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, 2001
Commission file number: 33-18336-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 or organization) Identification No.)
2425 South Yukon, Tulsa, Oklahoma 74107
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(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
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(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, 2002, was
approximately $155,716,000. For purposes of this computation, all officers,
directors and 5% beneficial owners of Registrant are deemed to be affiliates.
As of March 1, 2002, Registrant had outstanding a total of 8,780,142 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 June 4, 2002, are
incorporated into Part III.
Page
TABLE OF CONTENTS
Page
Item Number and Caption Number
PART I
1. Business. 1
2. Properties. 5
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. 11
8. Financial Statements and Supplementary Data. 11
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure. 11
PART III
10. Directors and Executive Officers of Registrant. 12
11. Executive Compensation. 12
12. Security Ownership of Certain Beneficial Owners and Management. 12
13. Certain Relationships and Related Transactions. 12
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. 13
Page
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 2001.
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 other air-conditioning unit
manufacturers.
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 2001 level of sales, approximately $157 million, the Company has a
12% share of the rooftop market and a 1% share of the coil market. Approximately
60% of the Company's sales now come from new construction and 40% 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, Target and Home Depot, 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
2001 amounted to approximately $2.9 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 currently has four 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; its RL Series,
which is offered in 15 cooling sizes ranging from 40 to 230 tons, which will
replace the RF Series during 2002; 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 32,900-2,676,000 BTU's and in heating capacity from
69,000-3,990,000 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.
The Company has 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 and testing of this product has
begun, but sales in 2001 were not significant. In December 2001, the Company
began marketing commercial water chillers. The development of these products did
not require a material investment, but could produce material results.
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, Target and Home Depot
were 14%, 11% and 10% of total sales, respectively, in 2001 compared to 19%, 9%
and 10%, respectively, in 2000. 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.
(2)
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.
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 $600,000 per year and is budgeted as a normal,
recurring expense.
(3)
Backlog
The Company had a current backlog as of March 1, 2002, of $28,800,000, compared
to $34,360,000 at March 1, 2001. The current backlog consists of orders
considered by management to be firm and substantially all of which will be
filled by August 1, 2002; 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.
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, 2002, the Company had 931 employees and 127 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.
(4)
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 $12.3
million per month in 2001, 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.
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, 2001, through December
31, 2001.
(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. (adjusted for the 3-for-2 stock split on September 28, 2001), was as
follows:
Quarter Ended High Bid Low Bid
------------- -------- -------
March 31, 2000 $ 12.71 $ 9.00
June 30, 2000 $ 18.50 $ 11.50
September 30, 2000 $ 17.25 $ 14.75
December 31, 2000 $ 17.00 $ 11.54
March 31, 2001 $ 16.58 $ 12.33
June 30, 2001 $ 18.50 $ 11.17
September 30, 2001 $ 21.33 $ 16.87
December 31, 2001 $ 24.47 $ 16.00
On March 1, 2002, there were 1,034 holders of record, and 3,134 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: 2001 2000 1999 1998 1997
- ---------------------- ----------- -------- ----------- ----------- ----------
(In thousands, except earnings per share)
Net sales $ 157,252 $ 154,982 $ 131,947 $ 109,624 $ 81,676
Net income $ 14,156 $ 12,794 $ 9,697 $ 5,230 $ 3,022
Basic earnings per share $ 1.63 $ 1.46 $ 1.04 $ .56 $ .33
Diluted earnings per share $ 1.56 $ 1.38 $ 1.00 $ .55 $ .32
Weighted average shares outstanding:
Basic 8,661 8,793 9,362 9,303 9,239
Diluted 9,094 9,264 9,690 9,578 9,455
December 31,
---------------------------------------------------------------------------------
Balance Sheet Data: 2001 2000 1999 1998 1997
- ------------------- ----------- ----------- --------- ----------- ----------
(In thousands)
Total assets $ 76,295 $ 76,818 $ 58,656 $ 50,506 $ 42,810
Long-term debt $ 985 $ 5,853 $ 6,630 $ 10,980 $ 12,857
Stockholders' equity $ 50,041 $ 37,012 $ 33,618 $ 24,411 $ 18,873
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. Effective September 28, 2001, the Company completed a
three-for-two stock split. The shares outstanding and earnings per share
disclosures have been restated to reflect the stock split.
