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, 1999
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
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(Address of principal executive offices)
(Zip Code)
(918) 583-2266
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(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. 6,259,324 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 $17,448,000, up
22% (from $78,553,000 to $96,001,000) during the nine-month period ended
September 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 nine months of 1999 to
25.3% 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 $4,960,000 (64%) during the nine
months ended September 30, 1999, compared to 1998. This increase is primarily
attributable to higher sales volume and includes a $1,600,000 increase in
warranty costs, $500,000 in professional and legal fees, $1,300,000 million in
employment related costs and other selling and marketing expenses.
Net income during the first nine months of 1999 ($7,006,000)
increased almost four times the rate of sales (86% vs. 22%) 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 $4,861,000 increase in
accounts receivable at September 30, 1999, compared to December 31, 1998, was
due to the sales increase.
The $1,748,000 decrease in inventories resulted from tighter
production and purchasing controls.
Property, plant and equipment increased $2,518,000, at
September 30, 1999, reflecting additions to machinery and equipment, including a
new main frame computer, offset in part by greater depreciation. All capital
expenditures in the first nine months of 1999 were financed out of cash flow,
borrowings under the Company's revolving credit bank loan and equipment
financing.
Current liabilities were up $2,086,000 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
September 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 756 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. The Company is now 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 $6,135,000 of its total debt of $8,543,000, 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.
<PAGE 4>
<TABLE>
AAON, Inc.
Consolidated Balance Sheet
* Sep. 30, 1999 Dec. 31, 1998
------------- -------------
(In Thousands)
<CAPTION>
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 752 $ 25
Accounts Receivable 22,794 17,933
Inventories 10,412 12,160
Prepaid Expenses 218 241
Deferred Income Tax 1,594 1,594
------- -------
Total Current Assets 35,770 31,953
------- -------
PROPERTY, PLANT AND EQUIPMENT, at cost:
Land 874 874
Buildings 12,830 12,089
Machinery and Equipment 19,483 16,264
Furniture and Fixtures 2,784 2,004
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sub-total Property, Plant & Equipment 35,971 31,231
Less: Accumulated depreciation 14,900 12,678
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Total Property, Plant & Equipment 21,071 18,553
------- -------
TOTAL ASSETS $56,841 $50,506
======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts Payable $ 7,884 $ 8,478
Accrued Liabilities 8,879 5,880
Current maturities of long-term debt 438 757
Total Current Liabilities 17,201 15,115
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LONG-TERM DEBT 8,105 10,980
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STOCKHOLDER'S EQUITY
Common Stock, $.004 par, 50,000,000 shares 25 25
authorized; 6,259,324 issued and outstanding
Preferred Stock, 5,000,000 shares authorized, - -
no shares issued
Additional paid-in capital 8,342 8,224
Retained earnings 23,168 16,162
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Total Stockholders' Equity 31,535 24,411
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $56,841 $50,506
======= =======
* unaudited
</TABLE>
<PAGE 5>
<TABLE>
AAON, Inc.
Consolidated Statements of Operations*
Three Months Ended Nine Months Ended
------------------ -----------------
Sep. 30, 1999 Sep. 30, 1998 Sep. 30, 1999 Sep. 30, 1998
------------- ------------- ------------- -------------
(In Thousands)
<CAPTION>
<S> <C> <C> <C> <C>
Sales, net $ 35,003 $ 29,089 $ 96,001 $ 78,553
Cost of Sales 26,650 23,737 71,754 64,168
-------- -------- -------- --------
Gross Profit 8,353 5,352 24,247 14,385
Selling, general and administrative expenses 3,696 2,882 12,657 7,697
-------- -------- -------- --------
Income from operations 4,657 2,470 11,590 6,688
Interest expense 126 284 459 699
Amortization and other expense (57) (63) (133) (151)
-------- -------- -------- --------
Income before income taxes 4,588 2,249 11,264 6,140
Income tax provision 1,767 859 4,258 2,366
-------- -------- -------- --------
Net income $ 2,821 $ 1,390 $ 7,006 $ 3,774
======== ======== ======== ========
Net income per share (Basic) $ 0.45 $ 0.22 $ 1.12 $ 0.61
======== ======== ======== ========
(Diluted) $ 0.43 $ 0.22 $ 1.09 $ 0.59
======== ======== ======== ========
Weighted average of
shares outstanding: (Basic) 6,258,348 6,208,362 6,242,081 6,197,540
========= ========= ========= =========
(Diluted) 6,499,669 6,361,867 6,452,327 6,383,513
========= ========= ========= =========
*unaudited
</TABLE>
<PAGE 6>
<TABLE>
AAON, Inc.
