ($4,185,000) increased at more
than three times the rate of sales (76% vs. 23%) compared to the same period in
1998, due to the improvement in gross margins, which resulted primarily from
improved operating efficiencies rather than price increases.
Financial Condition and Liquidity. The $2,430,000 increase in accounts
receivable at June 30, 1999, compared to December 31, 1998, was due to the sales
increase.
The $791,000 decrease in inventories resulted from tighter production and
purchasing controls.
Property, plant and equipment increased $1,060,000, at June 30, 1999,
reflecting additions to machinery and equipment, offset in part by greater
depreciation. All capital expenditures in the first half of 1999 were financed
out of cash flow, borrowings under the Company's revolving credit bank loan and
equipment financing.
Current liabilities were up $3,447,000 reflecting higher reserves and
accrued liabilities, related to the increase in sales and production.
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.
<PAGE 2>
For information concerning the Company's long-term debt at June 30, 1999,
see Note 3 to the Financial Statements on pages 8 and 9 of this report.
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. 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 724 responses have been received, most
indicating that they are in compliance. The Company is following 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.
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 and establish alternate suppliers for those
in question.
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", "plans" "believes", "seeks", "estimates", "will",
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 regarding
$4,945,000 of its total debt of $7,462,000, 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.
<PAGE 3>
Foreign sales account for only 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 any 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 three years.
Item 4. Submission of Matters to a Vote of Security Holders.
At the Company's Annual Meeting of Stockholders held on May 25, 1999,
management's nominees, William A. Bowen and Anthony Pantaleoni, were reelected
as directors for three-year terms, with each receiving 74% of the votes cast
(3,518,009 shares "For" and 191,349 shares "Withheld" as to Mr. Bowen and
3,523,905 shares "For" and 185,453 shares "Withheld" as to Mr. Pantaleoni. An
insurgent group's nominee, Steven A. Van Dyke, had 1,248,538 shares "For" and
135,026 shares "Withheld"). Other directors whose terms of office continued
after the meeting are: Norman H. Asbjornson, John B. Johnson, Jr., and Charles
C. Stephenson, Jr., whose terms end in 2000, and J. M. Klein and Thomas E.
Naugle, whose terms end in 2001.
Also, at the Annual Meeting, the Company's proposals to (1) amend its Stock
Option Plan (to increase the number of shares subject to the Plan from 1,000,000
to 1,300,000, authorize consultants, as well as employees and directors, to
receive options under the Plan and extend the term of the Plan with regard to
non-qualified options granted thereunder to March 11, 2012) and (2) amended the
Company's Articles of Incorporation (to limit the personal liability of its
directors to the fullest extent permitted by the Nevada General Corporation Law)
were approved by votes of 4,595,126 shares "For" (94%), 312,462 shares "Against"
and 42,743 shares "Abstain", and 3,740,667 shares "For" (74%) 1,310,416 shares
"Against" and 41,839 shares "Abstain", respectively.
Additionally, five amendments to the Company's Bylaws proposed by the
insurgent group were defeated by a 73% "Against" vote (3,709,996-3,712,496
shares) vs. 27% "For" (1,378,742-1,382,011 shares) and less than 1% "Abstain"
(915-2,444 shares).
<PAGE 4>
<TABLE>
AAON, Inc.
Consolidated Balance Sheets
JUNE 30, 1999 * DECEMBER 31, 1998
------------- -----------------
(In Thousands)
<CAPTION>
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 23 $ 25
Accounts receivable 20,363 17,933
Inventories 11,369 12,160
Prepaid expenses 1,008 241
Deferred income tax 1,594 1,594
-------- --------
Total current assets 34,357 31,953
-------- --------
PROPERTY, PLANT, AND EQUIPMENT, at cost:
Land 874 874
Buildings 12,306 12,089
Machinery and equipment 18,448 16,264
Furniture and fixtures 2,119 2,004
-------- --------
33,747 31,231
Less-accumulated depreciation 14,134 12,678
-------- --------
Net property, plant and equipment 19,613 18,553
$ 53,970 $ 50,506
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 8,731 $ 8,478
Accrued liabilities 9,074 5,880
Current maturities of long-term debt 757 757
-------- --------
Total current liabilities 18,562 15,115
-------- --------
LONG-TERM DEBT 6,705 10,980
-------- --------
STOCKHOLDERS' EQUITY:
Common stock, $.004 par, 50,000,000
shares authorized, 6,256,749 issued
and outstanding 25 25
Preferred stock, 5,000,000 shares
authorized, no shares issued
Additional paid-in capital 8,331 8,224
Retained earnings 20,347 16,162
-------- --------
Total stockholders' equity 28,703 24,411
-------- --------
$ 53,970 $ 50,506
======== ========
* Unaudited
</TABLE>
<PAGE 5>
<TABLE>
AAON, Inc.
