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, 2003
Commission file number: 0-18953
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
--------------------------------- -----
(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. [ ]
Indicate by check mark whether the Registrant is an accelerated filer
(as defined in Rule 12b-2 of the Act). Yes [X] No [ ]
The aggregate market value of the common equity held by non-affiliates
computed by reference to the closing price of Registrant's common stock on the
last business day of Registrant's most recently completed second quarter (June
30, 2003) was $171,059,000.
As of February 27, 2004, Registrant had outstanding a total of
12,566,533 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 25, 2004, 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 and Purchases of Equity Securities. 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. 13
8. Financial Statements and Supplementary Data. 13
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure. 13
9A. Controls and Procedures. 14
PART III
10. Directors and Executive Officers of Registrant. 15
11. Executive Compensation. 15
12. Security Ownership of Certain Beneficial Owners and Management. 15
13. Certain Relationships and Related Transactions. 16
14. Principal Accountant Fees and Services. 16
PART IV
15. Exhibits, Financial Statement Schedules and Reports on Form 8-K. 17
PART I
Item 1. Business.
General Development and Description of Business
AAON, Inc., a Nevada corporation ("AAON-Nevada" or, including its subsidiaries,
the "Company" or "AAON"), 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 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 air-conditioning and
heating equipment consisting of rooftop units, chillers, air-handling units,
condensing units and coils.
In 1991, AAON Coil Products, Inc. ("ACP", formerly CP/AAON, Inc.), a Texas
corporation, was organized as a wholly-owned subsidiary of AAON-Nevada to
purchase most of the assets of a company in Longview, Texas. ACP manufactures
coils used in the Company's products.
Products and Markets
The Company's products (identified above) 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 2003.
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, chillers and coils are applicable to all sizes of commercial and
industrial buildings.
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 2003 level of sales, approximately $149 million, the Company has a
13% share of the rooftop market and a 1% share of the coil market. Approximately
57% of the Company's sales now come from new construction and 43% 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, due to its growth posture, the Company's sales to this
major customer were approximately 75% for new construction and 25% replacement.
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, which, with the addition of a
refrigerant-to-water heat exchanger, become chillers.
-1-
The Company currently has five groups of rooftop products: its RM and RN Series
offered in 21 cooling sizes ranging from two to 70 tons; its RL Series, which is
offered in 15 cooling sizes ranging from 40 to 230 tons; its HA Series, which is
a horizontal discharge package for either rooftop or ground installation,
offered in nine sizes ranging from four to 50 tons; and its HA/HB Series, which
is offered in 11 sizes ranging from two to 50 tons. The Company's air-handling
units consist of the H/V Series and the Celebrity Series. The Company's
condensing units consist of the CA and CB Series. The Company's heat recovery
option applicable to its RM, RN and RL units, as well as its Celebrity air
handlers, respond to the U.S. Clean Air Act mandate to increase fresh air in
commercial structures.
The Company's products are designed to compete on the higher quality end of
standardized products. Performance characteristics of its products range in
cooling capacity from 28,000-4,320,000 BTU's and in heating capacity from
69,000-3,990,000 BTU's. All of the Company's products meet the Department of
Energy's efficiency standards, which are published to define 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 can involve multiple units.
The Company has developed a prototype wall-hung heating and air-conditioning
unit which it has begun to market for commercial buildings requiring a product
designed for small space(s). Pilot production and testing of this product began
in 2001. Since marketing activities have just recently commenced, sales to date
have not been significant. The Company also has developed and is beginning to
market a residential condensing unit (CB Series).
Major Customers
The Company's largest customer last year was Wal-Mart Stores, Inc. Sales to
Wal-Mart were 18% and 14% of total sales, respectively, in 2003 and 2002. The
Company has no written contract with this customer.
The loss of Wal-Mart 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 this customer
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 materials 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 one year.
-2-
Distribution
The Company employs a sales staff of nine individuals and utilizes 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 "niche" markets. The targeted
markets for its equipment are customers seeking products 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; on gas-fired heat exchangers (if
applicable), 15 years; and on stainless steel heat exchangers (if applicable),
25 years.
Research and Development
All R&D activities of the Company are company-sponsored, rather than
customer-sponsored. R&D has involved the HB, RM, RN and RL (rooftop units), LL
(chillers), CB (condensing units) and WA (wall-hung units), as well as component
evaluation and refinement, development of control systems and new product
development. In the last three years, the Company has incurred an average of
$796,000 per year in research and development expense.
Backlog
The Company had a current backlog as of March 1, 2004, of $37,384,000, compared
to $24,972,000 at March 1, 2003. The current backlog consists of orders
considered by management to be firm and substantially all of which will be
filled by August 1, 2004; 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 by cash flow from operations and a bank revolving credit facility, which
currently permits borrowings up to $15,150,000. The Company believes that it
will have sufficient funds 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.
-3-
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 its products because of the
emphasis placed on initial cost; whereas, in the replacement market and other
owner-controlled purchases, 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, 2004, the Company had 989 employees and 262 temporaries, none of
whom are represented by unions. Management considers its relations with its
employees to be satisfactory.
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.
Available Information
The Company's Internet website address is http://www.aaon.com. Its annual
reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form
8-K and amendments to those reports filed or furnished pursuant to Section 13(a)
or 15(d) of the Exchange Act of 1934 will be available through the Company's
Internet website as soon as reasonably practical after the Company
electronically files such material with, or furnishes it to, the SEC.
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.
-4-
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 $12.1
million per month in 2003, 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 1997, is 25% (122,000 sq. ft.)
utilized by the Company and 75% leased to a third party. The Company uses 22,000
sq. ft. for office space, 20,000 sq. ft. for warehouse space and 80,000 sq. ft.
for manufacturing. The remaining 357,000 sq. ft. will afford the Company
additional plant 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 sq. ft. on 14 acres. The
manufacturing area (approximately 219,000 sq. ft.) 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, 2003, through December
31, 2003.
-5-
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters and Purchases of Equity Securities.
The Company's Common Stock is traded on the NASDAQ National Market under the
symbol "AAON". The range of closing prices for the Company's Common Stock during
the last two years, as reported by National Association of Securities Dealers,
Inc. (adjusted for a 3-for-2 stock split on June 4, 2002), was as follows:
Quarter Ended High Low
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March 31, 2002 $ 18.08 $ 12.97
June 30, 2002 $ 21.54 $ 16.94
September 30, 2002 $ 18.69 $ 15.55
December 31, 2002 $ 21.00 $ 16.00
March 31, 2003 $ 19.36 $ 12.70
June 30, 2003 $ 19.64 $ 12.48
September 30, 2003 $ 19.84 $ 16.39
December 31, 2003 $ 20.49 $ 17.13
On February 27, 2004, there were 1,040 holders of record, and 3,575 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.
Following repurchases of approximately 12% of its outstanding Common Stock
between September 1999 and September 2001, the Company announced and began its
current stock repurchase program on October 17, 2002, targeting repurchases of
up to an additional 10% (1,325,000 shares) of its outstanding stock. Through
December 31, 2003, the Company had repurchased a total of 812,964 shares under
the current program for an aggregate price of $13,911,018, or an average of
$17.11 per share.
