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, 2000
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. 5,849,774 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 $11,763,000, up 19.3%
(from $60,998,000 to $72,761,000 during the six-month period ended June 30,
2000, compared to the same period in 1999. The increase in sales 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 half of 2000 to 23.9% from 26.1%
in the same period in 1999. The decrease in margins was due to heavy overtime
expense and rising component prices.
SG&A expenses decreased $1,855,000 (20.7%) during the six months ended
June 30, 2000, compared to 1999, due to lower warranty and bad debt expenses.
Net income during the first half of 2000 ($6,373,000) increased at more
than two and one-half times the rate of sales (52.3% vs. 19.3%) compared to the
same period in 1999, due to lower SG&A expenses and improved operating
efficiencies.
Financial Condition and Liquidity. The $2,761,000 increase in current
assets at June 30, 2000, compared to December 31, 1999, was attributable to the
sales increase.
Property, plant and equipment increased $4,846,000, at June 30, 2000,
reflecting additions to buildings, machinery and equipment, offset in part by
greater depreciation. All capital expenditures in the first half of 2000 were
financed out of cash flow and borrowings under the Company's revolving credit
bank loan.
Current liabilities were up $3,246,000 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 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 June 30,
2000, see Note 3 to the Financial Statements on pages 7 and 8 of this report.
<PAGE 2>
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
$10,019,000 of its total debt of $12,099,000, 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.
Item 4. Submission of Matters to a Vote of Security Holders.
At the Company's Annual Meeting of Stockholders held on May 23, 2000,
Norman H. Asbjornson, John B. Johnson, Jr., and Charles C. Stephenson, Jr., were
reelected as directors for three-year terms, with Messrs. Asbjornson and Johnson
receiving 99.6% of the votes cast (5,910,007 shares "For", 2,750 shares
"Against" and 3,545 shares "Withheld Authority" as to Mr. Asbjornson and
5,909,507 shares "For", 3,250 shares "Against" and 3,545 shares "Withheld
Authority" as to Mr. Johnson) and Mr. Stephenson receiving 82.9% of the votes
cast (4,918,265 shares "For", 994,492 shares "Against" and 3,545 shares
"Withheld Authority"). Other directors whose terms of office continued after the
meeting are: J. M. Klein and Thomas E. Naugle, whose terms end in 2001, and
William A. Bowen and Anthony Pantaleoni, whose terms end in 2002.
<PAGE 3>
<TABLE>
AAON, Inc.
Consolidated Balance Sheets
(In Thousands)
June 30, 2000 December 31, 1999
<CAPTION>
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 13 $ 25
Accounts receivable 23,123 21,327
Inventories 12,839 11,866
Prepaid expenses 570 566
Deferred income tax 2,693 2,693
--------- ---------
Total current assets 39,238 36,477
--------- ---------
PROPERTY, PLANT AND EQUIPMENT, at cost:
Land 885 874
Buildings 16,010 14,336
Machinery and equipment 24,319 19,665
Furniture and fixtures 3,094 2,954
--------- ---------
Total Property, Plant & Equipment 44,308 37,829
Less: accumulated depreciation 17,283 15,650
--------- ---------
Net property, plant & equipment 27,025 22,179
--------- ---------
Total Assets $ 66,263 $ 58,656
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts payable $ 9,130 $ 9,045
Accrued liabilities 10,924 7,763
Current maturities of long-term debt 438 438
--------- ---------
Total Current Liabilities 20,492 17,246
--------- ---------
DEFFERED TAX LIABILITY 1,162 1,162
--------- ---------
LONG-TERM DEBT 11,661 6,630
--------- ---------
STOCKHOLDER'S EQUITY
Common Stock, $.004par, 50,000,000
shares authorized, 5,849,774 issued
and outstanding 23 25
Preferred Stock, 5,000,000 shares
authorized, no shares issued
Additional paid-in capital 693 7,734
Retained earnings 32,232 25,859
--------- ---------
Total stockholder's equity 32,948 33,618
--------- ---------
Total Liabilities and Stockholder's Equity $ 66,263 $ 58,656
========= =========
* unaudited
</TABLE>
<PAGE 4>
<TABLE>
AAON, Inc.
