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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000
Commission file number: 33-18336-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 or organization) Identification No.)
2425 South Yukon, Tulsa, Oklahoma 74107
--------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (918) 583-2266
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.004
-----------------------------
(Title of Class)
Rights to Purchase Series A Preferred Stock
-------------------------------------------
(Title of Class)
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of Registrant's voting stock held by non-affiliates
computed by reference to the closing price of such stock on March 1, 2001, was
approximately $64,985,000. For purposes of this computation, all officers,
directors and 5% beneficial owners of Registrant are deemed to be affiliates.
As of March 1, 2001, Registrant had outstanding a total of 5,776,774 shares of
its $.004 par value Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's definitive Proxy Statement to be filed in connection
with the Annual Meeting of Stockholders to be held May 22, 2001, are
incorporated into Part III.
TABLE OF CONTENTS
Page
Item Number and Caption Number
PART I
1. Business. 1
2. Properties. 4
3. Legal Proceedings. 5
4. Submission of Matters to a Vote of
Security Holders. 5
PART II
5. Market for Registrant's Common Equity and
Related Stockholder Matters. 6
6. Selected Financial Data. 7
7. Management's Discussion and Analysis of
Financial Condition and Results of Operations. 8
7A. Quantitative and Qualitative Disclosures
About Market Risk. 10
8. Financial Statements and Supplementary Data. 10
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure. 10
PART III
10. Directors and Executive Officers of Registrant. 11
11. Executive Compensation. 11
12. Security Ownership of Certain Beneficial Owners and Management. 11
13. Certain Relationships and Related Transactions. 11
PART IV
14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K. 12
PART I
Item 1. Business.
General Development of Business
AAON, Inc., a Nevada corporation ("AAON-Nevada" or, including its subsidiaries,
the "Company"), was incorporated on August 18, 1987.
AAON, Inc., an Oklahoma corporation ("AAON-Oklahoma"), was incorporated on
August 15, 1988, for the purpose of acquiring the assets, subject to certain
liabilities, of the Heating, Ventilation and Air-Conditioning ("HVAC") Division
of John Zink Company in Tulsa, Oklahoma. In June 1989, pursuant to a
Conversion/Exchange Agreement, AAON-Oklahoma became a wholly-owned subsidiary of
AAON-Nevada.
AAON-Oklahoma is engaged in the manufacture and sale of commercial rooftop
air-conditioners and heating equipment.
In December 1991, AAON Coil Products, Inc. ("ACP", formerly CP/AAON, Inc.), a
Texas corporation organized as a wholly-owned subsidiary of AAON-Nevada for such
purpose, purchased most of the assets of Coils Plus, Inc., of Longview, Texas,
which manufactures coils used in the Company's products, as well as air handling
and condensing units introduced in 1998.
Products and Markets
The Company engineers, manufactures and markets commercial rooftop
air-conditioning, heating and heat recovery equipment, air-conditioning coils
and air handling and condensing units. Its products serve the commercial and
industrial new construction and replacement markets. To date virtually all of
the Company's sales have been to the domestic market, with foreign sales
accounting for only 2% of its sales in 2000.
The rooftop and condenser markets consist of units installed on commercial or
industrial structures of generally less than 10 stories in height. Air handling
units and coils are applicable to all sizes of commercial and industrial
buildings. Coil sales are also made to air-conditioning unit manufacturers,
including AAON-Oklahoma.
The size of these markets is determined primarily by the number of commercial
and industrial building completions. The replacement market consists of products
installed to replace existing units/components which are worn or damaged.
Historically, approximately half of the industry's market has consisted of
replacement units.
The commercial and industrial new construction market is subject to cyclical
fluctuations in that it is generally tied to housing starts, but has a lag
factor of 6-18 months. Housing starts, in turn, are affected by such factors as
interest rates, the state of the economy, population growth and the relative age
of the population. When new construction is down, the Company emphasizes the
replacement market.
Based on its 2000 level of sales, approximately $155 million, the Company has a
12% share of the rooftop market and a 1% share of the coil market. Approximately
65% of the Company's sales now come from new construction and 35% from
renovation/replacements. The percentage of sales for new construction vs.
replacement to particular customers is related to their stage of development. In
the case of Wal-Mart, Home Depot and Target, due to their growth posture, the
Company's sales to these major customers was approximately 80% for new
construction and 20% replacement. Sales of air handling and condensing units in
2000 amounted to approximately $2.8 million.
(1)
The Company purchases certain components, fabricates sheet metal and tubing and
then assembles and tests its finished products. The Company's primary finished
products consist of a single unit system containing heating, cooling and/or heat
recovery components in a self-contained cabinet, referred to in the industry as
"unitary" products. The Company's other finished products are coils consisting
of a sheet metal casing with tubing and fins contained therein, air handling
units consisting of coils, blowers and filters and condensing units consisting
of coils, fans and compressors.
The Company has three groups of rooftop products: its RK Series, which is
offered in 18 cooling sizes ranging from 3 to 60 tons; its RF Series, which is
offered in nine cooling sizes ranging from 40 to 130 tons; and its HA Series,
which is a horizontal discharge package for either rooftop or ground
installation, offered in nine sizes ranging from 4 to 50 tons. The Company's
heat recovery option applicable to its RK and RF units (which responds to the
U.S. Clean Air Act mandate to increase fresh air in commercial structures and
increases the capacity of these units by up to 50% with no additional energy
cost) has gained significant customer acceptance.
The Company's products are designed to compete on the high side of standardized,
packaged rooftop products. Accordingly, its prices range from $300 to $550 per
ton of cooling, which is approximately 4%, on average, higher than other
standardized products. Performance characteristics of these products range in
cooling capacity from 32,900-1,563,469 BTU's and in heating capacity from
69,000-1,680,000 BTU's. All of the Company's rooftop products meet the
Department of Energy's efficiency standards, which are designed to set the
maximum amount of energy to be used in producing a given amount of cooling.