(7)
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
AAON, Inc., engineers, manufactures and markets commercial rooftop
air-conditioning, heating and heat recovery equipment, air conditioning coils
and air handling and condensing units. AAON's primary products are its RK, RF
and RL (which was designed to replace the RF) series units and the Company also
began producing water chillers in late 2001. Future revenues will also come from
the introduction of an expanded air-handler product.
AAON sells its products to property owners and contractors through its internal
sales force and a network of manufacturers' representatives. The demand for
AAON's products is influenced by national and regional economic and demographic
factors. 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.
The principal components of cost of goods sold are labor, raw materials,
component costs, factory overhead, freight out and engineering expense. The
principal raw materials used in AAON's manufacturing processes are steel, copper
and aluminum. The major component costs include compressors, electric motors and
electronic controls.
Selling, general and administrative costs include the Company's internal sales
force, warranty costs, profit sharing and administrative expenses. Warranty
expense is estimated based on historical trends and other factors. The Company's
warranty period is generally one year from the date of first use or 15 months
from date of shipment; however, compressors (if applicable) carry an additional
four-year warranty and gas-fired heat exchangers (if applicable) have a 15-year
warranty.
In late 1997, the Company began receiving additional machinery to allow for
continued expansion of its production. At the end of 1997, the Company bought a
40-acre tract of land across the street from its original plant, containing
457,000 sq. ft. of manufacturing/warehouse space and a 22,000 sq. ft. office
building (the "expansion facility"). In 1999 an expansion of slightly over
90,000 sq. ft. was begun on the Longview, Texas, facility, which was completed
in 2000. During 2001 the Company began producing its new, larger tonnage RL
series units in 100,000 sq. ft. of the expansion facility. Throughout this time
period, machinery was added in both the Tulsa and Longview facilities, which
allowed the Company to increase sales by 93% from 1997 to 2000. In addition,
these facilities have allowed the Company to install assembly areas specifically
designed for a particular product, thus improving assembly labor. The new
machinery additions have permitted better utilization of manufacturing
personnel. Also during this period, the Company invested heavily in creating new
computer software to improve its operations. These improvements and expansions
contributed to the increase in margins from 16.0% in 1997 to 24.7% in 2001.
(8)
Set forth below is income statement information with respect to the Company for
years 2001, 2000 and 1999:
Years ended December 31,
2001 2000 1999
---- ---- ----
(In Thousands)
Net sales $157,252 $154,982 $131,947
Cost of sales 118,399 120,233 101,229
------- ------- -------
Gross profit 38,853 34,749 30,718
Selling, general and administrative expenses 16,011 13,922 14,741
------- ------- -------
Income from operations 22,842 20,827 15,977
Interest expense 892 904 574
Other income 536 436 238
------- ------- -------
Income before income taxes 22,486 20,359 15,641
Income tax provision 8,330 7,565 5,944
------- ------- -------
Net income $ 14,156 $ 12,794 $ 9,697
======= ======= =======
Results of Operations
Net sales increased approximately 1.5% in 2001 as compared to 2000, and 2000
sales were 17.5% greater than in 1999. Sales for the first three quarters of
2001 were 5.6 % greater than sales for the same period in 2000. Following the
events of September 11, the Company experienced a period of minimal sales
activity and many orders were delayed by the Company's customers. Accordingly,
sales for the fourth quarter of 2001 decreased 11% compared to the same period
in 2000. The increase in sales in 2000 compared to 1999 was attributable to
increased sales to the Company's entire customer base. Sales to existing
customers accounted for 90% of the Company's business in 2001, with 10% coming
from new business.
Gross profit in 2001 increased to 24.7% compared to 22.4% in 2000 and 23.3% in
1999. Material cost as a percent of sales decreased to 49.9% in 2001 compared to
53.4% in 2000. Direct labor as a percent of sales decreased to 4.6% in 2001
compared to 6.8% in 2000. Material and direct labor as a percent of sales
improved due to efficiencies being realized from the higher plant utilization
and a more stable work force which allowed the Company to reduce the amount of
overtime incurred. The more stable work force has also allowed the Company to
realize better overall labor efficiencies. The decrease in margins in 2000
compared to 1999 was primarily attributable to higher material costs that could
not be recovered through higher selling prices.