Repurchases during the fourth quarter of 2003 were as follows:
ISSUER PURCHASES OF EQUITY SECURITIES
- ------------------ ------------- ------------ ----------------- ---------------------
(d) Maximum
(c) Total Number Number or
(a)Total (b) of Shares (or Approximate Dollar
Number of Average Units) Purchased Value) of Shares (or
Period Shares (or Price Paid as Part of Units) that May Yet
Units) Per Share Publicly Be Purchased Under
Purchased (or Unit) Announced Plans the Plans or
or Programs Programs
- ------------------ ------------- ------------ ----------------- ---------------------
Month #1
October 1-31, 17,600 $18.02 17,600 537,736
2003
- ------------------ ------------- ------------ ----------------- ---------------------
Month #2
November 1-30, 5,100 $19.05 5,100 532,636
2003
- ------------------ ------------- ------------ ----------------- ---------------------
Month #3
December 1-31, 20,600 $18.52 20,600 512,036
2003
- ------------------ ------------- ------------ ----------------- ---------------------
Total 43,300 $18.38 43,300
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-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.
Year Ended December 31,
- ------------------------------------------------------------------------------------------------------------------
Results of Operations: 2003 2002 2001 2000 1999
---- ---- ---- ---- ----
(in thousands, except per share data)
Net sales $148,845 $155,075 $157,252 $ 154,982 $131,947
Net income $ 14,227 $ 14,611 $ 14,156 $ 12,794 $ 9,697
Basic earnings per share $ 1.12 $ 1.11 $ 1.09 $ .97 $ .69
Diluted earnings per share $ 1.07 $ 1.06 $ 1.04 $ .92 $ .67
Weighted average shares
outstanding
Basic 12,685 13,158 12,992 13,190 14,043
Diluted 13,251 13,740 13,641 13,896 14,535
December 31,
- ------------------------------------------------------------------------------------------------------------------
Balance Sheet Data: 2003 2002 2001 2000 1999
---- ---- ---- ---- ----
(in thousands)
Total assets $102,085 $91,713 $76,295 $76,818 $58,656
Long-term debt - - $ 985 $ 5,853 $ 6,630
Stockholders' equity $ 67,428 $62,310 $50,041 $37,012 $33,618
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 and June 4, 2002, the Company
completed three-for-two stock splits. The shares outstanding and earnings per
share disclosures have been restated to reflect the stock splits.
-7-
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
AAON engineers, manufactures and markets air-conditioning and heating equipment
consisting of rooftop units, chillers, air-handling units, condensing units and
coils.
The Company currently has five groups of rooftop products: its RM and RN series
offered in 21 cooling sizes ranging from two to 70 tons (the RM and RN units
replaced the RK Series in 2003); its RL Series, which is offered in 15 cooling
sizes ranging from 40 to 230 tons; its HA Series, which is a horizontal
discharge package for either rooftop or ground installation, offered in nine
sizes ranging from four to 50 tons; and its HA/HB Series, which is offered in 11
sizes ranging from two to 50 tons. The Company manufactures a Model LL chiller,
which is available in both air-cooled condensing and evaporative cooled
configurations. The Company's air-handling units consist of the H/V Series and
the Celebrity Series. The Company's condensing units consist of the CA and CB
Series.
AAON sells its products to property owners and contractors through a network of
manufacturers' representatives and its internal sales force. Demand for the
Company'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 ("SG&A") costs include the Company's
internal sales force, warranty costs, profit sharing and administrative expense.
Warranty expense is estimated based on historical trends and other factors. 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, on gas-fired heat exchangers (if
applicable), 15 years, and on stainless steel heat exchangers (if applicable),
25 years.
The office facilities of AAON, Inc. 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 at 2425 S. Yukon Avenue, 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") that is located
across the street from the original facility. The Company utilizes 25% of the
expansion facility and the remaining 75% is leased to a third party. The
operations of AAON Coil Products are conducted in a plant/office building at
203-207 Gum Springs Road in Longview, Texas, containing 226,000 square feet
(219,000 sq. ft. of manufacturing/warehouse and 7,000 sq. ft. of office space).
-8-
Set forth below is income statement information with respect to the Company for
years 2003, 2002 and 2001:
Year Ended December 31,
2003 2002 2001
---- ---- ----
(in thousands)
Net sales $ 148,845 $ 155,075 $ 157,252
Cost of sales 112,596 117,193 118,399
---------------- ---------------- ----------------
Gross profit 36,249 37,882 38,853
---------------- ---------------- ----------------
Selling, general and administrative
expenses 14,909 15,071 16,011
---------------- ---------------- ----------------
Income from operations 21,340 22,811 22,842
---------------- ---------------- ----------------
Interest expense 21 95 892
Interest Income (346) (214) -
Other income (188) (180) (536)
---------------- ---------------- ----------------
Income before income taxes 21,853 23,110 22,486
Income tax provision 7,626 8,499 8,330
---------------- ---------------- ----------------
Net income $ 14,227 $ 14,611 $ 14,156
================ ================ ================
Results of Operations
Net sales decreased $6.2 million in 2003 compared to 2002, and decreased $2.2
million in 2002 compared to 2001. The decrease in sales in 2003 was primarily
due to economic conditions in the United States, production issues with the
manufacturing of new products and shipment delays by the Company's customers in
the fourth quarter. The decrease in sales for 2002 was caused by a slowdown in
production due to the heavy volume of new products produced and from a slowdown
in the construction market caused by a downturn in the economy and uncertainty
about future economic conditions.
Gross margins in 2003 and 2002 were 24.4%, compared to 24.7% in 2001. Gross
profit decreased $1.6 million (4.3%) to $36.2 million in 2003 from $37.9 million
in 2002 and decreased $1.0 million (2.5%) to $37.9 million from $38.9 million in
2002 compared to 2001. While gross profit decreased as a result of lower sales,
the margins in 2003 remained consistent with those of previous years. While the
Company faces risks associated with rising commodity prices, the Company did
not experience significant fluctuations in raw material costs during the three
years ended 2003. The decrease in margins for 2002 compared to 2001 was
primarily attributable to start-up costs related to the production of new
products and lower plant utilization due to the decrease in sales.
Selling, general and administrative expenses decreased $.2 million (1.1%) in
2003 compared to 2002 due to a decrease in warranty expenses primarily
attributable to improved product quality, while advertising, state taxes and
employee compensation costs increased. The SG&A decrease of $.9 million (5.9%)
in 2002 compared to 2001 was primarily a result of a reduction in bad debt and
warranty expense.
Interest expense was $21,000, $.1 million and $.9 million in 2003, 2002 and
2001, respectively. The reduction in interest expense was due to the retirement
of all long-term debt in 2002, lower average borrowings under the revolving
credit facility in 2003 and 2002 compared to 2001, and lower average interest
rates.
-9-
Interest income was $.3 million and $.2 million in 2003 and 2002, respectively,
due to investments in short-term money markets and certificates of deposit.
Other income was $.2 million in 2003 and 2002, and $.5 million in 2001. Other
income is primarily attributable to rental income from the Company's "expansion
facility". The decrease of $.3 million in 2002 was due to the expanded company
use of its facilities.