A typical commercial building installation requires a ton of air-conditioning
for every 300-400 square feet or, for a 100,000 square foot building, 250 tons
of air-conditioning, which would involve multiple units.
In January, 2000, the Company, developed a prototype wall-hung heating and
air-conditioning unit which it plans to market for commercial buildings
requiring a product designed for small space(s). Pilot production of this
product has begun, but sales in 2000 were not significant. The development of
this product did not require a material investment, but could produce material
results. Also, the Company expects to commence production of water chillers in
the latter part of this year.
Major Customers
The Company's largest customers last year were Wal-Mart Stores, Inc., Home
Depot, Inc., and Target Stores, Inc. Sales to Wal-Mart, Home Depot and Target
were 19%, 10% and 9% of total sales, respectively, in 2000 compared to 23%, 8%
and 8%, respectively, in 1999. The Company has no written contract with these
customers.
The loss of any of the above customers would have a material adverse affect on
the Company. However, with the continuing expansion of the Company's customer
base, management believes that the extent of its dependence on sales to its
major customers will diminish over a period of time.
In order to diversify its customer base, the Company has added to and/or
upgraded its sales representation in various markets.
Sources and Availability of Raw Materials
The most important materials purchased by the Company are steel, copper and
aluminum, which are obtained from domestic suppliers. The Company also purchases
from other domestic manufacturers certain components, including compressors,
electric motors and electrical controls used in its products. The Company
endeavors to obtain the lowest possible cost in its purchases of raw materials
and components, consistent with meeting specified quality standards. The Company
is not dependent upon any one source for its raw material or the major
components of its manufactured products. By having multiple suppliers, the
Company believes that it will have adequate sources of supplies to meet its
manufacturing requirements for the foreseeable future.
(2)
Further, the Company attempts to limit the impact of increases in raw materials
and purchased component prices on its profit margins by negotiating with each of
its major suppliers on a term basis from six months to three years.
Distribution
The Company utilizes a direct sales staff of nine individuals and approximately
84 independent manufacturer representatives' organizations having 101 offices to
market its products in the United States. The Company also has one international
sales organization, which utilizes 12 distributors in other countries. Sales are
made directly to the contractor or end user, with shipments being made from the
Company's Tulsa and Longview plants to the job site. Billings are to the
contractor or end user, with a commission paid directly to the manufacturer
representative.
The Company's products and sales strategy focus on a "niche" market. The
targeted market for its rooftop equipment is customers seeking a product of
better quality than offered, and/or options not offered, by standardized
manufacturers.
To support and service its customers and the ultimate consumer, the Company
provides parts availability through two independent parts distributors and has a
factory service organization at its Tulsa plant. Also, a number of the
manufacturer representatives utilized by the Company have their own service
organizations, which, together with the Company, provide the necessary warranty
work and/or normal service to customers.
The Company's warranty on its products is: for parts only, the earlier of one
year from the date of first use or 15 months from date of shipment; compressors
(if applicable), an additional four years; and on gas-fired heat exchangers (if
applicable), 15 years.
Research and Development
All R&D activities of the Company are company-sponsored, rather than
customer-sponsored. Ongoing work involves the HA Series, component evaluation
and refinement, development of control systems and new product development. This
work will cost approximately $650,000 per year and is budgeted as a normal,
recurring expense.
Backlog
The Company had a current backlog as of March 1, 2001, of $34,360,000, compared
to $33,641,000 at March 1, 2000. The current backlog consists of orders
considered by management to be firm and substantially all of which will be
filled by August 1, 2001; however, the orders are subject to cancellation by the
customers.
Working Capital Practices
Working capital practices in the industry center on inventories and accounts
receivable. The Company regularly reviews its working capital components with a
view to maintaining the lowest level consistent with requirements of anticipated
levels of operation. Its greatest needs arise during the months of
July-November, the peak season for inventory (primarily purchased material) and
accounts receivable. The Company's working capital requirements are generally
met through a bank revolving credit facility, which currently permits borrowings
up to $15,150,000. The Company believes that it will have sufficient bank credit
available to meet its working capital needs for the foreseeable future.
(3)
Seasonality
Sales of the Company's products are moderately seasonal with the peak period
being July-November of each year.
Competition
In the domestic market, the Company competes primarily with Trane Company, a
division of American Standard, Inc., Carrier Corporation, a subsidiary of United
Technologies Corporation, Lennox International, Inc., and York International
Corporation. All of these competitors are substantially larger and have greater
resources than the Company. The Company competes primarily on the basis of total
value, quality, function, serviceability, efficiency, availability of product,
product line recognition and acceptability of sales outlet. However, in new
construction where the contractor is the purchasing decision maker, the Company
often is at a competitive disadvantage on sales of rooftop units because of the
emphasis placed on initial cost; whereas, in the replacement market and other
owner-controlled purchases of such units, the Company has a better chance of
getting the business since quality and long-term cost are generally taken into
account.
Employees
As of March 1, 2001, the Company had 1,027 employees and 134 temporaries, none
of whom are represented by unions. Management considers its relations with its
employees to be good.
Patents, Trademarks, Licenses and Concessions
The Company does not consider any patents, trademarks, licenses or concessions
held by it to be material to its business operations, other than patents issued
regarding its heat recovery wheel option, blower, gas-fired heat exchanger,
wall-hung curb and evaporative condenser desuperheater.
Environmental Matters
Laws concerning the environment that affect or could affect the Company's
domestic operations include, among others, the Clean Water Act, the Clean Air
Act, the Resource Conservation and Recovery Act, the Occupational Safety and
Health Act, the National Environmental Policy Act, the Toxic Substances Control
Act, regulations promulgated under these Acts, and any other federal, state or
local laws or regulations governing environmental matters. The Company believes
that it presently complies with these laws and that future compliance will not
materially adversely affect the Company's earnings or competitive position.
Item 2. Properties.