Selling, general and administrative expenses increased to $16.0 million, or
10.0% of sales, in 2001 from $13.9 million, or 9.0% of sales, in 2000. The
increase is primarily due to higher warranty costs related to the introduction
of new products both within existing and new product lines. Selling, general and
administrative expense decreased in 2000 from $14.7 million, or 11.2% of sales,
in 1999. The decrease was primarily due to lower warranty costs and lower
professional fees.
Other income is primarily attributable to rental income from the Company's
"expansion facility."
Interest expense was $.9 million, $.9 million and $.6 million in 2001, 2000 and
1999, respectively. The increase in 2001 and 2000 compared to 1999 primarily
relates to borrowings for the purchase of equipment and facilities described
above.
The income tax provisions in 2001, 2000 and 1999 were 37%, 37% and 38%,
respectively.
(9)
New Accounting Pronouncements
In July 2001, the FASB issued Statement of Financial Accounting Standards No.
141, "Business Combinations" (Statement 141), Statement of Financial Accounting
Standards No. 142, "Goodwill and Other Intangible Assets" (Statement 142) and
Statement of Financial Accounting Standards No. 143, "Accounting for Asset
Retirement Obligations" (Statement 143). In October 2001, the FASB issued
Statement of Financial Accounting Standards No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" (Statement 144).
Statement 141 requires that the purchase method of accounting be used for all
business combinations initiated after June 30, 2001. Statement 142 requires that
goodwill and intangible assets with indefinite useful lives no longer be
amortized, but instead tested for impairment at least annually in accordance
with the provisions of Statement 142. The Company is required to adopt the
provisions of Statement 141 immediately, and Statement 142 effective January 1,
2002. Goodwill acquired in business combinations completed before July 1, 2001,
will continue to be amortized prior to the adoption of Statement 142. Adoption
of Statement 141 and 142 had no material impact on the Company's results of
operations or financial condition.
Statement 143 requires entities to record the fair value of a liability for an
asset retirement obligation in the period in which it is incurred and a
corresponding increase in the carrying amount of the related long-lived asset.
Statement 143 is effective for fiscal years beginning after June 15, 2002.
Statement 144 retains the requirement to report discontinued operations
separately and extends that reporting to a component of an entity that either
has been disposed of or is classified as held for sale. Statement 144 is
effective for fiscal years beginning after December 15, 2001, and for interim
periods within those fiscal years. The Company is currently assessing the impact
of Statements 143 and 144 on its financial condition and results of operations.
Financial Condition and Liquidity
Cash flows from operations were $23.9 million, $14.0 million and $12.0 million
in 2001, 2000 and 1999, respectively. Cash flows from operations in 2001
consisted of net income of $14.2 million, depreciation of $4.4 million and
working capital and other changes of $5.3 million. Working capital changes were
primarily due to decreases in accounts receivable and inventories of $4.6
million and $1.8 million, respectively, at December 31, 2001, compared to
year-end 2000. Additionally, accounts payable and accrued liabilities decreased
$1.6 million at December 31, 2001 from December 31, 2000.
Cash flows used in investing activities were $8.8 million, $10.7 million and
$6.6 million, in 2001, 2000 and 1999, respectively. Cash flows used in investing
activities in 2001 primarily related to capital expenditures for additional
machinery and refurbishments made to the Company's manufacturing facilities.
Cash flows used in financing activities were $14.0 million, $3.3 million and
$5.3 million in 2001, 2000 and 1999, respectively. Cash flows used in financing
activities in 2001 primarily related to net debt payments of $11.8 million and
stock repurchases of $2.8 million, net of $.6 million from stock option
exercises. The Company's total outstanding debt at December 31, 2001 was $1.9
million compared to $13.7 million at December 31, 2000.
The Company's revolving credit line (which currently extends to July 31, 2002)
provides for maximum borrowings of $15.15 million. 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. Borrowings available under the revolving
credit line at December 31, 2001 were $14.7 million.
Future cash flows are expected to be used to fund possible acquisitions and/or
additional stock repurchases or will be retained for general working capital
purposes.