Financial Condition and Liquidity
Net accounts receivable increased $.2 million at December 31, 2003, compared to
December 31, 2002, due to a $.5 million increase in trade receivable caused by
timing of receipts, offset by an increase of $.3 million in the allowance for
doubtful accounts.
Inventories increased $5.4 million at December 31, 2003, compared to December
31, 2002, due to production issues with the manufacturing of new products,
shipment delays by the Company's customers in the fourth quarter caused by
adverse weather conditions in various parts of the country and the procurement
of additional raw material and purchased parts required to manufacture units
that had extended ship dates. With the backlog at $37,384,000, the bulk of the
increase in inventories is committed for future manufacturing. Additionally, the
rescheduling of some ship dates of equipment by customers increased finished
goods.
Prepaid expenses increased by $2.1 million at December 31, 2003, compared to
December 31, 2002, due to deposits made on equipment acquisitions.
Accounts payable and accrued liabilities increased $2.1 million at December 31,
2003, compared to December 31, 2002, due to timing of payments to vendors.
The Company generated $16.5 million, $21.9 million and $23.9 million cash from
operating activities in 2003, 2002 and 2001, respectively. Operating cash flows
in 2003 consisted of $14.2 million of net income, $5.4 million of depreciation
and $3.2 million of working capital and other changes. The decrease in cash
provided from operating activities in 2003 is primarily due to an increase in
inventories. Operating cash flows in 2002 consisted of $14.6 million of net
income, $4.9 million of depreciation and $2.4 million in working capital and
other changes. The decrease in 2002 is primarily due to an increase in
inventories. Operating cash flows in 2001 consisted of $14.2 million of net
income, $4.4 million of depreciation and $5.3 million in working capital and
other changes.
Cash flows used in investing activities were $7.6 million, $16.1 million and
$8.8 million in 2003, 2002 and 2001, respectively. Cash flows used in investing
activities in 2003 related to capital expenditure additions totaling $7.7
million, reflecting primarily additions to machinery and equipment and
renovations made to the Company's manufacturing and office facilities. In 2002
and 2001 cash used in investing activities was comprised primarily of capital
expenditures totaling $6.1 million and $9.0 million, respectively. All capital
expenditures and building renovations were financed out of cash generated from
operations. Additionally in 2002, the Company invested $10 million in a
certificate of deposit which matures in 2004. Due to anticipated production
demands, the Company expects to expend approximately $10 million in 2004 for
plant expansion and equipment requirements. The Company expects the cash
requirements to be provided from cash flow from operations.
Cash flows used in financing activities were $7.7 million, $1.9 million and
$14.0 million in 2003, 2002 and 2001, respectively. In October 2002, the
Company's Board of Directors authorized a stock buyback program to repurchase up
to 1,325,000 shares of stock. There were 597,001 shares of stock repurchased for
a total of $9.9 million and 215,963 shares of stock repurchased for a total of
$4.0 million in 2003 and 2002, respectively. The Company repurchased stock in
2001 totaling $2.8 million as part of its first stock buyback program.
Additionally, during 2003, 2002 and 2001, the Company had net
borrowings/(repayments) of $1.8 million, $3.1 million and ($6.5) million
respectively, under its revolving credit facility and repaid $1.9 million and
$5.4 million of long-term debt in 2002 and 2001 respectively.
-10-
The Company's revolving credit facility (which currently extends to July 31,
2004) provides for maximum borrowings of $15.2 million. Interest on borrowings
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 facility at December 31, 2003 were $9.2 million. The credit facility
requires that the Company maintain a certain financial ratio and prohibits the
declaration of dividends. As of December 31, 2003 the Company was not in
compliance with its financial ratio covenant; however, the event of
non-compliance was waived by the bank through July 31, 2004. The Company does
not believe there will be any impact from the event of non-compliance on its
financial condition or results of operations.
Management believes the Company's bank revolving credit facility (or comparable
financing), and projected cash flows from operations will provide the necessary
liquidity and capital resources to the Company for the foreseeable future. The
Company's belief that it will have the necessary liquidity and capital resources
is based upon its knowledge of the HVAC industry and its place in that industry,
its ability to limit the growth of its business if necessary, and its
relationship with its existing bank lender. For information concerning the
Company's revolving credit facility at December 31, 2003, see Note 4 to the
financial statements included in this report.
Commitments and Contractual Agreements
In January 2004, the Company executed a contract to construct a sheet metal
facility at the Tulsa plant for an approximate cost of $2.0 million.
The Company is a party to several short-term cancelable fixed price contracts
with major suppliers for the purchase of raw material and component parts.
The Company has cancelable commitments to purchase machinery and equipment at a
cost of $4.2 million.
Critical Accounting Policies
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
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Because these estimates and assumptions require significant
judgment, future actual results could differ from those estimates and could have
a significant impact on the Company's results of operations, financial position
and cash flows. The Company re-evaluates its estimates and assumptions on a
monthly basis.
The following accounting policies may involve a higher degree of estimation or
assumption:
Allowance for Doubtful Accounts - The Company establishes an allowance for
doubtful accounts based upon factors surrounding the credit risk of specific
customers, historical trends in collections and write-offs, current customer
status, the age of the receivable, economic conditions and other information.
Aged receivables are reviewed on a monthly basis to determine if the reserve is
adequate and adjusted accordingly at that time.
Allowance for Excess and Obsolete Inventories - The Company establishes an
allowance for excess and obsolete inventories based on the change in inventory
requirements due to product line changes, the feasibility of using obsolete
parts for upgraded part substitutions, the required parts needed for part supply
sales and replacement parts.
Warranty - A provision is made for estimated warranty costs at the time the
product is shipped and revenue is recognized. The warranty period 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; on gas-fired
heat exchangers (if applicable), 15 years; and on stainless steel heat
exchangers (if applicable), 25 years. Warranty expense is estimated based on the
Company's warranty period, historical warranty trends and associated costs, and
any known identifiable warranty issue. Due to the absence of warranty history on
new products, an additional provision may be made for such products.
-11-
Historically, reserves have been within management's expectations.
Stock Compensation - The Company has elected to follow Accounting Principles
Board Opinion No. 25 ("APB 25"), Accounting for Stock Issued to Employees and
related interpretations in accounting for stock options because the alternative
fair value accounting provided for under the Statement of Financial Accounting
Standards No. 123 ("SFAS 123"), Accounting for Stock-Based Compensation,
requires the use of option valuation models that were not developed for use in
valuing employee stock options and are theoretical in nature. Under APB 25,
because the exercise price of the Company's options equals the market price of
the underlying stock on the date of grant, no compensation expense is
recognized.
New Accounting Pronouncements
Statement of Financial Accounting Standards ("SFAS") No. 143, Accounting for
Asset Retirement Obligations, 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. The adoption of SFAS 143 in 2003 did not have a significant
impact on the Company's results of operations or financial position.
