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FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2004
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)
(918) 583-2266
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes |X| No
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Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
Yes |X| No
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As of May 1, 2004, Registrant had outstanding a total of 12,470,958 shares of
its $.004 par value Common Stock.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
On pages 8 through 15 of this report.
Item 2. 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).
-1-
Set forth below is income statement information with respect to the Company for
the periods ended March 31, 2004, and 2003:
AAON, Inc.
Consolidated Statements of Operations
Three Months Ended
March 31, 2004* March 31, 2003*
--------------------- ---------------------
Net Sales $37,494 $32,856
Cost of sales 29,793 24,159
--------------------- ---------------------
Gross profit 7,701 8,697
Selling, general and
administrative expenses 3,967 3,196
--------------------- ---------------------
Income from operations 3,734 5,501
Interest expense 17 6
Interest income (81) (58)
Other income (2) (84)
--------------------- ---------------------
Income before income taxes 3,800 5,637
Income tax provision 1,463 2,142
--------------------- ---------------------
Net income $ 2,337 $ 3,495
===================== =====================
*Unaudited
Results of Operations. Net sales increased $4.6 million (14.1%) to $37.5 million
from $32.9 million for the three months ended March 31, 2004, compared to the
same period in 2003. Increased sales were attributable to the introduction of
new products and the improving outlook for the U.S. economy.
Gross margins were 20.5% compared to 26.5% for the three months ended March 31,
2004 and March 31, 2003, respectively. Gross profit decreased $996,000 (11.5%)
to $7.7 million from $8.7 million for the three months ended March 31, 2004,
compared to the same period in 2003. The decrease in margins was due principally
to the start-up costs associated with a new coil project and price increases in
steel and copper.
Selling, general and administrative expenses increased $771,000 (24.1%) to $4.0
million from $3.2 million for the three months ended March 31, 2004, compared to
the same period in 2003, due primarily to an increase in warranty and bad debt
expense.
-2-
Financial Condition and Liquidity. Inventories increased $2.5 million to $22.2
million at March 31, 2004, compared to $19.7 million at December 31, 2003, due
to production issues with the manufacturing of new products and the procurement
of additional raw material and purchased parts required to manufacture units
that had extended ship dates. The bulk of the increase in inventories is
committed for future manufacturing.
Accounts payable and accrued liabilities decreased $679,000 to $23.2 million at
March 31, 2004, compared to $23.9 million at December 31, 2003, due primarily to
timing of payment to vendors.
The Company generated $1.2 million and $8.7 million cash from operating
activities during the three months ended March 31, 2004, and March 31, 2003,
respectively. The decrease in 2004 was due primarily to a decrease in net income
and an increase in inventories. The increase in 2003 was due primarily to
increased accounts receivable collections and timing of payments to vendors.
Cash flows used in investing activities were $663,000 for the three months ended
March 31, 2004, and $1.3 million for the three months ended March 31, 2003. Cash
flows used in investing activities in 2004 were related primarily to capital
expenditures for additions of machinery and equipment, and the Company's sheet
metal facility at the Tulsa plant. Cash used in investing activities in 2003
were related primarily to machinery and equipment additions and renovations to
the Company's manufacturing and office facilities. All capital expenditures and
the building expansion were financed out of cash generated from operations.
Approximately $1.8 million is committed to the completion of the sheet metal
facility at the Tulsa plant and will be financed out of income from operations.
On May 4, 2004, the Company finalized an acquisition of certain assets of a
manufacturing operation in Canada. The preliminary purchase of the acquisition
was approximately $1,749,600 and was financed out of income from operations.
Cash flows used in financing activities were $6.5 million and $7.5 million
during the three months ended March 31, 2004, and March 31, 2003, respectively.
The cash used in 2004 and 2003 was related primarily to the repurchase of
Company stock and net payments under the revolving credit agreement. The
Company's revolving credit facility 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 under the revolving credit facility at March 31, 2004 were $882,000;
there were no borrowings under the revolving credit facility at March 31, 2003.
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 the 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 March 31, 2004, see Note 7 to the
financial statements included in this report.
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.
-3-
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.
Inventory Reserves - The Company establishes a reserve for 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, replacement parts, and for
estimated shrinkage.
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.
Historically, warranty costs 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 ("FAS 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.
Forward-Looking Statements
This report includes "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Words such as "expects,"
"anticipates," "intends," "believes," "seeks," "estimates," "will," or
variations of such words and similar expressions are intended to identify such
forward-looking statements. These statements are not guarantees of future
performance and involve certain risks, uncertainties and assumptions which are
difficult to predict. Therefore, actual outcomes and results may differ
materially from what is expressed or forecasted in such forward-looking
statements. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date on which they are
made. The Company undertakes no obligation to update publicly any
forward-looking statements, whether as a result of new information, future
events or otherwise. Important factors that could cause actual results to differ
materially from those in the forward-looking statements include (1) the timing
and extent of changes in material prices, (2) the effects of fluctuations in the
commercial/industrial new construction market, (3) the timing and extent of
changes in interest rates, as well as other competitive factors during the year
and (4) general economic, market or business conditions.