The plant and office facilities of AAON-Oklahoma consist of a 337,000 square
foot building (322,000 sq. ft. of manufacturing/warehouse space and 15,000 sq.
ft. of office space) located on a 12-acre tract of land at 2425 South Yukon,
Tulsa, Oklahoma (the "original facility"), and a 457,000 square foot
manufacturing/warehouse building and a 22,000 square foot office building (the
"expansion facility") located on a 40-acre tract of land across the street from
the original facility. Both plants are of sheet metal construction.
The original facility's manufacturing area is in a heavy industrial type
building, with total coverage by bridge cranes, containing manufacturing
equipment designed for sheet metal fabrication and metal stamping. The
manufacturing equipment contained in the original facility consists primarily of
automated sheet metal fabrication equipment, supplemented by presses, press
breaks and NC punching equipment. Assembly lines consist of four cart-type
conveyor lines with variable line speed adjustment, three of which are motor
driven. Subassembly areas and production line manning are based upon line speed.
The manufacturing facility is 1,140 feet in length and varies in width from 390
feet to 220 feet. Production at this facility averaged approximately $12.2
million per month in 2000, which is 60% of the estimated capacity of the plant.
Management deems this plant to be nearly ideal for the type of rooftop products
being manufactured by the Company.
(4)
The expansion facility, which was purchased in December 1997, is 24% (108,000
sq. ft.) utilized by the Company and 76% leased to third parties. The Company
uses 8,000 sq. ft. for office space, 20,000 sq. ft. for warehouse space and
80,000 sq. ft. for manufacturing. The remaining 349,000 sq. ft. will afford the
Company additional plant and office space for long-term growth.
The operations of ACP are conducted in a plant/office building at 203-207 Gum
Springs Road in Longview, Texas, containing 226,000 square feet on 14 acres. The
manufacturing area (approximately 219,000 square feet) is located in three
120-foot wide sheet metal buildings connected by an adjoining structure. The
facility is built for light industrial manufacturing.
Item 3. Legal Proceedings.
The Company is not a party to any pending legal proceeding which management
believes is likely to result in a material liability and no such action is
contemplated by or, to the best of its knowledge, has been threatened against
the Company.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to a vote of security holders, through solicitation of
proxies or otherwise, during the period from October 1, 2000, through December
31, 2000.
(5)
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The Company's Common Stock is traded on the NASDAQ National Market under the
symbol "AAON". The range of sales prices for the Company's Common Stock during
the last two years, as reported by National Association of Securities Dealers,
Inc., was as follows:
Quarter Ended High Bid Low Bid
March 31, 1999 $ 12.00 $ 8.13
June 30, 1999 $ 12.00 $ 10.38
September 30, 1999 $ 16.38 $ 11.50
December 31, 1999 $ 14.50 $ 12.26
March 31, 2000 $ 19.06 $ 13.50
June 30, 2000 $ 27.75 $ 17.25
September 30, 2000 $ 25.88 $ 22.13
December 31, 2000 $ 25.50 $ 17.31
On March 1, 2001, there were 250 holders of record, and 2,050 beneficial owners,
of the Company's Common Stock.
Since its inception, no cash dividends have been paid on the Company's Common
Stock and the Company does not anticipate paying cash dividends in the
foreseeable future. There is a negative covenant under the Company's Revolving
Credit and Term Loan Agreement which prohibits the declaration or payment of
such dividends.
(6)
Item 6. Selected Financial Data.
The following selected financial data should be read in conjunction with the
financial statements and related notes thereto for the periods indicated, which
are included elsewhere in this report.
Years ended December 31,
- ------------------------------------- -------------------------------------------------------------------------
Results of Operations: 2000 1999 1998 1997 1996
- ------------------------------------- ------------- ------------- ------------- ------------- -------------
(In thousands, except earnings per share)
Net sales $ 154,982 $ 131,947 $ 109,624 $ 81,676 $ 62,845
Net income $ 12,794 $ 9,697 $ 5,230 $ 3,022 $ 2,075
Basic earnings per share $ 2.18 $ 1.55 $ .84 $ .49 $ .34
Diluted earnings per share $ 2.07 $ 1.50 $ .82 $ .48 $ .33
Weighted average shares outstanding:
Basic 5,862 6,241 6,202 6,159 6,119
Diluted 6,176 6,460 6,385 6,303 6,302
December 31,
- ------------------------------------- -------------------------------------------------------------------------
Balance Sheet Data: 2000 1999 1998 1997 1996
- ------------------------------------- ------------- ------------- ------------- ------------- -------------
(In thousands)
Total assets $ 76,818 $ 58,656 $ 50,506 $ 42,810 $ 35,569
Long-term debt $ 5,853 $ 6,630 $ 10,980 $ 12,857 $ 8,976
Stockholders' equity $ 37,012 $ 33,618 $ 24,411 $ 18,873 $ 15,640
Basic earnings per common share were computed by dividing net income by the
weighted average number of shares of common stock outstanding during the
reporting period. Diluted earnings per common share were determined on the
assumed exercise of dilutive options, as determined by applying the treasury
stock method.
(7)
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Set forth below is income statement information with respect to the Company for
years 2000, 1999 and 1998:
Years ended December 31,
----------------------------------------------------
2000 1999 1998
---- ---- ----
(In thousands)
Net sales $154,982 $131,947 $109,624
Cost of sales 120,233 101,229 89,795
-------- -------- --------
Gross profit 34,749 30,718 19,829
Selling, general and
administrative expenses 13,922 14,741 10,626
-------- -------- --------
Income from operations 20,827 15,977 9,203
Interest expense 904 574 1,017
Other income 436 238 359
-------- -------- --------
Income before income taxes 20,359 15,641 8,545
Income tax provision 7,565 5,944 3,315
-------- -------- --------
Net income $12,794 $9,697 $5,230
======== ======== ========
Results of Operations
Net sales increased approximately 17.5% in 2000 as compared to 1999, and 1999
sales were 20.4% greater than in 1998. The increase in sales in 2000 and 1999
were attributable to increased sales to the Company's entire customer base.