The Financial Accounting Standards Board (FASB) issued SFAS No. 150 "Accounting
for Certain Financial Instruments with Characteristics of Both Liabilities and
Equity." This Statement establishes standards for how a company classifies and
measures certain financial instruments with characteristics of both liabilities
and equity. It requires that a Company classify a financial instrument that is
within its scope as a liability (or an asset in some circumstances). Many of
those instruments were previously classified as equity. SFAS No. 150 is
effective for financial instruments entered into or modified after May 31, 2003;
otherwise it is effective at the beginning of the first interim period beginning
after June 15, 2003, Initial adoption of this statement did not have any impact
on the Company's consolidated results of operations or financial position.
FASB Interpretation No. 46 (FIN 46) is an interpretation of Accounting Research
Bulletin No. 51, Consolidated Financial Statements. FIN 46 addresses
consolidation by business enterprises of variable interest entities. This
Interpretation applies immediately to variable interest entities created after
January 31, 2003, and to variable interest entities in which an enterprise
obtains an interest after that date. The Company has no investments in or known
contractual arrangements with variable interest entities, and therefore this
Interpretation has not impacted the Company's financial statements or related
disclosures.
-12-
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 obligations 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 raw material and component 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 subject to interest rate risk on its revolving credit facility
which bears variable interest based upon a prime or LIBOR rate.
Foreign sales accounted for only 2% of the Company's sales in 2003 and the
Company accepts payment for such sales only in U.S. dollars; hence, the Company
is not exposed to 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 entering cancelable fixed price
contracts with its major suppliers for periods of 6 -12 months.
The Company does not utilize derivative financial instruments to hedge its
interest rate or raw materials price risks.
Item 8. Financial Statements and Supplementary Data.
The financial statements and supplementary data are included at page 23.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
The information called for by Item 304 of Regulation S-K has been previously
reported in the Company's Form 8-K dated June 25, 2002.
-13-
Item 9A. Controls and Procedures.
Evaluation of disclosure controls and procedures
At the end of the period covered by this Annual Report on Form 10-K, the
Company's management, under the supervision and with the participation of the
Company's Chief Executive Officer and Chief Financial Officer, evaluated the
effectiveness of the design and operation of the Company's disclosure controls
and procedures. Based on that evaluation, the Company's Chief Executive Officer
and Chief Financial Officer believe that:
o the Company's disclosure controls and procedures are designed
to ensure that information required to be disclosed by the
Company in the reports it files under the Securities Exchange
Act of 1934 is recorded, processed, summarized and reported
within the time periods specified in the SEC's rules and
forms; and
o the Company's disclosure controls and procedures operate such
that important information flows to appropriate collection and
disclosure points in a timely manner and are effective to
ensure that such information is accumulated and communicated
to the Company's management, and made known to the Company's
Chief Executive Officer and Chief Financial Officer,
particularly during the period when this Annual Report was
prepared, as appropriate to allow for timely decisions
regarding the required disclosure.
Changes in internal controls
There have been no significant changes in the Company's internal controls or
other factors that could significantly affect the Company's internal controls
subsequent to their evaluation, nor has there been any need for any corrective
actions with regard to significant deficiencies or material weaknesses in
internal controls related to financial reporting.
-14-
PART III
Item 10. Directors and Executive Officers of Registrant.
The information required by Items 401 and 405 of Regulation S-K is 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 2004 Annual
Meeting of Stockholders.
Code of Ethics
The Company has adopted a code of ethics that applies to its principal executive
officer, principal financial officer and principal accounting officer or persons
performing similar functions (as well as its other employees and directors). The
Company undertakes to provide any person without charge, upon request, a copy of
such code of ethics. Requests may be directed to AAON, Inc., 2425 South Yukon
Avenue, Tulsa, Oklahoma 74107, attention Kathy I. Sheffield, or by calling (918)
382-6204.
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 2004 Annual Meeting of Stockholders.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information required by Item 403 of Regulation S-K is 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 2004 Annual
Meeting of Stockholders.
Summary of All Existing Equity Compensation Plans
The following table sets forth information concerning the equity compensation
plans of the Company as of December 31, 2003.
EQUITY COMPENSATION PLAN INFORMATION
Number of securities
Number of securities remaining available for
to be issued upon Weighted-average future issuance under
Plan Category exercise of exercise price of equity compensation
outstanding options, outstanding options, plan [excluding
warrants and warrants and securities reflected
rights rights in column (a)]
------------- --------------- -------------- --------------
(a) (b) (c)
Equity compensation plans
approved by security holders(1) 1,227,330 $5.70 324,361
Equity compensation plans not
approved by security holders(2) - - -
--------------- --------------- ---------------
Total 1,227,330 $5.70 324,361
(1) Consists of shares covered by the Company's 1992 Stock Option Plan, as
amended.
(2) The Company does not maintain any equity compensation plans that have not
been approved by the stockholders.
-15-
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 2004 Annual Meeting of Stockholders.
Item 14. Principal Accountant Fees and Services.
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 2004 Annual Meeting of Stockholders.
-16-
PART IV
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) 1. Financial statements.
See Index to Consolidated Financial Statements on page 20.
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, as
amended (vi)
(10) AAON, Inc. 1992 Stock Option Plan, as amended (vii)
(21) List of Subsidiaries (viii)
(23) Consent of Ernst & Young LLP
(31.1) Certification of CEO
(31.2) Certification of CFO
(32.1) Section 1350 Certification - CEO
(32.2) Section 1350 Certification - CFO
----------
(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, September 24, 2001, August
19, 2002, and July 31, 2003.
-17-
(vi) Incorporated by reference to exhibits to the
Company's Forms 8-K dated February 25, 1999,
and August 20, 2002, and Form 8-A
Registration Statement No. 000-18953, as
amended.
(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, 2003, to December 31, 2003.
-18-
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 10, 2004 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 10, 2004 /s/ Norman H. Asbjornson
---------------------------------
Norman H. Asbjornson
President and Director
(principal executive officer)
Dated: March 10, 2004 /s/ Kathy I. Sheffield
---------------------------------
Kathy I. Sheffield
Treasurer
(principal financial officer
and principal accounting officer)
Dated: March 10, 2004 /s/ William A. Bowen
---------------------------------
William A. Bowen
Director
Dated: March 10, 2004 /s/ John B. Johnson, Jr.
---------------------------------
John B. Johnson, Jr.
Director
Dated: March 10, 2004 /s/ Thomas E. Naugle
---------------------------------
Thomas E. Naugle
Director
Dated: March 10, 2004 /s/ Anthony Pantaleoni
---------------------------------
Anthony Pantaleoni
Director
Dated: March 10, 2004 /s/ Jerry E. Ryan
---------------------------------
Jerry E. Ryan
Director
Dated: March 10, 2004 /s/ Charles C. Stephenson, Jr.
---------------------------------
Charles C. Stephenson, Jr.
Director
-19-
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of Independent Auditors -Ernst & Young LLP 21
Report of Independent Public Accountants - Arthur Andersen LLP 22
Consolidated Balance Sheets 23
Consolidated Statements of Income 24
Consolidated Statements of Stockholders' Equity 25
Consolidated Statements of Cash Flows 26
Notes to Consolidated Financial Statements 27
-20-
Report of Independent Auditors
Stockholders
AAON, Inc.