-4-
Item 3. 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 into cancelable fixed
price contracts with its major suppliers for periods of 6-12 months. However,
the Company has experienced sharp increases in steel and copper prices during
the three months ended March 31, 2004, and expects to be further impacted by
increases for the remainder of the year.
The Company does not utilize derivative financial instruments to hedge its
interest rate or raw materials price risks.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
At the end of the period covered by this Quarterly Report on Form 10-Q, 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
Quarterly Report was prepared, as appropriate to allow 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.
-5-
Item 5. Other Events.
On October 17, 2002, the Company announced a stock buyback program to repurchase
up to 10% (1,325,000 shares) of its outstanding stock. Through March 31, 2004,
the Company had acquired 918,464 shares of its stock pursuant to its current
buyback program.
On May 4, 2004, the Company acquired certain assets and assumed certain
liabilities of Air Wise Inc. of Mississauga, Ontario, Canada. Air Wise is
engaged in the engineering, manufacturing, and sale of custom air-handling
units, makeup air units and packaged rooftop units for commercial and industrial
buildings. The preliminary purchase price totaled approximately $1,749,600.
-6-
PART II - OTHER INFORMATION
Item 2. Issuer Purchases of Equity Securities.
Stock repurchases during the first quarter of 2004 were as follows:
ISSUER PURCHASES OF EQUITY SECURITIES
- ----------------- ------------------- ---------------- --------------------- --------------------------------
(c) Total Number of
Shares (or Units) (d) Maximum Number or
(a) Total Number (b) Average Purchased as Approximate Dollar Value
of Shares Price Paid Part of Publicly of Shares (or Units) that
(or Units) Per Share Announced Plans May Yet Be Purchased
Period Purchased (or Unit) Or Programs Under the Plans or Programs
- ----------------- ------------------- ---------------- --------------------- --------------------------------
Month #1
January 1-31 85,000 $22.00 85,000 427,036
2004
- ----------------- ------------------- ---------------- --------------------- --------------------------------
Month #2
February 1-29 20,500 $19.16 20,500 406,536
2004
- ----------------- ------------------- ---------------- --------------------- --------------------------------
Month #3
March 1-31 - - - 406,536
2004
- ----------------- ------------------- ---------------- --------------------- --------------------------------
Total 105,500 $21.45 105,500
- ----------------- ------------------- ---------------- --------------------- --------------------------------
-7-
AAON, Inc.
Consolidated Balance Sheets
March 31, December 31,
2004* 2003
-----------------------------------------------
(In thousands, except share and per share data)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 201 $ 6,186
Certificate of deposit 10,000 10,000
Accounts receivable, net 22,123 22,553
Inventories, net 22,223 19,711
Prepaid expenses 2,948 2,653
Deferred income tax 3,532 3,532
-------------------- ------------------
Total current assets 61,027 64,635
-------------------- ------------------
PROPERTY, PLANT AND EQUIPMENT
Land 874 874
Buildings 19,837 19,588
Machinery and equipment 44,704 44,329
Furniture and fixtures 3,976 3,944
-------------------- ------------------
Total property, plant & equipment 69,391 68,735
Less: accumulated depreciation 32,834 31,285
-------------------- ------------------
Net property, plant & equipment 36,557 37,450
-------------------- ------------------
Total Assets $ 97,584 $102,085
==================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Revolving credit facility $ 882 $ 5,356
Accounts payable 10,987 11,553
Accrued liabilities 12,244 12,357
-------------------- ------------------
Total current liabilities 24,113 29,266
-------------------- ------------------
DEFERRED TAX LIABILITY 5,391 5,391
-------------------- ------------------
STOCKHOLDERS' EQUITY
Preferred Stock, $.001 par, 5,000,000 shares
authorized, no shares issued - -
Common Stock, $.004 par, 50,000,000 shares
authorized, and 12,469,158 and 12,519,733
issued and outstanding at March 31, 2004,
and December 31, 2003, respectively 50 50
Additional paid-in capital - -
Retained earnings 68,030 67,378
-------------------- ------------------
Total stockholders' equity 68,080 67,428
-------------------- ------------------
Total Liabilities and Stockholders' Equity $ 97,584 $102,085
==================== ==================
*Unaudited
-8-
AAON, Inc.
Consolidated Statements of Operations
Three Months Ended Three Months Ended
March 31, 2004* March 31, 2003*
---------------------------------------------------------
(in thousands, except share and per share data)
Net sales $ 37,494 $ 32,856
Cost of sales 29,793 24,159
------------------------ ------------------------
Gross profit 7,701 8,697
Selling, general and administrative expenses 3,967 3,196
------------------------ ------------------------
Income from operations 3,734 5,501
Interest expense 17 6
Interest income (81) (58)
Other income (2) (84)
------------------------ ------------------------
Income before income taxes 3,800 5,637
Income tax provision 1,463 2,142
------------------------ ------------------------
Net Income $ 2,337 $ 3,495
======================== ========================
Earnings Per Share:
Basic $ 0.19 $ 0.27
======================== ========================
Diluted $ 0.18 $ 0.26
======================== ========================
Weighted Average Shares Outstanding:
Basic 12,482,186 12,880,299
======================== ========================
Diluted 12,997,022 13,415,455
======================== ========================
*Unaudited
-9-
AAON, Inc.