(10)
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.
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", and
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 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.
The Company is exposed to changes in interest rates regarding its total variable
rate debt of $446,000. 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 flows.
Foreign sales accounted for only 2% of the Company's sales in 2001 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 17.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
(11)
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 2002 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 2002 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 2002 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 2002 Annual Meeting of Stockholders.
(12)
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 16.
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
-----------------------
(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, January 18, 2001, and September 24,
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.
(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.
(13)
(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, 2001, to December 31, 2001.
(14)
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 15, 2002 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 15, 2002 /s/ Norman H. Asbjornson
------------------------------------
Norman H. Asbjornson
President and Director
(principal executive officer)
Dated: March 15, 2002 /s/ Kathy I. Sheffield
------------------------------------
Kathy I. Sheffield
Treasurer
(principal financial officer
and principal accounting officer)
Dated: March 15, 2002 /s/ John B. Johnson, Jr.
------------------------------------
John B. Johnson, Jr.
Director
Dated: March 15, 2002 /s/ Thomas E. Naugle
------------------------------------
Thomas E. Naugle
Director
Dated: March 15, 2002 /s/ Jerry E. Ryan
------------------------------------
Jerry E. Ryan
Director
(15)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of Independent Public Accountants 17
Consolidated Balance Sheets 18
Consolidated Statements of Operations 19
Consolidated Statements of Stockholders' Equity 20
Consolidated Statements of Cash Flows 21
Notes to Consolidated Financial Statements 22
(16)
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, 2001 and 2000, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 2001. 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, 2001 and 2000, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 2001, in
conformity with accounting principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
Tulsa, Oklahoma
February 6, 2002
(17)
AAON, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
DECEMBER 31,
------------
2001 2000
-------- --------
ASSETS
- ------
CURRENT ASSETS:
Cash and cash equivalents $ 1,123 $ 17
Accounts receivable, net 23,392 28,247
Inventories, net 13,471 15,140
Prepaid expenses and other 220 245
Deferred tax asset 4,067 3,709
-------- --------
Total current assets 42,273 47,358
-------- --------
PROPERTY, PLANT AND EQUIPMENT, net 34,022 29,460
-------- --------
Total assets $ 76,295 $ 76,818
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 8,005 $ 11,691
Accrued liabilities 13,496 12,351
Current maturities of long-term debt 884 7,860
-------- --------
Total current liabilities 22,385 31,902
-------- --------
DEFERRED TAX LIABILITY 2,884 2,051
-------- --------
LONG-TERM DEBT 985 5,853
-------- --------
CONTINGENCIES
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, 8,666,207 and 8,644,611 issued at
December 31, 2001 and 2000, respectively 35 35
Additional paid-in capital 1,063 -
Retained earnings 48,943 36,977
-------- --------
Total stockholders' equity 50,041 37,012
-------- --------
Total liabilities and stockholders' equity $ 76,295 $ 76,818
======== ========
The accompanying notes are an integral part of these consolidated balance sheets.
(18)
AAON, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
YEARS ENDED DECEMBER 31,
------------------------------
2001 2000 1999
----------- ---------- ----------
NET SALES $ 157,252 $ 154,982 $ 131,947
COST OF SALES 118,399 120,233 101,229
---------- ---------- ----------
GROSS PROFIT 38,853 34,749 30,718
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 16,011 13,922 14,741
---------- ---------- ----------
INCOME FROM OPERATIONS 22,842 20,827 15,977
INTEREST EXPENSE 892 904 574
OTHER INCOME 536 436 238
---------- ---------- ----------
INCOME BEFORE INCOME TAXES 22,486 20,359 15,641
INCOME TAX PROVISION 8,330 7,565 5,944
---------- ---------- ----------
NET INCOME $ 14,156 $ 12,794 $ 9,697
========== ========== ==========
EARNINGS PER SHARE:
Basic $ 1.63 $ 1.46 $ 1.04
========== ========== ==========
Diluted $ 1.56 $ 1.38 $ 1.00
========== ========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 8,661 8,793 9,362
========== ========== ==========
Diluted 9,094 9,264 9,690
========== ========== ==========
The accompanying notes are an integral part of these consolidated statements.