We have audited the accompanying consolidated balance sheets of AAON, Inc. as of
December 31, 2003 and 2002, and the related consolidated statements of income,
stockholders' equity and cash flows for the years then ended. 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. The consolidated financial statements of AAON, Inc. for the year
ended December 31, 2001 were audited by other auditors who have ceased
operations and whose report dated February 6, 2002, expressed an unqualified
opinion on those statements before the restatement adjustments described in
Note 1.
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.
As discussed above, the financial statements of AAON, Inc. for the year ended
December 31, 2001, were audited by other auditors who have ceased operations. As
described in Note 1, in 2002 the Company's Board of Directors approved a
three-for-two stock split distributed in the form of a stock dividend, and all
references to number of shares and per share information in the financial
statements have been adjusted to reflect the stock split on a retroactive basis.
We audited the adjustments that were applied to restate the number of shares and
per share information reflected in the 2001 financial statements. Our procedures
included (a) agreeing the authorization for the three-for-two stock split to the
Company's underlying records obtained from management, and (b) testing the
mathematical accuracy of the restated number of shares, basic and diluted
earnings per share and related stock option disclosures. In our opinion, such
adjustments are appropriate and have been properly applied. However, we were not
engaged to audit, review, or apply any procedures to the 2001 financial
statements of the Company other than with respect to such adjustments and,
accordingly, we do not express an opinion or any other form of assurance on the
2001 financial statements taken as a whole.
In our opinion, the 2003 and 2002 financial statements referred to above present
fairly, in all material respects, the consolidated financial position of AAON,
Inc. at December 31, 2003 and 2002, and the consolidated results of its
operations and its cash flows for the years then ended, in conformity with
accounting principles generally accepted in the United States.
ERNST & YOUNG LLP
Tulsa, Oklahoma
February 6, 2004
-21-
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
*This is a copy of a previous report and has not been reissued.
-22-
AAON, INC.
Consolidated Balance Sheets
December 31,
2003 2002
----------------- -----------------
(in thousands, except for
share data)
Assets
Current assets:
Cash and cash equivalents $ 6,186 $ 5,071
Certificate of deposit 10,000 -
Accounts receivable, net 22,553 22,306
Inventories, net 19,711 14,338
Prepaid expenses and other 2,653 599
Deferred tax asset 3,532 4,168
----------------- -----------------
Total current assets 64,635 46,482
Certificate of deposit - 10,000
Property, plant and equipment, net 37,450 35,231
----------------- -----------------
Total assets $ 102,085 $ 91,713
================= =================
Liabilities and Stockholders' Equity
Current liabilities:
Revolving credit facility $ 5,356 $ 3,566
Accounts payable 11,553 8,418
Accrued liabilities 12,357 13,349
----------------- -----------------
Total current liabilities 29,266 25,333
Deferred tax liability 5,391 4,070
Stockholders' equity:
Preferred stock, $.001 par value, 5,000,000 shares
authorized, no shares issued - -
Common stock, $.004 par value, 50,000,000 shares authorized,
12,519,733 and 13,030,916 issued at December 31, 2003 and 2002,
respectively 50 52
Additional paid-in capital - -
Retained earnings 67,378 62,258
----------------- -----------------
Total stockholders' equity 67,428 62,310
----------------- -----------------
Total liabilities and stockholders' equity $ 102,085 $ 91,713
================= =================
See accompanying notes.
-23-
AAON, Inc.
Consolidated Statements of Income
Year Ending December 31,
2003 2002 2001
--------------- --------------- ---------------
(in thousands, except per share data)
Net sales $ 148,845 $ 155,075 $ 157,252
Cost of sales 112,596 117,193 118,399
--------------- --------------- ---------------
Gross profit 36,249 37,882 38,853
Selling, general and administrative expenses 14,909 15,071 16,011
--------------- --------------- ---------------
Income from operations 21,340 22,811 22,842
Interest expense 21 95 892
Interest income (346) (214) -
Other income (188) (180) (536)
--------------- --------------- ---------------
Income before income taxes 21,853 23,110 22,486
Income tax provision 7,626 8,499 8,330
--------------- --------------- ---------------
Net income $ 14,227 $ 14,611 $ 14,156
=============== =============== ===============
Earnings per share*:
Basic $ 1.12 $ 1.11 $ 1.09
=============== =============== ===============
Diluted $ 1.07 $ 1.06 $ 1.04
=============== =============== ===============
Weighted average shares outstanding*:
Basic 12,685 13,158 12,992
=============== =============== ===============
Diluted 13,251 13,740 13,641
=============== =============== ===============
* Reflects three-for-two stock split effective June 4, 2002.
See accompanying notes.
-24-
AAON, Inc.
Consolidated Statements of Stockholders' Equity
Common Stock Paid-in Retained
Shares* Amount Capital Earnings* Total
--------------- ------------- -------------- ---------------- -----------------
(in thousands)
--------------- ------------- -------------- ---------------- -----------------
Balance at December 31, 2000 12,968 $ 52 $ - $ 36,960 $ 37,012
Net income - - - 14,156 14,156
Stock options exercised, including tax benefits 266 1 1,634 - 1,635
Stock issued to employees 1 - 25 - 25
Stock repurchased and retired (236) (1) (596) (2,190) (2,787)
--------------- ------------- -------------- ---------------- -----------------
Balance at December 31, 2001 12,999 52 1,063 48,926 50,041
Net income - - - 14,611 14,611
Stock options exercised, including tax benefits 248 1 1,639 - 1,640
Stock repurchased and retired (216) (1) (2,702) (1,279) (3,982)
--------------- ------------- -------------- ---------------- -----------------
Balance at December 31, 2002 13,031 $ 52 $ - $ 62,258 $ 62,310
Net income - - 14,227 14,227
Stock options exercised, including tax benefits 86 - 811 - 811
Stock repurchased and retired (597) (2) (811) (9,107) (9,920)
--------------- ------------- -------------- ---------------- -----------------
Balance at December 31, 2003 12,520 $ 50 $ - $ 67,378 $ 67,428
=============== ============= ============== ================ =================
* Reflects three-for-two stock split effective June 4, 2002.
See accompanying notes.
-25-
AAON, Inc.
Consolidated Statements of Cash Flows
Year Ended December 31,
2003 2002 2001
-------------- -------------- --------------
(in thousands)
Operating Activities
Net income $ 14,227 $ 14,611 $ 14,156
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 5,435 4,915 4,380
Provision for losses on accounts receivable 467 346 260
Provision for excess and obsolete inventories, net 50 150 (100)
Gain on disposition of assets (28) (6) (125)
Deferred income taxes 1,957 1,085 475
Changes in assets and liabilities:
Accounts receivable (714) 740 4,595
Inventories (5,423) (1,017) 1,769
Prepaid expenses and other (2,054) (379) 25
Accounts payable 3,135 859 (3,686)
Accrued liabilities (583) 627 2,130
-------------- -------------- --------------
Net cash provided by operating activities 16,469 21,931 23,879
Investing Activities
Proceeds from sale of property, plant and equipment 74 8 200
Investment in certificate of deposit - (10,000) -
Capital expenditures (7,700) (6,126) (9,017)
-------------- -------------- --------------
Net cash used in investing activities (7,626) (16,118) (8,817)
Financing Activities
Borrowings under revolving credit agreement 33,742 33,855 56,290
Payments under revolving credit agreement (31,952) (30,735) (62,761)
Proceeds from long-term debt - - 2,500
Payments on long-term debt - (1,869) (7,873)
Stock issued to employees - - 25
Stock options exercised 402 866 650
Repurchase of stock (9,920) (3,982) (2,787)
-------------- -------------- --------------
Net cash used in financing activities (7,728) (1,865) (13,956)
-------------- -------------- --------------
Net increase in cash 1,115 3,948 1,106
-------------- -------------- --------------
Cash and cash equivalents, beginning of year 5,071 1,123 17
-------------- -------------- --------------
Cash and cash equivalents, end of year $ 6,186 $ 5,071 $ 1,123
============== ============== ==============
See accompanying notes.