Sales to existing customers accounted for 85% of the Company's business in 2000,
with 15% coming from new business.
Gross profit decreased in 2000 to 22.4% compared to 23.3% in 1999, but was
considerably greater than the margins of 18.1% in 1998. The decrease in 2000
compared to 1999 was primarily attributable to higher material costs relative to
product prices. The increases in margins in 2000 and 1999, compared to 1998,
were attributable to improved labor efficiency, new manufacturing equipment and
an improved computer software system.
SG&A expenses decreased by 5.6% in 2000 compared to 1999, due to a lessening of
warranty costs and lower professional fees. These expenses as a percent of sales
were 9.0 in 2000, compared to 11.2 and 9.7 in 1999 and 1998, respectively.
Interest expense varied in 2000, 1999 and 1998 according to the debt level each
year.
The other income in 2000, 1999 and 1998, was primarily attributable to rental
income from the Company's "expansion facility" (see Item 2).
Income before income taxes as a percent of sales increased to 13.1 in 2000
compared to 11.9 and 7.8 in 1999 and 1998, respectively, due to continued
improvement in operational efficiencies.
The income tax provisions in 2000, 1999 and 1998 were 37%, 38% and 39%,
respectively.
(8)
Financial Condition and Liquidity
Accounts receivable and inventories increased by $6,920,000 and $3,274,000,
respectively, at December 31, 2000, compared to year end 1999, due to the
increase in sales during 2000.
Property, Plant and Equipment at December 31, 2000, was $7,281,000 higher than
at year end 1999 due to equipment purchases and building improvements of
$10,744,000, reduced by depreciation expense of $3,465,000. All capital
expenditures in 2000 were financed out of cash flow, borrowings under the
Company's revolving credit bank loan and equipment financing.
The increase in accounts payable at December 31, 2000, from December 31, 1999,
primarily reflects increased sales volumes in 2000 and the timing of payments to
creditors.
Accrued liabilities at year end 2000 compared to 1999 reflect an increase in
reserves (warranty and commissions) related to the increased sales in 2000.
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.
Cash flows from financing activities in 2000 consisted primarily of net
borrowings under the Company's revolving credit agreement of $2,127,000, net
proceeds from long-term debt of $4,518,000, and the expenditure of $10,370,000
for the repurchase of company stock.
The Company's revolving credit line (which currently extends to July 31, 2001)
provides for maximum borrowings of $15,150,000. Interest on this line is payable
monthly at the Wall Street Journal prime rate less .5% or LIBOR plus 1.6%, at
the election of the Company.
New Accounting Pronouncements
In September 2000, Emerging Issues Task Force Issue 00-10 (EITF 00-10),
"Accounting for Shipping and Handling Fees and Costs" was issued. EITF 00-10
provides guidance on the financial reporting of shipping and handling fees. It
requires companies to provide uniform reporting of shipping and handling costs
by requiring all amounts billed to a customer in a sale transaction related to
shipping and handling be classified as revenue. Additionally, it disallows
companies from recording the related shipping expenses against revenue. The
Company adopted EITF 00-10 in the fourth quarter of 2000, with prior period
amounts reclassified to comply with the current period presentation. The impact
of adopting EITF 00-10 resulted in an increase in revenues and cost of goods
sold of $4.5 million, $3.9 million and $2.8 million for the years ended December
31, 2000, 1999 and 1998, respectively.
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 and No. 138, 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 adopted SFAS No.
133, effective January 1, 2001. The adoption of SFAS No. 133 did not have a
material impact on the Company's financial statements.
(9)
Forward-Looking Statements
This Annual 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 7A. Quantitative and Qualitative Disclosures About Market Risk.
While the Company is exposed to changes in interest rates regarding its total
debt of $13,713,000, 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 accounted for only 2% of the Company's sales in 2000 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 8. Financial Statements and Supplementary Data.
The financial statements and supplementary data are included at page 16.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
(10)
PART III
Item 10. Directors and Executive Officers of Registrant.
Incorporated by reference to the Company's definitive Proxy Statement to be
filed with the Securities and Exchange Commission in connection with the
Company's 2001 Annual Meeting of Stockholders.
Item 11. Executive Compensation.
Incorporated by reference to the Company's definitive Proxy Statement to be
filed with the Securities and Exchange Commission in connection with the
Company's 2001 Annual Meeting of Stockholders.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Incorporated by reference to the Company's definitive Proxy Statement to be
filed with the Securities and Exchange Commission in connection with the
Company's 2001 Annual Meeting of Stockholders.
Item 13. Certain Relationships and Related Transactions.
Incorporated by reference to the Company's definitive Proxy Statement to be
filed with the Securities and Exchange Commission in connection with the
Company's 2001 Annual Meeting of Stockholders.
(11)
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) 1. Financial statements.
See Index to Consolidated Financial Statements on page 15.
2. Exhibits:
(3) (A) Articles of Incorporation (i)
(A-1) Article Amendments (ii)
(B) Bylaws (i) (B-1) Amendments of Bylaws (iii)
(4) (A) Second Restated Revolving Credit and Term Loan
Agreement ("Loan Agreement") and related documents (iv)
(A-1) Latest amendments of Loan Agreement (v)
(B) Rights Agreement dated February 19, 1999 (vi)
(10) AAON, Inc. 1992 Stock Option Plan, as amended (vii)
(21) List of Subsidiaries (viii)
(23) Consent of Arthur Andersen LLP
(27) Financial Data Schedule
----------------
(i) Incorporated herein by reference to the exhibits to the Company's
Form S-18 Registration Statement No. 33-18336-LA.
(ii) Incorporated herein by reference to the exhibits to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
1990, and to the Company's Forms 8-K dated March 21, 1994, March
10, 1997, and March 17, 2000.