(19)
AAON, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
Common Stock
------------------- Paid-in Retained
Shares Amount Capital Earnings Total
------ ------ ------- -------- -----
BALANCE, JANUARY 1, 1999 9,329 $ 37 $ 8,212 $ 16,162 $ 24,411
NET INCOME - - - 9,697 9,697
STOCK OPTIONS EXERCISED, INCLUDING TAX BENEFITS 72 - 308 - 308
STOCK RETIRED (92) - (798) - (798)
------ ----- -------- --------- ---------
BALANCE, DECEMBER 31, 1999 9,309 37 7,722 25,859 33,618
NET INCOME - - - 12,794 12,794
STOCK OPTIONS EXERCISED, INCLUDING TAX BENEFITS 192 1 969 - 970
STOCK REPURCHASED AND RETIRED (856) (3) (8,691) (1,676) (10,370)
------ ----- -------- --------- ---------
BALANCE, DECEMBER 31, 2000 8,645 35 - 36,977 37,012
NET INCOME - - - 14,156 14,156
STOCK OPTIONS EXERCISED, INCLUDING TAX BENEFITS 178 1 1,634 - 1,635
STOCK ISSUED TO EMPLOYEES 1 - 25 - 25
STOCK REPURCHASED AND RETIRED (158) (1) (596) (2,190) (2,787)
------ ----- -------- --------- ---------
BALANCE, DECEMBER 31, 2001 8,666 $ 35 $ 1,063 $ 48,943 $ 50,041
====== ===== ======== ========= =========
The accompanying notes are an integral part of these consolidated statements.
(20)
AAON, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
YEARS ENDED DECEMBER 31,
------------------------
2001 2000 1999
---------- ---------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 14,156 $ 12,794 $ 9,697
---------- ---------- ----------
Adjustments to reconcile net income to net cash
provided by operating activities-
Depreciation 4,380 3,465 3,063
Provision for losses on accounts receivable 260 696 470
Provision for excess and obsolete inventories (100) 50 550
Gain on disposition of assets (125) (11) (40)
Deferred income taxes 475 (127) (220)
Changes in assets and liabilities-
Accounts receivable 4,595 (7,616) (3,864)
Inventories 1,769 (3,324) (256)
Prepaid expenses and other 25 321 (325)
Accounts payable (3,686) 2,646 567
Accrued liabilities 2,130 5,146 2,311
---------- ---------- ----------
Net cash provided by operating activities 23,879 14,040 11,953
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property, plant and equipment 200 11 40
Capital expenditures (9,017) (10,744) (6,689)
---------- ---------- ----------
Net cash used in investing activities (8,817) (10,733) (6,649)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under revolving credit agreement 56,290 68,219 60,875
Payments under revolving credit agreement (62,761) (66,092) (62,975)
Proceeds from long-term debt 2,500 5,048 -
Payments on long-term debt (7,873) (530) (2,569)
Stock issued to employees 25 - -
Stock options exercised 650 410 163
Repurchase of stock (2,787) (10,370) (798)
---------- ---------- ----------
Net cash used in financing activities (13,956) (3,315) (5,304)
---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH 1,106 (8) -
---------- ---------- ----------
CASH AND CASH EQUIVALENTS, beginning of year 17 25 25
---------- ---------- ----------
CASH AND CASH EQUIVALENTS, end of year $ 1,123 $ 17 $ 25
========== ========== ==========
The accompanying notes are an integral part of these consolidated statements.
(21)
AAON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001 AND 2000
(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
The Company recognizes revenues from sales of products at the time of shipment.
Amounts billed to customers for shipping and handling costs are also included in
revenues, consistent with EITF 00-10, "Accounting for Shipping and Handling Fees
and Costs."
Business and Credit Concentrations
The Company's customers are concentrated primarily in the domestic commercial
and industrial new construction and replacement markets. At December 31, 2001,
two customers represented approximately 14% and 11%, respectively, of accounts
receivable. At December 31, 2000, one customer represented approximately 10% of
total accounts receivable. 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 10% or greater of total sales consist of the
following:
Years Ended December 31,
------------------------
2001 2000 1999
---- ---- ----
Home Depot 10% 10% *
Wal-Mart Stores, Inc. 14% 19% 23%
Target 11% * *
*Less than 10%
Cash and Cash Equivalents
Cash and cash equivalents consists of bank deposits and $1.1 million in highly
liquid, interest bearing money market funds with initial maturities of three
months or less.