-26-
AAON, Inc.
Notes to Consolidated Financial Statements
December 31, 2003
1. Business, Summary of Significant Accounting Policies and Other Financial
Data
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.
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 in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
Revenue Recognition
The Company recognizes revenues from sales of products at the time of shipment.
For sales initiated by independent manufacturer representatives, the Company
recognizes revenues net of the representatives' commission.
Concentrations
The Company's customers are concentrated primarily in the domestic commercial
and industrial new construction and replacement markets. At December 31, 2003
and 2002, two customers represented approximately 10% and 17%, respectively, of
accounts receivable.
Sales to customers representing 10% or greater of total sales consist of the
following:
Year Ended December 31,
2003 2002 2001
--------------- ----------- -----------
Wal-Mart Stores, Inc. 18% 14% 14%
Target * 11% 11%
Home Depot * * 10%
*Less than 10%
-27-
1. Business, Summary of Significant Accounting Policies and Other Financial
Data (continued)
Cash and Cash Equivalents
Cash and cash equivalents consist of bank deposits and highly liquid,
interest-bearing money market funds with initial maturities of three months or
less.
Accounts Receivable
The Company grants credit to its customers and performs ongoing credit
evaluations. The Company generally does not require collateral or charge
interest. The Company establishes an allowance for doubtful accounts based upon
factors surrounding the credit risk of specific customers, historical trends,
economic and market conditions and the age of the receivable. Past due accounts
are generally written off against the allowance for doubtful accounts only after
all collection attempts have been exhausted.
Accounts receivable and the related allowance for doubtful accounts are as
follows:
December 31,
2003 2002
----------------- -----------------
(in thousands)
Accounts receivable $ 23,698 $ 23,166
Less allowance for doubtful accounts 1,145 860
----------------- -----------------
Total, net $ 22,553 $ 22,306
================= =================
Year Ended December 31,
2003 2002 2001
--------------- --------------- ---------------
(in thousands)
Allowance for doubtful accounts:
Balance, beginning of period $ 860 $ 860 $ 1,050
Provision for losses on accounts receivable 467 346 260
Accounts receivable written off, net of
recoveries (182) (346) (450)
--------------- --------------- ---------------
Balance, end of period $ 1,145 $ 860 $ 860
=============== =============== ===============
-28-
1. Business, Summary of Significant Accounting Policies and Other Financial
Data (continued)
Inventories
Inventories are valued at the lower of cost or market. Cost is determined by the
first-in, first-out (FIFO) method. The Company establishes an allowance for
excess and obsolete inventories based on product line changes, the feasibility
of substituting parts and the need for supply and replacement parts. At December
31, 2003 and 2002, and for the three years ending December 31, 2003, inventory
and the related allowance for excess and obsolete inventories are as follows:
December 31,
2003 2002
---------------- ----------------
(in thousands)
Raw materials $ 13,874 $ 11,508
Work in process 2,700 2,750
Finished goods 4,187 1,080
---------------- ----------------
20,761 15,338
Less allowance for excess and obsolete inventories 1,050 1,000
---------------- ----------------
Total, net $ 19,711 $ 14,338
================ ================
Year Ended December 31,
2003 2002 2001
-------------- -------------- --------------
(in thousands)
Allowance for excess and obsolete inventories:
Balance, beginning of period $ 1,000 $ 850 $ 950
Provision for excess and obsolete inventories 250 690 -
Adjustments to reserve (200) (540) (100)
-------------- -------------- ---------------
Balance, end of period $ 1,050 $ 1,000 $ 850
============== ============== ===============
-29-
1. Business, Summary of Significant Accounting Policies and Other Financial
Data (continued)
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 as
incurred; 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
At December 31, property, plant and equipment were comprised of the following:
2003 2002
--------------- ---------------
(in thousands)
Land $ 874 $ 874
Buildings 19,588 18,394
Machinery and equipment 44,329 39,580
Furniture and fixtures 3,944 3,497
--------------- ---------------
68,735 62,345
Less accumulated depreciation 31,285 27,114
--------------- ---------------
Total, net $ 37,450 $ 35,231
=============== ===============
Impairment of Long-Lived Assets
The Company evaluates long-lived assets for impairment when events or changes in
circumstances indicate, in management's judgment, that the carrying value of
such assets may not be recoverable. When an indicator of impairment has
occurred, management's estimate of undiscounted cash flows attributable to the
assets is compared to the carrying value of the assets to determine whether
impairment has occurred. If an impairment of the carrying value has occurred,
the amount of the impairment recognized in the financial statements is
determined by estimating the fair value of the assets and recording a loss for
the amount that the carrying value exceeds the estimated fair value.
-30-
1. Business, Summary of Significant Accounting Policies and Other Financial
Data (continued)
Accrued Liabilities
At December 31, accrued liabilities were comprised of the following:
2003 2002
---------------- ----------------
(in thousands)
Warranty $ 6,020 $ 7,220
Commissions 5,009 3,495
Payroll 1,023 1,069
Income taxes (708) 533
Workers' compensation 408 363
Medical self-insurance 478 437
Other 127 232
---------------- ----------------
Total $ 12,357 $ 13,349
================ ================
Warranties
A provision is made for estimated warranty costs at the time the related
products are sold based upon the warranty period, historical trends, new
products and any known identifiable warranty issues. Warranty expense was $3.2
million, $4.3 million and $5.8 million for the years ended December 31, 2003,
2002 and 2001, respectively.
Changes in the Company's warranty liability during the years ended December 31,
2003, and 2002, are as follows:
2003 2002
---------------- ----------------
(in thousands)
Balance, beginning of the year $ 7,220 $ 7,020
Warranties accrued during the year 3,160 4,300
Warranties settled during the year (4,360) (4,100)
---------------- ----------------
$ 6,020 $ 7,220
================ ================
Stock Split
On June 4, 2002, the Company effected a three-for-two stock split. Share and per
share amounts have been retroactively restated to reflect this stock split.
-31-
1. Business, Summary of Significant Accounting Policies and Other Financial
Data (continued)
Earnings Per Share
Basic earnings per common share are computed by dividing net income by the
weighted average number of shares of common stock outstanding during the year.