(iii)Incorporated herein by reference to the Company's Forms 8-K
dated March 10, 1997, May 27, 1998 and February 25, 1999, or
exhibits thereto.
(iv) Incorporated by reference to exhibit to the Company's Form 8-K
dated September 25, 1996.
(v) Incorporated herein by reference to exhibits to the Company's
Forms 8-K dated September 26, 1997, March 9, 1999, and March 17,
2000, and January 18, 2001.
(vi) Incorporated by reference to exhibits to the Company's Form 8-K
dated February 25, 1999, and Form 8-A Registration Statement No.
000-18953.
(12)
(vii)Incorporated herein by reference to exhibits to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
1991, and to the Company's Form S-8 Registration Statement No.
33-78520, as amended.
(viii) Incorporated herein by reference to exhibit to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
1991.
(b) The Company did not file any reports on Form 8-K during the period
from October 1, 2000, to December 31, 2000.
(13)
SIGNATURES
Pursuant to the requirement of Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, hereunto duly authorized.
AAON, INC.
Dated: March 26, 2001 By: /s/ Norman H. Asbjornson
-------------------------
Norman H. Asbjornson, President
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Dated: March 26, 2001 /s/ Norman H. Asbjornson
-------------------------
Norman H. Asbjornson
President and Director
(principal executive officer)
Dated: March 26, 2001 /s/ Kathy I. Sheffield
-----------------------
Kathy I. Sheffield
Treasurer
(principal financial officer
and principal accounting officer)
Dated: March 26, 2001 /s/ John B. Johnson, Jr.
-------------------------
John B. Johnson, Jr.
Director
Dated: March 26, 2001 /s/ Joseph M. Klein
--------------------
Joseph M. Klein
Director
Dated: March 26, 2001 /s/ Thomas E. Naugle
---------------------
Thomas E. Naugle
Director
(14)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of Independent Public Accountants 16
Consolidated Balance Sheets 17
Consolidated Statements of Operations 18
Consolidated Statements of Stockholders' Equity 19
Consolidated Statements of Cash Flows 20
Notes to Consolidated Financial Statements 21
(15)
Report of Independent Public Accountants
To the Stockholders of AAON, Inc.:
We have audited the accompanying consolidated balance sheets of AAON, Inc. (a
Nevada corporation) and subsidiaries as of December 31, 2000 and 1999, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 2000. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of AAON, Inc. and subsidiaries as
of December 31, 2000 and 1999, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 2000, in
conformity with accounting principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
Tulsa, Oklahoma
February 7, 2001
(16)
AAON, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
DECEMBER 31,
------------
2000 1999
---- ----
ASSETS
CURRENT ASSETS:
Cash $ 17 $ 25
Accounts receivable, net 28,247 21,327
Inventories, net 15,140 11,866
Prepaid expenses and other 245 566
Deferred tax asset 3,709 2,693
-------- --------
Total current assets 47,358 36,477
-------- --------
PROPERTY, PLANT AND EQUIPMENT, net 29,460 22,179
-------- --------
Total assets $ 76,818 $ 58,656
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 11,691 $ 9,045
Accrued liabilities 12,351 7,763
Current maturities of long-term debt 7,860 438
-------- --------
Total current liabilities 31,902 17,246
-------- --------
DEFERRED TAX LIABILITY 2,051 1,162
-------- --------
LONG-TERM DEBT 5,853 6,630
-------- --------
STOCKHOLDERS' EQUITY, per accompanying statements:
Preferred stock, $.001 par value, 5,000,000
shares authorized, no shares issued - -
Common stock, $.004 par value, 50,000,000
shares authorized, 5,763,074 and 6,206,824
issued at December 31, 2000 and 1999,
respectively 23 25
Additional paid-in capital - 7,734
Retained earnings 36,989 25,859
-------- --------
Total stockholders' equity 37,012 33,618
-------- --------
Total liabilities and stockholders' equity $ 76,818 $ 58,656
-------- --------
The accompanying notes are an integral part of these consolidated balance
sheets.
(17)
AAON, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
YEARS ENDED DECEMBER 31,
2000 1999 1998
---- ---- ----
NET SALES $ 154,982 $ 131,947 $ 109,624
COST OF SALES 120,233 101,229 89,795
---------- ---------- ----------
GROSS PROFIT 34,749 30,718 19,829
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES
13,922 14,741 10,626
---------- ---------- ----------
INCOME FROM OPERATIONS 20,827 15,977 9,203
INTEREST EXPENSE 904 574 1,017
OTHER INCOME 436 238 359
---------- ---------- ----------
INCOME BEFORE INCOME TAXES 20,359 15,641 8,545
INCOME TAX PROVISION 7,565 5,944 3,315
---------- ---------- ----------
NET INCOME $ 12,794 $ 9,697 $ 5,230
========== ========== ==========
EARNINGS PER SHARE:
Basic $ 2.18 $ 1.55 $ .84
========== ========== ==========
Diluted $ 2.07 $ 1.50 $ .82
========== ========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 5,862 6,241 6,202
========== ========== ==========
Diluted 6,176 6,460 6,385
========== ========== ==========
The accompanying notes are an integral part of these consolidated statements.
(18)
AAON, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
Common Stock Paid-in Retained
Shares Amount Capital Earnings Total
------ ------ ------- -------- -----
BALANCE, JANUARY 1, 1998 6,176 $25 $ 7,916 $ 10,932 $ 18,873
NET INCOME - - - 5,230 5,230
STOCK OPTIONS EXERCISED, INCLUDING TAX BENEFITS 43 - 308 - 308
----- ---- -------- --------- ---------
BALANCE, DECEMBER 31, 1998 6,219 25 8,224 16,162 24,411
NET INCOME - - - 9,697 9,697
STOCK OPTIONS EXERCISED, INCLUDING TAX BENEFITS 48 - 308 - 308
STOCK REPURCHASED AND RETIRED (61) - (798) - (798)
----- ---- -------- --------- ---------
BALANCE, DECEMBER 31, 1999 6,206 25 7,734 25,859 33,618
NET INCOME - - - 12,794 12,794
STOCK OPTIONS EXERCISED, INCLUDING TAX BENEFITS
128 1 969 - 970
STOCK REPURCHASED AND RETIRED (571) (3) (8,703) (1,664) (10,370)
----- ---- -------- --------- ---------
BALANCE, DECEMBER 31, 2000 5,763 $ 23 $ - $ 36,989 $ 37,012
===== ==== ======== ========= =========
The accompanying notes are an integral part of these consolidated statements.