Inventories
Inventories are valued at the lower of cost or market. Cost is determined by the
first-in, first-out (FIFO) method.
(22)
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
Warranties
A provision is made for the estimated cost of warranty obligations at the time
the related products are sold. Warranty expense was $5,792, $4,938 and $5,456
for the years ended December 31, 2001, 2000 and 1999, 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, 2001 and 2000, 22,500 and 5,000
options, respectively, were considered to be anti-dilutive. For the year ended
December 31, 1999, all outstanding options were considered dilutive. A
reconciliation of net income and weighted average shares (in thousands) used in
computing basic and diluted earnings per share is as follows:
Year Ended
December 31, 2001
-------------------------------------
Per-Share
Income Shares Amount
Basic EPS $ 14,156 8,661 $1.63
Net additional shares issuable - 433 -
--------- ------- -----
Diluted EPS $ 14,156 9,094 $1.56
========= ======= =====
Year Ended
December 31, 2000
-------------------------------------
Per-Share
Income Shares Amount
Basic EPS $ 12,794 8,793 $1.46
Net additional shares issuable - 471 -
--------- ------- -----
Diluted EPS $ 12,794 9,264 $1.38
========= ======= =====
Year Ended
December 31, 1999
-------------------------------------
er-Share
Income Shares Amount
Basic EPS $ 9,697 9,362 $1.04
Net additional shares issuable - 328 -
--------- ------- -----
Diluted EPS $ 9,697 9,690 $1.00
========= ======= =====
(23)
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.
Stock Split
Effective September 28, 2001, the Company completed a three-for-two stock split
payable in the form of a 50% stock dividend. All stock and per share information
for all periods presented have been adjusted to reflect the three-for-two stock
split.
Reclassifications
Certain reclassifications have been made to the 2000 and 1999 financial
statements to conform with the 2001 presentation. Such reclassifications did not
impact total assets or net income.
New Accounting Pronouncements
In July 2001, the FASB issued Statement of Financial Accounting Standards No.
141, "Business Combinations" (Statement 141), Statement of Financial Accounting
Standards No. 142, "Goodwill and Other Intangible Assets" (Statement 142), and
Statement of Financial Accounting Standards No. 143, "Accounting for Asset
Retirement Obligations" (Statement 143). In October 2001, the FASB issued
Statement of Financial Accounting Standards No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" (Statement 144).
Statement 141 requires that the purchase method of accounting be used for all
business combinations initiated after June 30, 2001. Statement 142 requires that
goodwill and intangible assets with indefinite useful lives no longer be
amortized, but instead tested for impairment at least annually in accordance
with the provisions of Statement 142. The Company is required to adopt the
provisions of Statement 141 immediately, and Statement 142 effective January 1,
2002. Goodwill acquired in business combinations completed before July 1, 2001,
will continue to be amortized prior to the adoption of Statement 142. The
adoption of Statement 141 and 142 had no material impact on the Company's
results of operations or financial condition.
Statement 143 requires entities to record the fair value of a liability for an
asset retirement obligation in the period in which it is incurred and a
corresponding increase in the carrying amount of the related long-lived asset.
Statement 143 is effective for fiscal years beginning after June 15, 2002.
Statement 144 retains the requirement to report discontinued operations
separately and extends that reporting to a component of an entity that either
has been disposed of or is classified as held for sale. Statement 144 is
effective for fiscal years beginning after December 15, 2001, and for interim
periods within those fiscal years. The Company is currently assessing the impact
of Statements 143 and 144 on its financial condition and results of operations.