Consolidated Statements of Operations
Three Months Ended Six Months Ended
June 30, 2000 June 30, 1999 June 30, 2000 June 30, 1999
(In Thousands)
<CAPTION>
<S> <C> <C> <C> <C>
Sales, net $ 38,231 $ 30,962 $ 72,761 $ 60,998
Cost of Sales 29,668 22,306 55,363 45,104
--------- --------- --------- ---------
Gross Profit 8,563 8,656 17,398 15,894
--------- --------- --------- ---------
Selling, general and
administrative expenses 3,197 4,695 7,106 8,961
--------- --------- --------- ---------
Income from operations 5,366 3,961 10,292 6,933
--------- --------- --------- ---------
Interest expense 208 139 382 333
Other (income) expense (79) (74) (187) (76)
--------- --------- --------- ---------
Income before income taxes 5,237 3,896 10,097 6,676
Income tax provision 1,909 1,475 3,724 2,491
--------- --------- --------- ---------
Net Income $ 3,328 $ 2,421 $ 6,373 $ 4,185
========= ========= ========= =========
Net income per share (Basic) $ 0.57 $ 0.39 $ 1.08 $ 0.67
========= ========= ========= =========
(Diluted) $ 0.54 $ 0.38 $ 1.02 $ 0.65
========= ========= ========= =========
*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* 85 373 373
Repurchase of Common Stock* (441) (2) (7,414) (7,416)
Net Income* 6,373 6,373
----- ------ ------- -------- --------
Balance, June 30, 2000* 5,850 $ 23 $ 693 $ 32,232 $ 32,948
===== ====== ======= ======== ========
* unaudited
</TABLE>
<PAGE 6>
<TABLE>
AAON, Inc.
Consolidated Statements of Cash Flows
Six Months Ended Six Months Ended
June 30, 2000 (In Thousands) June 30, 1999
<CAPTION>
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 6,373 $ 4,185
Adjustments to reconcile net income to net
cash provided by operating activities-
Depreciation and Amortization 1,634 1,456
Change in assets and liabilities:
(Increase) decrease in:
Accounts Receivable (1,796) (2,430)
Inventories (973) 791
Prepaid Expenses (4) (767)
Increase (decrease) in:
Accounts Payable 85 253
Accrued Liabilities 3,161 3,194
--------- ---------
Total Adjustments 2,107 2,497
--------- ---------
Net cash provided by (used in)
Operating Activities 8,480 6,682
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital Expenditures (6,479) (2,516)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowing Under Revolving Credit Agreement 35,284 26,410
Payments under Revolving Credit Agreement (30,055) (30,280)
Changes in long-term debt (199) (405)
Exercise of Stock Options 373 107
Repurchase of Common Stock (7,416) -
--------- ---------
Net cash provided by (used in)
financing activities (2,013) (4,168)
--------- ---------
NET CHANGE IN CASH (12) (2)
CASH, beginning of period 25 25
--------- ---------
CASH, end of period $ 13 $ 23
========= =========
*unaudited
</TABLE>
<PAGE 7>
AAON, INC.
NOTES TO FINANCIAL STATEMENTS
June 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 June 30, 2000 (unaudited), and December 31, 1999, consist of the
following:
June 30, December 31,
2000 1999
----------- -----------
Raw Materials $ 8,395,000 $ 7,975,000
Work in Process 1,697,000 1,200,000
Finished Goods 2,747,000 2,691,000
----------- -----------
$12,839,000 $11,866,000
----------- -----------
3. LONG-TERM DEBT:
Long-term debt at June 30, 2000 (unaudited), and December 31, 1999, consists of
the following:
June 30, December 31,
2000 1999
----------- -----------
$15,150,000 bank line of
credit with interest payable
monthly at LIBOR plus 1.70%
(8.3625% at June 30, 2000)
due August 31, 2001 $10,019,000 $ 4,790,000
<PAGE 8>
Three notes payable due in
84 equal installments totaling
$36,489, plus interest at
7.47%, and 7.52%, collateralized
by machinery and equipment 2,080,000 2,278,000
----------- -----------
12,099,000 7,068,000
Less Current Maturities 438,000 438,000
----------- -----------
$11,661,000 $ 6,630,000
----------- -----------
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, 1999, 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) Registrant did not file any reports on Form 8-K
during the three-month period ended June 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: July 28, 2000 By: /s/ Norman H. Asbjornson
------------------------------
Norman H. Asbjornson
President
Dated: July 28, 2000 By: /s/ Kathy I. Sheffield
------------------------------
Kathy I. Sheffield
Treasurer
