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, 2000
Commission file number: 33-183336-LA
AAON, INC.
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(Exact name of registrant as specified in its charter)
Nevada 87-0448736
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(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. 5,814,374 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 $16,362,000, up 17.0% (from
$96,001,000 to $112,363,000 during the nine-month period ended September 30,
2000), compared to the same period in 1999. Sales increased by $4,599,000, up
13.1%, from $35,003,000 to $39,602,000 during the third quarter ended September
30, 2000, compared to the same quarter in 1999. The increase in sales in the
third quarter and year to date in 2000 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 decreased in the first nine months of 2000 to 23.4% from 25.3%
in the same period in 1999. The decrease in margins was due to heavy overtime
expense and rising component prices.
SG&A expenses decreased $2,155,000 (17.0%) during the nine months ended
September 30, 2000, compared to 1999, due to reduced professional fees and lower
warranty and bad debt expenses.
Net income during the first nine months of 2000 ($9,782,000) increased at
more than twice the rate of sales (39.6% vs. 17.0%) compared to the same period
in 1999, due to lower SG&A expenses. Net income during the third quarter of 2000
increased 20.8% compared to the same period in 1999, from $2,821,000 to
$3,409,000.
Financial Condition and Liquidity. The $9,670,000 increase in current
assets at September 30, 2000, compared to December 31, 1999, was mainly due to
an $8,138,000 increase in accounts receivable resulting from increased sales and
a lengthening of the collection period.
Property, plant and equipment increased $6,328,000 at September 30, 2000,
reflecting additions to buildings, machinery and equipment, offset in part by
greater depreciation. All capital expenditures in the first nine months of 2000
were financed out of cash flow and borrowings under the Company's revolving
credit bank loan.
Current liabilities were up $16,993,000 reflecting (1) a movement of a
major amount of the Company's revolving credit debt from long-term to short-term
and an increase in the revolving debt due to stock repurchases, and (2) higher
reserves and accrued liabilities related to the increase in sales and
production.
<PAGE 2>
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 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 long-term debt at September 30,
2000, see Note 3 to the Financial Statements on pages 7 and 8 of this report.
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
$14,270,000 of its total debt of $15,952,000, 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.
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 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 3>
<TABLE>
AAON, Inc.
Consolidated Balance Sheets
September 30, December 31,
2000 1999
(In Thousands)
<CAPTION>
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 30 $ 25
Accounts receivable 29,465 21,327
Inventories 12,980 11,866
Prepaid expenses 979 566
Deferred income tax 2,693 2,693
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Total current assets 46,147 36,477
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PROPERTY, PLANT AND EQUIPMENT, at cost:
Land 885 874
Buildings 16,423 14,336
Machinery and equipment 26,201 19,665
Furniture and fixtures 3,150 2,954
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Total Property, Plant & Equipment 46,659 37,829
Less: accumulated depreciation 18,152 15,650
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Net property, plant & equipment 28,507 22,179
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Total Assets $ 74,654 $ 58,656
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts payable $ 9,644 $ 9,045
Accrued liabilities 12,719 7,763
Current maturities of long-term debt 11,876 438
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Total Current Liabilities 34,239 17,246
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DEFFERED TAX LIABILITY 1,162 1,162
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LONG-TERM DEBT 4,076 6,630
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STOCKHOLDER'S EQUITY
Common Stock, $.004 par, 50,000,000 shares 23 25
authorized, 5,814,374, and 6,206,824 issued
and outstanding at September 30, 2000 and
December 31, 1999, respectively.
Preferred Stock, 5,000,000 shares authorized,
no shares issued
Additional paid-in capital 0 7,734
Retained earnings 35,154 25,859
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Total stockholder's equity 35,177 33,618
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Total Liabilities and Stockholder's Equity $ 74,654 $ 58,656
======== ========
* unaudited
</TABLE>
<PAGE 4>
<TABLE>
AAON, Inc.
Consolidated Statements of Operations
Three Months Ended Nine Months Ended
------------------ -----------------
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
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(In Thousands, except per share data)
<CAPTION>
<S> <C> <C> <C> <C>
Sales, net $ 39,602 $ 35,003 $ 112,363 $ 96,001
Cost of Sales 30,713 26,650 86,076 71,754
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Gross Profit 8,889 8,353 26,287 24,247
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Selling, general and
administrative expenses 3,396 3,696 10,502 12,657
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Income from operations 5,493 4,657 15,785 11,590
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Interest expense 284 126 666 459
Other (income) expense (143) (57) (330) (133
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Income before income taxes 5,352 4,588 15,449 11,264
Income tax provision 1,943 1,767 5,667 4,258
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Net Income $ 3,409 $ 2,821 $ 9,782 $ 7,006
========== ========== ========== ==========
Net income per share
(Basic) $ 0.58 $ 0.45 $ 1.66 1.12
========== ========== ========== ==========
(Diluted) $ 0.55 $ 0.43 $ 1.57 1.09
========== ========== ========== ==========
Weighted Average Shares Outstanding:
Basic 5,836 6,258 5,889 6,500
========== ========== ========== ==========
Diluted 6,182 6,242 6,211 6,452
========== ========== ========== ==========
*unaudited
</TABLE>
<PAGE 5>
<TABLE>
AAON, Inc.