(19)
AAON, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
YEARS ENDED DECEMBER 31,
------------------------
2000 1999 1998
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 12,794 $ 9,697 $ 5,230
Adjustments to reconcile net income to net cash
provided by operating activities-
Depreciation 3,465 3,063 2,848
Provision for losses on accounts receivable 696 470 324
Provision for excess and obsolete inventories 50 550 200
Gain on disposition of assets (11) (40) (48)
Deferred income taxes (127) (220) (269)
Changes in assets and liabilities-
Accounts receivable (7,616) (3,864) (4,239)
Inventories (3,324) (256) (1,708)
Prepaid expenses and other 321 (325) 204
Accounts payable 2,646 567 1,341
Accrued liabilities 5,146 2,311 1,926
---------- ---------- ----------
Net cash provided by operating activities 14,040 11,953 5,809
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property, plant and equipment 11 40 70
Capital expenditures (10,744) (6,689) (4,837)
---------- ---------- ----------
Net cash used in investing activities (10,733) (6,649) (4,767)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under revolving credit agreement 68,219 60,875 50,239
Payments under revolving credit agreement (66,092) (62,975) (54,835)
Proceeds from long-term debt 5,048 - 3,756
Payments on long-term debt (530) (2,569) (455)
Stock options exercised 410 163 252
Repurchase of stock (10,370) (798) -
---------- ---------- ----------
Net cash used in financing activities (3,315) (5,304) (1,043)
---------- ---------- ----------
NET DECREASE IN CASH (8) - (1)
---------- ---------- ----------
CASH, beginning of year 25 25 26
---------- ---------- ----------
CASH, end of year $ 17 $ 25 $ 25
========== ========== ==========
The accompanying notes are an integral part of these consolidated statements.
(20)
AAON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999
(Dollar amounts in thousands, except share and per share information)
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
AAON, Inc. (the Company, a Nevada corporation) is engaged in the manufacture and
sale of commercial rooftop air conditioners, heating equipment and air
conditioning coils through its wholly-owned subsidiaries AAON, Inc. (AAON, an
Oklahoma corporation) and AAON Coil Products, Inc. (ACP, a Texas corporation).
The consolidated financial statements include the accounts of the Company and
its subsidiaries, AAON and ACP. All significant intercompany accounts and
transactions have been eliminated.
Revenue Recognition
Revenues are recognized at the time of shipment.
Business and Credit Concentrations
The Company's customers are concentrated primarily in the domestic commercial
and industrial new construction and replacement markets. No single customer
accounted for a significant amount of the Company's accounts receivable at
December 31, 2000. The Company reviews a customer's credit history before
extending credit. The Company establishes an allowance for doubtful accounts
based upon factors surrounding the credit risk of specific customers, historical
trends and other information.
Sales to customers representing greater than 10% of total sales consist of the
following:
Years Ended December 31,
------------------------
2000 1999 1998
---- ---- ----
Home Depot 10% * *
Wal-Mart Stores, Inc. 19% 23% 21%
* - Less than 10%
Inventories
Inventories are valued at the lower of cost or market. Cost is determined by the
first-in, first-out (FIFO) method.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Maintenance, repairs and
betterments, including replacement of minor items, are charged to expense; major
additions to physical properties are capitalized. Property, plant and equipment
are depreciated using the straight-line method over the following estimated
useful lives:
Years
-----
Buildings 10-30
Machinery and equipment 3-15
Furniture and fixtures 2-5
(21)
Warranties
A provision is made for the estimated cost of warranty obligations at the time
the related products are sold. Warranty expense was $4,938, $5,456 and $3,617
for the years ended December 31, 2000, 1999 and 1998, respectively.
Earnings Per Share
Basic earnings per common share were computed by dividing net income by the
weighted average number of shares of common stock outstanding during the
reporting period. Diluted earnings per common share were determined based on the
assumed exercise of dilutive options, as determined by applying the treasury
stock method. For the year ended December 31, 2000, 5,000 options were
considered to be anti-dilutive. For the year ended December 31, 1999, all
outstanding options were considered dilutive. At December 31, 1998, 27,500
options were considered to be anti-dilutive. A reconciliation of net income and
weighted average shares (in thousands) used in computing basic and diluted
earnings per share is as follows:
For the Year Ended
December 31, 2000
------------------
Per-Share
Income Shares Amount
------ ------ ---------
Basic EPS $ 12,794 5,862 $2.18
Net additional shares issuable - 314 -
--------- ------ ------
Diluted EPS $ 12,794 6,176 $2.07
========= ====== ======
For the Year Ended
December 31, 1999
------------------
Per-Share
Income Shares Amount
------ ------ ---------
Basic EPS $ 9,697 6,241 $1.55
Net additional shares issuable - 219 -
--------- ------ ------
Diluted EPS $ 9,697 6,460 $1.50
========= ====== ======
For the Year Ended
December 31, 1998
------------------
Per-Share
Income Shares Amount
------ ------ ---------
Basic EPS $ 5,230 6,202 $ .84
Net additional shares issuable - 183 -
--------- ------ ------
Diluted EPS $ 5,230 6,385 $ .82
========= ====== ======
(22)
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Reclassifications
Certain reclassifications have been made to the 1999 and 1998 financial
statements to conform with the 2000 presentation. Such reclassifications did not
impact total assets or net income.