(24)
Details to Consolidated Balance Sheets
- --------------------------------------
December 31,
------------
2001 2000
-------- --------
ACCOUNTS RECEIVABLE:
Accounts receivable $ 24,252 $ 29,297
Less- allowance for doubtful accounts 860 1,050
-------- --------
Total, net $ 23,392 $ 28,247
======== ========
December 31,
------------
2001 2000
-------- --------
INVENTORIES:
Raw materials $ 10,376 $ 10,651
Work in process 2,258 1,967
Finished goods 1,687 3,472
-------- --------
14,321 16,090
Less-allowance for excess and obsolete inventories 850 950
-------- --------
Total, net $ 13,471 $ 15,140
======== ========
PROPERTY, PLANT AND EQUIPMENT:
Land $ 874 $ 885
Buildings 16,893 16,594
Machinery and equipment 35,331 27,869
Furniture and fixtures 3,197 3,175
-------- --------
56,295 48,523
Less- accumulated depreciation 22,273 19,063
-------- --------
Total, net $ 34,022 $ 29,460
======== ========
ACCRUED LIABILITIES:
Warranty $ 7,000 $ 5,400
Commissions 3,295 3,427
Income taxes 1,048 933
Workers' compensation 314 890
Medical self-insurance 651 660
Other 1,188 1,041
-------- --------
Total $ 13,496 $ 12,351
======== ========
Years Ended December 31,
------------------------
2001 2000 1999
-------- -------- --------
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
Balance, beginning of period $ 1,050 $ 850 $ 410
Provision for losses on accounts receivable 260 696 470
Accounts receivable written off,
net of recoveries (450) (496) (30)
-------- -------- --------
Balance, end of period $ 860 $ 1,050 $ 850
======== ======== ========
Years Ended December 31,
------------------------
2001 2000 1999
-------- -------- --------
ALLOWANCE FOR EXCESS AND OBSOLETE INVENTORIES:
Balance, beginning of period $ 950 $ 900 $ 350
Provision for excess and obsolete
inventories - 50 550
Adjustments to reserve (100) - -
-------- -------- --------
Balance, end of period $ 850 $ 950 $ 900
======== ======== ========
(25)
2. SUPPLEMENTAL CASH FLOW INFORMATION:
-----------------------------------
Interest payments of $892, $889 and $561 were made during the years ended
December 31, 2001, 2000 and 1999, respectively. Payments for income taxes of
$6,754, $6,375 and $6,234 were made during the years ended December 31, 2001,
2000 and 1999, respectively.
3. DEBT:
-----
Long-term debt at December 31, consists of the following:
2001 2000
------- -------
$15,150 unsecured bank line of credit, with interest
payable monthly at LIBOR plus 1.60% (3.47% at
December 31, 2001), due July 31, 2002. $ 446 $ 6,917
Notes payable, due in monthly installments of $36,
with interest ranging from 7.47% to 7.52% at
December 31, 2001, collateralized by machinery and
equipment. 1,423 6,796
------- -------
1,869 13,713
Less- current maturities 884 7,860
------- -------
Total long-term debt $ 985 $ 5,853
======= =======
Maturities of long-term debt for each of the years ended December 31 are as
follows:
2002 $ 884
2003 438
2004 438
2005 109
-------
$ 1,869
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 Statement of Financial
Accounting Standards 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:
Years Ended December 31,
------------------------------------
2001 2000 1999
--------- -------- ------
Current $ 7,855 $ 7,692 $ 6,164
Deferred 475 (127) (220)
-------- -------- --------
$ 8,330 $ 7,565 $ 5,944
======== ======== ========
The reconciliation of the federal statutory income tax rate to the effective
income tax rate is as follows:
Years Ended December 31,
--------------------------------
2001 2000 1999
---- ---- ----
Federal statutory rate 35% 35% 35%
State income taxes,
net of federal benefit 4 4 4
Employment credits (1) (2) (1)
Other (1) - -
--- --- ---
37% 37% 38%
=== === ===
(26)
The tax effect of temporary differences giving rise to the Company's deferred
income taxes at December 31 are as follows:
2001 2000
------- -------
Deferred tax assets -
Valuation reserves $ 648 $ 740
Warranty accrual 2,653 1,998
Other accruals 746 958
Other, net 20 13
------- -------
$ 4,067 $ 3,709
======= =======
Deferred tax liabilities -
Depreciation and amortization $ 2,884 $ 2,051
======= =======
5. BENEFIT PLANS:
--------------