Diluted earnings per common share are determined based on the assumed exercise
of dilutive options, as determined by applying the treasury stock method. For
the years ended December 31, 2003, 2002 and 2001, 41,250, 41,250 and 22,500
options, respectively, were anti-dilutive. The computation of basic and diluted
earnings per share ("EPS") is as follows:
Year Ended December 31, 2003
----------------------------
(in thousands, except per share data)
Net Weighted Average Per-Share
Income Shares Amount
-------------- -------------------- --------------
Basic EPS $ 14,227 12,685 $1.12
Effect of dilutive securities - 566 -
-------------- -------------------- --------------
Diluted EPS $ 14,227 13,251 $1.07
============== ==================== ==============
Year Ended December 31, 2002
----------------------------
(in thousands, except per share data)
Net Weighted Average Per-Share
Income Shares Amount
-------------- -------------------- --------------
Basic EPS $ 14,611 13,158 $1.11
Effect of dilutive securities - 582 -
-------------- -------------------- --------------
Diluted EPS $ 14,611 13,740 $1.06
============== ==================== ==============
Year Ended December 31, 2001
----------------------------
(in thousands, except per share data)
Net Weighted Average Per-Share
Income Shares Amount
-------------- -------------------- --------------
Basic EPS $ 14,156 12,992 $1.09
Effect of dilutive securities - 649 -
-------------- -------------------- --------------
Diluted EPS $ 14,156 13,641 $1.04
============== ==================== ==============
-32-
1. Business, Summary of Significant Accounting Policies and Other Financial
Data (continued)
Stock Compensation
The Company maintains a stock option plan for key employees and directors which
is described more fully in Note 6. The Company accounts for the plan under the
recognition and measurement principles of APB Opinion No. 25, Accounting for
Stock Issued to Employees, and related Interpretations. No stock-based employee
compensation cost is reflected in net income, as all options granted under the
plan had an exercise price equal to the market value of the underlying common
stock on the date of grant. The effect on net income and earnings per share if
the Company had applied the fair value recognition provisions of SFAS No. 123,
Accounting for Stock-Based Compensation, to stock-based employee compensation is
as follows:
Year Ended December 31,
2003 2002 2001
---------------- ---------------- ----------------
(in thousands except per share data)
Net income, as reported $ 14,227 $ 14,611 $ 14,156
Deduct: Total stock-based employee
compensation expense determined under
fair value method for all awards,
net of related tax effects (611) (995) (575)
---------------- ---------------- ----------------
Pro forma net income $ 13,616 $ 13,616 $ 13,581
================ ================ ================
Earnings per share:
Basic, as reported $ 1.12 $ 1.11 $ 1.09
================ ================ ================
Basic, pro forma $ 1.07 $ 1.03 $ 1.05
================ ================ ================
Diluted, as reported $ 1.07 $ 1.06 $ 1.04
================ ================ ================
Diluted, pro forma $ 1.03 $ 0.99 $ 1.00
================ ================ ================
Advertising
Advertising costs are expensed as incurred. Advertising expense was $781,000,
$372,000 and $454,000 for the years ending December 31, 2003, 2002 and 2001,
respectively.
Research and Development
Research and development costs are expensed as incurred. Research and
development expense was $837,000, $842,000 and $705,000 for the years ending
December 31, 2003, 2002 and 2001, respectively.
Shipping and Handling
Shipping and handling costs are classified in cost of sales.
-33-
1. Business, Summary of Significant Accounting Policies and Other Financial
Data (continued)
New Accounting Pronouncements
SFAS No. 143, Accounting for Asset Retirement Obligations, 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. The adoption of SFAS 143 in 2003 did not
have a significant impact on the Company's results of operations or financial
position.
The Financial Accounting Standards Board (FASB) issued SFAS No. 150 "Accounting
for Certain Financial Instruments with Characteristics of Both Liabilities and
Equity." This Statement establishes standards for how a company classifies and
measures certain financial instruments with characteristics of both liabilities
and equity. It requires that a Company classify a financial instrument that is
within its scope as a liability (or an asset in some circumstances). Many of
those instruments were previously classified as equity. SFAS No. 150 is
effective for financial instruments entered into or modified after May 31, 2003;
otherwise it is effective at the beginning of the first interim period beginning
after June 15, 2003. Initial adoption of this statement did not have any impact
on the Company's consolidated results of operations or financial position.
FASB Interpretation No. 46 (FIN 46) is an interpretation of Accounting Research
Bulletin No. 51, Consolidated Financial Statements. FIN 46 addresses
consolidation by business enterprises of variable interest entities. This
Interpretation applies immediately to variable interest entities created after
January 31, 2003, and to variable interest entities in which an enterprise
obtains an interest after that date. The Company has no investments in or known
contractual arrangements with variable interest entities, and therefore this
Interpretation has not impacted the Company's financial statements or related
disclosures.
Segments
The Company operates under one reportable segment as defined in SFAS 131,
Disclosures about Segments of an Enterprise and Related Information.
2. Supplemental Cash Flow Information
Interest payments of $21,000, $95,000 and $892,000 were made during the years
ending December 31, 2003, 2002 and 2001, respectively. Payments for income taxes
of $6,750,000, $7,156,000 and $6,754,000 were made during the years ending
December 31, 2003, 2002 and 2001, respectively.
3. Certificate of Deposit
The $10 million certificate of deposit bears interest at 3.25% per annum and has
a maturity date of June 12, 2004. There is a three-month interest penalty for
early withdrawal.
4. Revolving Credit Facility
The Company has a $15,150,000 unsecured bank line of credit that matures July
31, 2004. The line of credit requires that the Company maintain a certain
financial ratio and prohibits the declaration or payments of dividends. At
December 31, 2003, the Company was not in compliance with its financial ratio
covenant. However, the event of non-compliance was waived by the bank through
July 31, 2004. Borrowings under the credit facility bear interest at prime rate
less .5% or at LIBOR plus 1.60%. At December 31, 2003 and 2002, the Company had
$5,356,000 and $3,566,000, respectively, outstanding under the credit facility
bearing interest at 2.77% and 3.04%, respectively. In addition, the Company had
a $600,000 bank Letter of Credit at December 31, 2003 and 2002.