New Accounting Pronouncements
In September 2000, Emerging Issues Task Force Issue 00-10 (EITF 00-10),
"Accounting for Shipping and Handling Fees and Costs" was issued. EITF 00-10
provides guidance on the financial reporting of shipping and handling fees. It
requires companies to provide uniform reporting of shipping and handling costs
by requiring all amounts billed to a customer in a sale transaction related to
shipping and handling be classified as revenue. Additionally, it disallows
companies from recording the related shipping expenses against revenue. The
Company adopted EITF 00-10 in the fourth quarter of 2000, with prior period
amounts reclassified to comply with the current period presentation. The impact
of adopting EITF 00-10 resulted in an increase in revenues and cost of goods
sold of $4.5 million, $3.9 million and $2.8 million for the years ended December
31, 2000, 1999 and 1998, respectively.
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 and No. 138, 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 adopted SFAS No.
133, on January 1, 2001. The adoption of SFAS No. 133 did not have a material
impact on the Company financial statements.
Details to Consolidated Balance Sheets
December 31,
------------
2000 1999
---- ----
ACCOUNTS RECEIVABLE:
Accounts receivable $ 29,297 $ 22,177
Less- allowance for doubtful accounts 1,050 850
-------- --------
Total, net $ 28,247 $ 21,327
======== ========
INVENTORIES:
Raw materials $ 10,651 $ 8,875
Work in process 1,967 1,200
Finished goods 3,472 2,691
-------- --------
16,090 12,766
Less- allowance for excess and obsolete inventories 950 900
-------- --------
Total, net $ 15,140 $ 11,866
======== ========
(23)
December 31,
------------
2000 1999
---- ----
PROPERTY, PLANT AND EQUIPMENT:
Land $ 885 $ 874
Buildings 16,594 14,336
Machinery and equipment 27,869 19,665
Furniture and fixtures 3,175 2,954
-------- ---------
48,523 37,829
Less- accumulated depreciation 19,063 15,650
-------- ---------
Total, net $ 29,460 $ 22,179
======== =========
ACCRUED LIABILITIES:
Warranty $ 5,400 $ 3,860
Commissions 3,427 1,912
Income taxes 933 188
Workers' compensation 890 175
Medical self-insurance 660 599
Other 1,041 1,029
-------- ---------
Total $ 12,351 $ 7,763
======== =========
Year Ended December 31,
-----------------------
2000 1999 1998
---- ---- ----
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
Balance, beginning of period $ 850 $ 410 $ 360
Provision for losses on accounts receivable 696 470 324
Accounts receivable written off, net of recoveries (496) (30) (274)
-------- ------- -------
Balance, end of period $ 1,050 $ 850 $ 410
======== ======= =======
ALLOWANCE FOR EXCESS AND OBSOLETE INVENTORY:
Balance, beginning of period $ 900 $ 350 $ 150
Provision for excess and obsolete inventories 50 550 200
-------- ------- -------
Balance, end of period $ 950 $ 900 $ 350
======== ======= =======
2. SUPPLEMENTAL CASH FLOW INFORMATION:
Interest payments of $889, $561 and $1,017 were made during the years ended
December 31, 2000, 1999 and 1998, respectively. Payments for income taxes of
$6,375, $6,234 and $2,914 were made during the years ended December 31, 2000,
1999 and 1998, respectively.
3. DEBT:
Long-term debt at December 31, consists of the following:
2000 1999
---- ----
$15,150 unsecured bank line of credit,
with interest payable monthly at
LIBOR plus 1.60% (8.48% at December
31, 2000), due July 31, 2001. $ 6,917 $ 4,790
Notes payable, due in monthly
installments of $79, with interest
ranging from 7.47% to 8.03% at
December 31, 2000, collateralized
by machinery and equipment. 6,796 2,278
-------- --------
13,713 7,068
Less- current maturities 7,860 438
-------- --------
Total long-term debt $ 5,853 $ 6,630
======== ========
(24)
Maturities of long-term debt for each of the years ended December 31 are as
follows:
2001 $ 7,860
2002 943
2003 943
2004 943
2005 597
Thereafter 2,427
---------
$ 13,713
=========
Based on the borrowing rates currently available to the Company for bank loans
with similar terms and average maturities, the fair value of the long-term debt
approximates the carrying value.
4. INCOME TAXES:
The Company accounts for income taxes as required by SFAS No. 109, "Accounting
for Income Taxes." Under this method, deferred tax liabilities and assets are
determined based on the difference between the financial statement and income
tax bases of assets and liabilities using currently enacted tax rates.
The income tax provision consists of the following:
Year Ended December 31,
-----------------------
2000 1999 1998
---- ---- ----
Current $ 7,692 $ 6,164 $ 3,584
Deferred (127) (220) (269)
-------- -------- --------
$ 7,565 $ 5,944 $ 3,315
======== ======== ========
The reconciliation of the federal statutory income tax rate to the effective
income tax rate is as follows:
Year Ended December 31,
-----------------------
2000 1999 1998
---- ---- ----
Federal statutory rate 35% 35% 34%
State income taxes 4 4 5
Employment credits (2) (1) (1)
Other - - 1
-------- -------- --------
37% 38% 39%
======== ======== ========
The tax effect of temporary differences giving rise to the Company's deferred
income taxes at December 31 are as follows:
2000 1999
---- ----
Deferred tax assets -
Valuation reserves $ 740 $ 665
Warranty accrual 1,998 1,467
Other accruals 958 517
Other, net 13 44
-------- -------
$ 3,709 $ 2,693
======== =======
Deferred tax liabilities -
Depreciation and amortization $ 2,051 $ 1,162
======== =======
(25)
5. BENEFIT PLANS:
The Company maintains a stock option plan for key employees and directors and
restricts 1,300,000 shares of common stock for issuance under the plan. Under
the terms of this plan, the exercise price of shares granted will not be less
than 85% of their fair market value at the date of the grant. The exercise price
of all options granted was equal to the market price at the date of grant.