The Company maintains a stock option plan for key employees and directors and
restricts 1,950,000 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, 2001, 663,388
shares were available for granting future options. For the years ending December
31, 2001 and 2000, the Company reduced its income taxes payable by $985 and
$559, respectively, as the result of nonqualified stock options exercised under
the Company's stock option plan. The number and exercise price of options
granted were as follows:
Weighted
Average
Number Exercise Price
of Shares Per Share
--------- --------------
OUTSTANDING AT JANUARY 1, 1999 1,108,313 $ 3.77
Granted 450,750 8.43
Exercised (71,363) 2.48
Cancelled (31,500) 5.25
------------ -------
OUTSTANDING AT DECEMBER 31, 1999 1,456,200 5.25
Granted 7,500 14.75
Exercised (192,075) 2.15
Cancelled (75,300) 7.50
------------ -------
OUTSTANDING AT DECEMBER 31, 2000 1,196,325 5.66
Granted 131,250 17.24
Exercised (177,875) 3.70
Cancelled (46,400) 8.19
------------ -------
OUTSTANDING AT DECEMBER 31, 2001 1,103,300 $ 7.52
============ =======
(27)
The following is a summary of stock options outstanding as of December 31, 2001:
Options Outstanding Options Exercisable
--------------------------------------------------------- ------------------------------------
Number Weighted Weighted Number Weighted
Range of Outstanding at Average Average Remaining Exercisable at Average
Exercise Prices December 31, 2001 Exercise Price Contractual Life December 31, 2001 Exercise Price
--------------- ----------------- -------------- ----------------- ----------------- --------------
$.76 41,250 $ .76 .2 41,250 $ .76
3.00-5.08 489,300 4.41 5.1 390,571 4.30
6.00-6.67 112,500 6.20 7.0 60,000 6.15
7.50-8.67 321,500 8.52 7.6 136,850 8.46
12.88-14.97 60,000 14.16 9.3 1,500 14.75
18.53-20.10 78,750 19.35 9.7 - -
--------- ------- ------- ------
1,103,300 $ 7.52 630,171 $ 5.17
========= ======= ======= ======
The Company applies the disclosure-only provisions of Statement of Financial
Accounting Standards 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 Statement 123, the Company's net
income and earnings per share would have been reduced to the pro forma amounts
indicated below:
2001 2000 1999
-------- ------- -------
Net income:
As reported $ 14,156 $ 12,794 $ 9,697
Pro forma $ 13,581 $ 12,229 $ 9,299
Basic earnings per share:
As reported $ 1.63 $ 1.46 $ 1.04
Pro forma $ 1.57 $ 1.39 $ .99
Diluted earnings per share:
As reported $ 1.56 $ 1.38 $ 1.00
Pro forma $ 1.49 $ 1.32 $ .96
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:
2001 2000 1999
------- ------- -------
Expected dividend yield 0% 0% 0%
Expected volatility 45.38% 51.99% 54.33%
Risk-free interest rate 5.04% 5.50% 6.09%
Expected life 8 yrs 8 yrs 8 yrs
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 $504, $493 and $329 in 2001, 2000 and 1999, respectively. The
Company made additional discretionary contributions of $325, $1,308 and $1,150
in the form of Company stock during 2001, 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 $2,507, $2,277 and $1,735, for the
years ended December 31, 2001, 2000 and 1999, respectively.
(28)
6. STOCKHOLDER 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. CONTINGENCIES:
--------------
The Company is subject to claims and legal actions that 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.
8. QUARTERLY RESULTS (Unaudited):
------------------------------
The following is a summary of the quarterly results of operations for the years
ended December 31, 2001 and 2000:
Quarter Ended
-------------
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
2001
- ----
Net sales $ 39,435 $ 41,520 $ 41,402 $ 34,895
Gross profit 11,262 10,882 8,733 7,976
Net income 3,576 3,816 3,523 3,241
Earnings per share:
Basic .41 .44 .40 .37
Diluted .39 .42 .38 .36
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 .34 .38 .39 .35
Diluted .33 .36 .37 .33
(29)
EXHIBIT 23
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the incorporation of
our report included in this Form 10-K, into the Company's previously filed
Registration Statements on Form S-8 (File Nos. 33-78520, 333-52824 and
333-23479)
ARTHUR ANDERSEN LLP
Tulsa, Oklahoma
March 15, 2002
(30)