Consolidated Statements of Stockholder's Equity
Common Stock Paid In Retained
Shares Amount Capital Earnings Total
------ ------ ------- -------- -----
(in thousands)
<CAPTION>
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1999 6,206 $ 25 $ 7,734 $ 25,859 $ 33,618
Exercise of Common Stock* 97 397 397
Repurchase of Common Stock* (489) (2) (8,131) (487) (8,620)
Net Income* 9,782 9,782
------- ------- -------- ---------- ---------
Balance, September 30, 2000* 5,814 $ 23 $ - $ 35,154 $ 35,177
======= ======= ======== ========== =========
* unaudited
</TABLE>
<PAGE 6>
<TABLE>
AAON, Inc.
Consolidated Statements of Cash Flows
Nine Months Ended Nine Months Ended
September 30, 2000 September 30, 1999
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(In Thousands)
<CAPTION>
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 9,782 $ 7,006
Adjustments to reconcile net income to net
cash provided by operating activities-
Depreciation and Amortization 2,502 2,222
Change in assets and liabilities:
(Increase) decrease in:
Accounts Receivable (8,138) (4,861)
Inventories (1,114) 1,748
Prepaid Expenses (413) 23
Increase (decrease) in:
Accounts Payable 599 (594)
Accrued Liabilities 4,956 2,999
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Total Adjustments (1,608) 1,537
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Net cash provided by
Operating Activities 8,174 8,543
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CASH FLOWS FROM INVESTING ACTIVITIES
Capital Expenditures (8,830) (4,740)
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CASH FLOWS FROM FINANCING ACTIVITIES
Borrowing Under Revolving Credit Agreement 50,370 43,830
Payments under Revolving Credit Agreement (44,010) (44,585)
Changes in long-term debt 2,524 (2,439)
Exercise of Stock Options 397 118
Repurchase of Common Stock (8,620) -
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Net cash provided by (used in)
financing activities 661 (3,076)
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NET CHANGE IN CASH 5 727
CASH, beginning of period 25 25
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CASH, ending of period $ 30 $ 752
========== ==========
*unaudited
</TABLE>
<PAGE 7>
AAON, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 2000
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, 1999, 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, 2000 (unaudited), and December 31, 1999, consist of
the following:
September 30, December 31,
2000 1999
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Raw Materials $ 8,374,000 $ 7,975,000
Work in Process 2,275,000 1,200,000
Finished Goods 2,331,000 2,691,000
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$12,980,000 $11,866,000
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3. LONG-TERM DEBT:
Long-term debt at September 30, 2000 (unaudited), and December 31, 1999,
consists of the following:
September 30, December 31,
2000 1999
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$15,150,000 bank line of credit
with interest payable monthly
at LIBOR plus 1.70% (8.32875%
at Sept. 30, 2000) due
July 31, 2001 $ 11,150,000 $ 4,790,000
Three notes payable due in 84
equal installments totaling
$36,489, plus interest at
7.47%, and 7.52%,
collateralized by machinery
and equipment 1,970,000 2,278,000
<PAGE 8>
Two notes payable due in 120
equal installments totaling
$24,000, plus interest at the
commercial paper rate plus
1.55% (8.04% at September 30,
2000), collateralized
by machinery and equipment 2,832,000 -0-
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15,952,000 7,068,000
Less Current Maturities 11,876,000 438,000
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$ 4,076,000 $ 6,630,000
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In July 2000, the bank line of credit was amended to a maturity date of
July 31, 2001.
4. NEW ACCOUNTING PRONOUNCEMENTS:
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
establishes accounting and reporting standards requiring that every derivative
instrument (including certain derivative instruments embedded in other
contracts) be recorded in the balance sheet as either an asset or liability
measured at its fair value. Companies must formally document, designate, and
assess the effectiveness of transactions that receive hedge accounting. SFAS No.
133, as amended by SFAS No. 137, is effective for fiscal years beginning after
June 15, 2000. SFAS No. 133 cannot be applied retroactively and must be applied
to (a) derivative instruments and (b) certain derivative instruments embedded in
hybrid contracts that were issued, acquired, or substantively modified after
December 31, 1997. The Company has not yet quantified the impact of adopting
SFAS No. 133 on its financial statements and has not determined the timing of or
method of the adoption of SFAS No. 133. However, as of September 30, 2000 and
December 31, 1999, the Company had no outstanding derivative instruments.
5. FOOTNOTES INCORPORATED BY REFERENCE:
Certain footnotes are applicable to the financial statements, but would be
substantially unchanged from those presented in the December 31, 1999, 10-K
filed with the SEC. Accordingly, reference should be made to this statement for
the following:
Note Description
---- -------------------------------------
1 Operations and Organization
4 Income Taxes
5 Benefit Plans
6 Shareholder Rights Plan
<PAGE 9>
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 September 30, 2000.
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 9, 2000 By: /s/ Norman H. Asbjornson
----------------------------
Norman H. Asbjornson
President
Dated: November 9, 2000 By: /s/ Kathy I. Sheffield
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Kathy I. Sheffield
Treasurer