Options granted vest at a rate of 20% per year, commencing one year after date
of grant, and are exercisable for ten years. At December 31, 2000, 198,825
shares were available for granting future options. The number and exercise price
of options granted were as follows:
Weighted
Average
Number Exercise Price
of Shares Per Share
--------- --------------
OUTSTANDING AT JANUARY 1, 1998 525,375 $ 4.35
Granted 291,500 8.23
Exercised (43,000) 5.75
Cancelled (35,000) 7.63
-------- -------
OUTSTANDING AT DECEMBER 31, 1998 738,875 $ 5.65
Granted 300,500 12.64
Exercised (47,575) 3.72
Cancelled (21,000) 7.88
-------- -------
OUTSTANDING AT DECEMBER 31, 1999 970,800 $ 7.87
Granted 5,000 22.13
Exercised (128,050) 3.22
Cancelled (50,200) 11.25
-------- -------
OUTSTANDING AT DECEMBER 31, 2000 797,550 $ 8.49
======== =======
The following is a summary of stock options outstanding as of December 31, 2000:
Options Outstanding Options Exercisable
---------------------------------------------------------- --------------------------------------
Number Weighted Weighted Number Weighted
Range of Outstanding at Average Average Remaining Exercisable at Average
Exercise Prices December 31, 2000 Exercise Price Contractual Life December 31, 2000 Exercise Price
--------------- ----------------- -------------- ----------------- ----------------- --------------
$1.14-1.19 69,250 $ 1.16 1.3 69,250 $ 1.16
$4.50-7.63 386,700 6.56 6.1 235,740 6.33
$9.00-10.00 75,000 9.30 8.0 25,000 9.18
$11.25-13.00 261,600 12.80 8.6 57,820 12.65
$22.13 5,000 22.13 9.9 - -
The Company applies the disclosure-only provisions of SFAS No. 123, "Accounting
for Stock-Based Compensation." Accordingly, no compensation cost has been
recognized for the stock option plans. Had compensation cost for the Company's
stock option plans been determined consistent with the provisions of SFAS No.
123, the Company's net income and earnings per share would have been reduced to
the pro forma amounts indicated below:
2000 1999 1998
---- ---- ----
Net income:
As reported $ 12,794 $ 9,697 $ 5,230
Pro forma $ 12,229 $ 9,299 $ 4,949
Basic earnings per share:
As reported $ 2.18 $ 1.55 $ .84
Pro forma $ 2.09 $ 1.49 $ .80
(26)
2000 1999 1998
---- ---- ----
Diluted earnings per share:
As reported $ 2.07 $ 1.50 $ .82
Pro forma $ 1.98 $ 1.44 $ .78
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions: dividend yield of 0%; expected volatility of 42.46% to 55.34%;
risk-free interest rate of 4.38% to 6.98%; and expected lives of four to eight
years.
The Company sponsors a defined contribution benefit plan. Employees can make
contributions at a minimum of 1% and a maximum of 15% of compensation. The
Company may, on a discretionary basis, contribute a Company matching
contribution not to exceed 6% of compensation. The Company made matching
contributions of $493, $329 and $595 in 2000, 1999 and 1998, respectively. The
Company made additional discretionary contributions of $1,308 and $1,150 in the
form of Company stock during 2000 and 1999, respectively.
The Company maintains a discretionary profit sharing bonus plan under which 10%
of pre-tax profit at each subsidiary is paid to eligible employees on a
quarterly basis. Profit sharing expense was $2,277, $1,735 and $902, for the
years ended December 31, 2000, 1999 and 1998, respectively.
6. SHAREHOLDER RIGHTS PLAN:
During 1998, the Board of Directors adopted a Stockholder Rights Plan. The plan
creates a dividend of one right for each outstanding share of the Company's
common stock. The rights are traded with the Company's common stock. Generally,
the rights become exercisable after a public announcement that a person has
acquired, or a tender offer is made for, 20% or more of the common stock of the
Company. If either of these events occur, each right will entitle the holder
(other than a holder owning more than 20% of the outstanding stock) to buy the
number of shares of the Company's common stock having a market value two times
the exercise price. The exercise price is $60.
The rights may be redeemed by the Company for $0.001 per right until a person or
group has acquired 20% of the Company's common stock. The distribution of the
rights were made to stockholders of record as of March 1, 1999.
7. SUBSEQUENT EVENT:
Subsequent to December 31, 2000, the Company repurchased and retired 18,400
shares of its common stock for $365.
8. LITIGATION:
The Company is subject to claims and legal actions that may arise in the
ordinary course of business. Management believes that the ultimate liability, if
any, will not have a material effect on the Company's financial position or on
the results of operations.
(27)
9. QUARTERLY RESULTS (Unaudited):
The following is a summary of the quarterly results of operations for the years
ended December 31, 2000 and 1999:
Quarter Ended
----------------------------------------------------------
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
2000
- ----
Net sales $ 35,465 $ 39,388 $ 40,970 $ 39,159
Gross profit 8,835 8,563 8,889 8,462
Net income 3,045 3,328 3,409 3,012
Earnings per share:
Basic 0.51 0.57 0.58 0.52
Diluted 0.49 0.54 0.55 0.49
Quarter Ended
----------------------------------------------------------
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
1999
- ----
Net sales $ 30,884 $ 31,940 $ 36,065 $ 33,058
Gross profit 7,238 8,656 8,353 6,471
Net income 1,764 2,421 2,821 2,691
Earnings per share:
Basic 0.28 0.39 0.45 0.43
Diluted 0.27 0.38 0.43 0.42
(28)
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our report dated February 7, 2001, included in this Form 10-K,
into the Company's previously filed Registration Statements on Form S-8 (File
Nos. 33-78520, 333-23479 and 333-52824).
ARTHUR ANDERSEN LLP
Tulsa, Oklahoma
March 26, 2001