Consolidated Statements of Operations
Three Months Ended Three Months Ended Six Months Ended Six Months Ended
June 30, 1999* June 30, 1998* June 30, 1999* June 30, 1998*
------------------ ------------------ ---------------- ----------------
(In Thousands)
<CAPTION>
<S> <C> <C> <C> <C>
Sales, net $ 30,962 $ 25,959 $ 60,998 $ 49,464
Cost of sales 22,306 20,776 45,104 40,431
-------- -------- -------- --------
Gross profit 8,656 5,183 15,894 9,033
Selling, general and administrative expenses 4,695 2,811 8,961 4,816
-------- -------- -------- --------
Income from operations 3,961 2,372 6,933 4,217
Interest expense 139 275 333 415
Amortization and other expense (74) (60) (76) (88)
-------- -------- -------- --------
Income before income taxes 3,896 2,157 6,676 3,890
Income tax provision 1,475 878 2,491 1,507
-------- -------- -------- --------
Net income $ 2,421 $ 1,279 $ 4,185 $ 2,383
======== ======== ======== ========
Net income per share (Basic) $ .39 $ .21 $ .67 $ .38
======== ======== ======== ========
(Diluted) $ .38 $ .20 $ .65 $ .37
======== ======== ======== ========
* Unaudited
</TABLE>
<PAGE 6>
<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, 1998 6,219 $ 25 $ 8,224 $16,162 $24,411
ISSUE OF COMMON STOCK* 38 - 107 - 107
NET INCOME - - - 4,185 4,185
----------- ----------- ----------- ----------- -----------
BALANCE, June 30, 1999* 6,257 $ 25 $ 8,331 $20,347 $28,703
=========== =========== =========== =========== ===========
* Unaudited
</TABLE>
<PAGE 7>
<TABLE>
AAON, Inc.
Consolidated Statements of Cash Flows
<CAPTION>
Six Months Ended Six Months Ended Three Months Ended Three Months Ended
June 30, 1999* June 30, 1998* June 30, 1999* June 30, 1998*
------------------ ------------------ ------------------ ------------------
(In Thousands)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,185 $ 2,383 $ 2,421 $ 711
Adjustments to reconcile net income
to net cash provided by operating
activities-
Depreciation and amortization 1,456 1,410 724 527
Change in assets and liabilities:
(Increase) decrease in accounts receivable (2,430) (1,352) (1,358) (863)
(Increase) decrease in inventories 791 (2,125) (1,066) (700)
(Increase) decrease in prepaid expenses (767) (73) (720) (565)
Increase (decrease) in accounts payable 253 2,441 2,147 2,306
Increase (decrease) in accrued liabilities 3,194 1,256 915 (559)
------- ------- ------- -------
Total adjustments 2,497 1,557 642 146
------- ------- ------- -------
Net cash provided by (used in)
operating activities 6,682 3,940 3,063 857
------- ------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (2,516) (3,734) (1,069) (525)
Net cash used in investing activities (2,516) (3,734) (1,069) (525)
------- ------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowing under revolving credit agreement 26,410 22,055 12,815 9,250
Payments under revolving credit agreement (30,280) (24,090) (15,025) (9,280)
Payments on long-term debt (405) 1,702 (189) (10)
Cash from issue of stock 107 117 59 24
------- ------- ------- -------
Net cash provided by (used in)
financing activities (4,168) (216) (2,340) (16)
------- ------- ------- -------
NET CHANGE IN CASH (2) (10) (346) 316
CASH, beginning of period 25 26 369 211
------- ------- ------- -------
CASH, end of period $ 23 $ 16 $ 23 $ 527
======= ======= ======= =======
* Unaudited
</TABLE>
<PAGE 8>
AAON, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 1999
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, 1998, filed by AAON,
Inc. with the SEC. Certain reclassifications of prior year amounts 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 June 30, 1999 (unaudited), and December 31, 1998, consist of the
following:
June 30, December 31,
1999 1998
------------ ------------
Raw Materials $ 6,496,000 $ 8,253,000
Work in Process 1,846,000 1,628,000
Finished Goods 3,027,000 2,279,000
------------ ------------
$11,369,000 $12,160,000
------------ ------------
3. LONG-TERM DEBT:
Long-term debt at June 30, 1999 (unaudited), and December 31, 1998, consists of
the following:
June 30, December 31,
1999 1998
------------ ------------
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%
(8.0% at June 30, 1999)
collateralized by real estate $ 230,000 $ 250,000
<PAGE 9>
$15,150,000 bank line of credit
with interest payable monthly at
LIBOR plus 1.70% (6.69% at
June 30, 1999) due August 31, 2000
collateralized by accounts
receivable, inventory, and
intangibles of Aaon and Aaon Coil
Products $ 3,020,000 $ 6,890,000
Five notes payable due in 84 equal
installments totaling $59,728, plus
interest at 7.47%, 7.52% and 7.11%,
collateralized by machinery
and equipment 4,212,000 4,597,000
----------- -----------
7,462,000 11,737,000
Less Current Maturities 757,000 757,000
----------- -----------
$ 6,705,000 $10,980,000
----------- -----------
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, 1998, 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 10>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits - None.
(b) Registrant did not file any reports on Form 8-K during the
three- month period ended June 30, 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: August 9, 1999 By: /s/ Norman H. Asbjornson
-------------------------------
Norman H. Asbjornson
President
Dated: August 9, 1999 By: /s/ Kathy I. Sheffield
-------------------------------
Kathy I. Sheffield
Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 23
<SECURITIES> 0
<RECEIVABLES> 20,363
<ALLOWANCES> 0
<INVENTORY> 11,369
<CURRENT-ASSETS> 34,357
<PP&E> 33,747
<DEPRECIATION> 14,134
<TOTAL-ASSETS> 53,970
<CURRENT-LIABILITIES> 18,562
<BONDS> 6,705
0
0
<COMMON> 25
<OTHER-SE> 28,678
<TOTAL-LIABILITY-AND-EQUITY> 53,970
<SALES> 60,998
<TOTAL-REVENUES> 60,998
<CGS> 45,104
<TOTAL-COSTS> 54,065
<OTHER-EXPENSES> (76)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 333
<INCOME-PRETAX> 6,676
<INCOME-TAX> 2,491
<INCOME-CONTINUING> 4,185
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,185
<EPS-BASIC> .67
<EPS-DILUTED> .65
</TABLE>