Consolidated Statements of Stockholders' Equity
Common Stock Paid In Accumulated
Shares Amount Capital Earnings Total
--------------------- ------- ----------- -----
(in thousands)
<CAPTION>
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1998 6,219 $ 25 $8,224 $16,162 $24,411
Issue of Common Stock* 40 - 118 - 118
Net Income* 0 - - 7,006 7,006
----- ---- ------ ------- -------
Balance, September 30, 1999* 6,259 $ 25 $8,342 $23,168 $31,535
===== ==== ====== ======= =======
* unaudited
</TABLE>
<PAGE 7>
<TABLE>
AAON, Inc.
Consolidated Statements of Cash Flows*
Nine Months Ended
-----------------
Sep. 30, 1999 Sep. 30, 1998
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(In Thousands)
<CAPTION>
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 7,006 $ 3,774
Adjustments to reconcile net income
to net cash provided by operating activities-
Depreciation and Amortization 2,222 2,045
Change in assets and liabilities:
(Increase) decrease in:
Accounts Receivable (4,861) (5,379)
Inventories 1,748 (343)
Prepaid Expenses 23 (179)
Increase (decrease) in:
Accounts Payable (594) 1,457
Accrued Liabilities 2,999 1,733
------- -------
Total Adjustments 1,537 (666)
------- -------
Net cash provided by (used in)
Operating Activities 8,543 3,108
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital Expenditures (4,740) (4,486)
------- -------
Net cash used in investing activities (4,740) (4,486)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowing Under Revolving Credit Agreement 43,830 36,580
Payments under Revolving Credit Agreement (44,585) (38,880)
Changes in long-term debt (2,439) 3,466
Cash from issue of Stock 118 199
------- -------
Net cash provided by (used in)
financing activities (3,076) 1,365
------- -------
NET CHANGE IN CASH 727 (13)
CASH, beginning of period 25 26
------- -------
CASH, end of period $ 752 $ 13
======= =======
*unaudited
</TABLE>
<PAGE 8>
AAON, INC.
NOTES TO FINANCIAL STATEMENTS
September 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 September 30, 1999 (unaudited), and December 31, 1998, consist of
the following:
September 30, December 31,
1999 1998
------------ -----------
Raw Materials $ 6,825,000 $ 8,253,000
Work in Process 1,574,000 1,628,000
Finished Goods 2,013,000 2,279,000
------------ ------------
$10,412,000 $12,160,000
------------ ------------
3. LONG-TERM DEBT:
Long-term debt at September 30, 1999 (unaudited), and December 31, 1998,
consists of the following:
September 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 $ 0 $ 250,000
<PAGE 9>
$15,150,000 bank line of credit
with interest payable monthly at
LIBOR plus 1.70% (7.08% at
September 30, 1999) due August 31,
2001 $ 6,135,000 $ 6,890,000
Three notes payable due in 84 equal
installments totaling $36,489, plus
interest at 7.47%, and 7.52%,
collateralized by machinery and
equipment 2,408,000 4,597,000
----------- -----------
8,543,000 11,737,000
Less Current Maturities 438,000 757,000
----------- -----------
$ 8,105,000 $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 filed one report on Form 8-K during the three-month
period ended September 30, 1999. It was dated September 17, 1999,
reporting Registrant's authorization of the repurchase of up to
10% of the company's outstanding common stock.
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 4, 1999 By: /s/ Norman H. Asbjornson
--------------------------------
Norman H. Asbjornson
President
Dated: November 4, 1999 By: /s/ Kathy I. Sheffield
--------------------------------
Kathy I. Sheffield
Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 752
<SECURITIES> 0
<RECEIVABLES> 22,794
<ALLOWANCES> 0
<INVENTORY> 10,412
<CURRENT-ASSETS> 35,770
<PP&E> 35,971
<DEPRECIATION> 14,900
<TOTAL-ASSETS> 56,841
<CURRENT-LIABILITIES> 17,201
<BONDS> 8,105
0
0
<COMMON> 25
<OTHER-SE> 31,535
<TOTAL-LIABILITY-AND-EQUITY> 56,841
<SALES> 96,001
<TOTAL-REVENUES> 96,001
<CGS> 71,754
<TOTAL-COSTS> 84,411
<OTHER-EXPENSES> (133)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 459
<INCOME-PRETAX> 11,264
<INCOME-TAX> 4,258
<INCOME-CONTINUING> 7,006
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,006
<EPS-BASIC> 1.12
<EPS-DILUTED> 1.09
</TABLE>