-34-
5. Income Taxes
The Company follows the liability method of accounting for income taxes which
provides that deferred tax liabilities and assets are 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 Ending December 31,
2003 2002 2001
-------------- -------------- --------------
(in thousands)
Current $ 5,669 $ 7,414 $ 7,855
Deferred 1,957 1,085 475
-------------- -------------- --------------
$ 7,626 $ 8,499 $ 8,330
============== ============== ==============
The reconciliation of the federal statutory income tax rate to the effective
income tax rate is as follows:
Year Ending December 31,
2003 2002 2001
-------------- -------------- --------------
Federal statutory rate 35% 35% 35%
State income taxes, net
of federal benefit 4 4 4
Other (4) (2) (2)
-------------- -------------- --------------
(35%) 37% 37%
============== ============== ==============
The tax effect of temporary differences giving rise to the Company's deferred
income taxes at December 31 is as follows:
2003 2002
------------ ------------
(in thousands)
Deferred tax assets:
Valuation reserves $ 900 $ 705
Warranty accrual 2,342 2,737
Other accruals 253 708
Other, net 37 18
------------ ------------
$ 3,532 $ 4,168
============ ============
Deferred tax liability:
Depreciation and amortization $ 5,391 $ 4,070
============ ============
6. Benefit Plans
The Company's stock option plan reserves 2,925,000 shares of common stock for
issuance under the plan. Under the terms of the plan, the exercise price of
shares granted may not be less than 85% of the fair market value at the date of
the grant. Options granted to directors vest one year from the date of grant and
are exercisable for nine years thereafter. All other options granted vest at a
rate of 20% per year, commencing one year after date of grant, and are
exercisable during years 2-10. At December 31, 2003, 324,361 shares were
available for future option grants. For the years ended December 31, 2003 and
2002, the Company reduced its income tax payable by $409,000 and $774,000,
respectively, as a result of nonqualified stock options exercised under the
Company's stock option plan. The number and exercise price of options granted
were as follows:
-35-
6. Benefit Plans (continued)
Weighted
Average
Number Exercise Price
of Shares Per Share
---------------- ----------------
Outstanding at December 31, 2000 1,794,487 $ 3.77
Granted 196,875 11.49
Exercised (266,813) 2.47
Cancelled (69,600) 5.46
---------------- ----------------
Outstanding at December 31, 2001 1,654,949 $ 5.01
Granted - -
Exercised (247,598) 3.57
Cancelled (129,808) 5.20
---------------- ----------------
Outstanding at December 31, 2002 1,277,543 $ 5.33
Granted 56,250 13.53
Exercised (85,818) 4.69
Cancelled (20,645) 8.71
---------------- ----------------
Outstanding at December 31, 2003 1,227,330 $ 5.70
================ ================
The weighted-average grant date fair value for options granted during 2003 was
$6.47.
The following is a summary of stock options outstanding as of December 31, 2003:
Options Outstanding Options Exercisable
-------------------------------------------------- ---------------------------------
Number Weighted Weighted
Outstanding at Weighted Average Number Average
Range of December 31, Average Remaining Exercisable at Exercise
Exercise Prices 2003 Exercise Price Contractual Life December 31, 2003 Price
- ---------------------- ---------------- -------------- ---------------- ------------------ --------------
2.28 - 3.39 486,875 $ 3.05 3.23 486,875 $ 3.05
4.00 - 5.78 523,455 5.16 5.39 464,889 5.10
8.44 - 12.36 110,250 9.74 7.28 46,350 9.74
13.29 - 19.27 106,750 16.26 8.33 49,450 18.30
---------------- -------------- ------------------ --------------
TOTAL 1,227,330 $ 5.70 1,047,564 $ 4.97
================ ============== ================== ==============
-36-
6. Benefit Plans (continued)
For purposes of the stock compensation information presented in Note 1, 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:
2003 2002 2001
------------ ------------- ------------
Expected dividend yield 0% * 0%
Expected volatility 37.80% * 45.38%
Risk-free interest rate 3.73% * 5.04%
Expected life 8 yrs * 8 yrs
*The Company granted no options in 2002.
The Company sponsors a defined contribution benefit plan. Employees may 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 $585,000, $535,000 and $504,000 in 2003, 2002 and 2001,
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 $2,428,000, $2,573,000 and
$2,507,000 for the years ended December 31, 2003, 2002 and 2001, respectively.
7. Stockholder Rights Plan
During 1999, the Board of Directors adopted a Stockholder Rights Plan (the
"Plan") which was amended in 2002. Under the Plan, stockholders of record on
March 1, 1999, received a dividend of one right per share of the Company's
common stock. Stock issued after March 1, 1999, contains a notation
incorporating the rights. Each right entitles the holder to purchase one
one-thousandth (1/1,000) of a share of Series A Preferred Stock at an exercise
price of $90. The rights are traded with the Company's common stock. The rights
become exercisable after a person has acquired, or a tender offer is made for,
15% or more of the common stock of the Company. If either of these events
occurs, upon exercise the holder (other than a holder owning more than 15% of
the outstanding stock) will receive the number of shares of the Company's common
stock having a market value equal to two times the exercise price.
The rights may be redeemed by the Company for $0.001 per right until a person or
group has acquired 15% of the Company's common stock. The rights expire on
August 20, 2012.
-37-
8. 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 results of operations or
financial position.
9. Quarterly Results (Unaudited)
The following is a summary of the quarterly results of operations for the years
ending December 31, 2003 and 2002:
Quarter Ending
March 31 June 30 September 30 December 31
---------------------------------------------------------------------------
(in thousands, except per share data)
2003
Net sales $ 32,856 $ 37,222 $ 41,003 $ 37,764
Gross profit 8,697 8,808 9,512 9,232
Net income 3,495 3,357 3,635 3,740
Earnings per share:
Basic 0.27 0.26 0.29 0.30
Diluted 0.26 0.25 0.27 0.29
.
Quarter Ending
March 31 June 30 September 30 December 31
---------------------------------------------------------------------------
(in thousands, except per share data)
2002
Net sales $ 35,990 $ 40,181 $ 41,702 $ 37,202
Gross profit 9,617 9,737 10,401 8,127
Net income 3,647 3,666 4,186 3,112
Earnings per share:
Basic 0.27 0.28 0.32 0.24
Diluted 0.27 0.27 0.30 0.23
-38-
Exhibit 23
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement
(Post-Effective Amendment No. 2 to Form S-8 No. 33-78520) pertaining to the
AAON, Inc. 1992 Stock Option Plan, as amended, of our report dated February 6,
2004, with respect to the consolidated financial statements of AAON, Inc.
included in the Annual Report (Form 10-K) for the year ended December 31, 2003.
ERNST & YOUNG LLP
Tulsa, Oklahoma
March 10, 2004
-39-
Exhibit 31.1
CERTIFICATION
I, Norman H. Asbjornson, certify that:
1. I have reviewed this Annual Report on Form 10-K of AAON, Inc.
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
annual report is being prepared:
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of the end of the period covered by
this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
annual report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
/s/ Norman H. Asbjornson
Norman H. Asbjornson
Chief Executive Officer
March 10, 2004
-40-
Exhibit 31.2
CERTIFICATION
I, Kathy I. Sheffield, certify that:
1. I have reviewed this Annual Report on Form 10-K of AAON, Inc.
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
annual report is being prepared:
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of the end of the period covered by
this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The Registrant's other certifying officer and I have indicated in this
annual report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
/s/ Kathy I. Sheffield
Kathy I. Sheffield
Chief Financial Officer
March 10, 2004
-41-
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of AAON, Inc. (the "Company"), on Form
10-K for the year ended December 31, 2003, as filed with the Securities and
Exchange Commission on the date hereof (the "Report"), I, Norman H. Asbjornson,
Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350,
as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of the
Company.
/s/ Norman H. Asbjornson
Norman H. Asbjornson
Chief Executive Officer
March 10, 2004
-42-
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of AAON, Inc. (the "Company"), on Form
10-K for the year ended December 31, 2003, as filed with the Securities and
Exchange Commission on the date hereof (the "Report"), I, Kathy I. Sheffield,
Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350,
as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of the
Company.
/s/ Kathy I. Sheffield
Kathy I. Sheffield
Chief Financial Officer
March 10, 2004
-43-