Consolidated Statements of Stockholders' Equity
Common Stock Paid-in Retained
Shares Amount Capital Earnings Total
------------------------------------------------------------------------------
(in thousands)
Balance, December 31, 2003 12,520 $50 $ - $67,378 $67,428
Stock options exercised, 55 - 578 - 578
including tax benefits*
Repurchase of common stock* (106) - (578) (1,685) (2,263)
Net income* - - - 2,337 2,337
----------- ------------ ------------ ------------ ------------
Balance, March 31, 2004* 12,469 $50 $ - $68,030 $68,080
=========== ============ ============ ============ ============
*Unaudited
-10-
AAON, Inc.
Consolidated Statements of Cash Flows
Three Months Ended Three Months Ended
March 31, 2004* March 31, 2003*
-----------------------------------------------------
(in thousands)
Operating Activities
Net income $ 2,337 $ 3,495
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 1,552 1,238
Provision for losses on accounts receivable 470 82
Loss on disposition of assets 4 -
Changes in assets and liabilities:
Accounts receivable (40) 2,171
Inventories (2,512) (1,247)
Prepaid expenses (295) 20
Accounts payable (566) (126)
Accrued liabilities 241 3,053
------------------------ ------------------------
Net cash provided by operating activities 1,191 8,686
Investing Activities
Proceeds from sale of property, plant and equipment 1 -
Capital expenditures (664) (1,342)
Asset acquisition
------------------------ ------------------------
Net cash used in investing activities (663) (1,342)
Financing Activities
Borrowings under revolving credit agreement 12,968 6,324
Payments under revolving credit agreement (17,442) (9,890)
Stock options exercised 224 28
Repurchase of common stock (2,263) (4,008)
------------------------ ------------------------
Net cash used in financing activities (6,513) (7,546)
------------------------ ------------------------
Net decrease in cash (5,985) (202)
------------------------ ------------------------
Cash and cash equivalents, beginning of period 6,186 5,071
------------------------ ------------------------
Cash and cash equivalents, end of period $ 201 $ 4,869
======================== ========================
*Unaudited
See accompanying notes.
-11-
1. BASIS OF PRESENTATION:
The financial statements included herein have been prepared by the Company,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission (SEC). Certain information and footnote disclosures normally
included in financial statements prepared in accordance with accounting
principles generally accepted in the United States have been condensed or
omitted pursuant to such rules and regulations. The Company believes that the
disclosures made in these financial statements are adequate to make the
information presented not misleading when read in conjunction with the financial
statements and the notes thereto included in the Company's latest audited
financial statements which were included in the Form 10-K Report for the fiscal
year ended December 31, 2003, filed by AAON, Inc. with the SEC. In the opinion
of management, the accompanying financial statements include all normal,
recurring adjustments required for a fair presentation of the results of the
periods presented. Operating results for the three months ended March 31, 2004,
are not necessarily indicative of the results that may be expected for the year
ending December 31, 2004.
2. STOCK COMPENSATION:
The Company accounts for its Stock Option 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:
Three Months Ended
March 31, 2004 March 31, 2003
------------------- ----- -------------------
(in thousands, except share data)
Net income as reported $ 2,337 $ 3,495
Deduct compensation expense
determined under fair value method for all
awards, net of related tax effects (157) (131)
------------------- -------------------
Pro forma net income $ 2,180 $ 3,364
=================== ===================
Earnings per share:
Basic, as reported $ 0.19 $ 0.27
=================== ===================
Basic, pro forma $ 0.17 $ 0.26
=================== ===================
Diluted, as reported $ 0.18 $ 0.26
=================== ===================
Diluted, pro forma $ 0.17 $ 0.25
=================== ===================
3. 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.
-12-
4. CERTIFICATE OF DEPOSIT:
The $10 million certificate of deposit bears interest at 3.25% per annum and
matures on June 12, 2004. There is a three-month interest penalty for early
withdrawal.
5. 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 a reserve for excess
and obsolete inventories based on product line changes, the feasibility of
substituting parts, the need for supply replacement parts, and estimated
shrinkage. At March 31, 2004 (unaudited), and December 31, 2003, inventory and
the related inventory reserves are as follows (in thousands):
Three Months Ended
March 31, 2004 December 31, 2003
-----------------------------------------------
(in thousands)
Raw materials $ 14,440 $ 13,874
Work in process 2,584 2,700
Finished goods 6,249 4,187
------------------ -------------------
$ 23,273 $ 20,761
Less: Inventory reserve 1,050 1,050
------------------ -------------------
Total, net $ 22,223 $ 19,711
================== ===================
6. ACCRUED LIABILITIES:
At March 31, 2004, (unaudited), and December 31, 2003, accrued liabilities were
comprised of the following:
Three Months Ended
March 31, 2004 December 31, 2003
-----------------------------------------------
(in thousands)
Warranty $ 6,151 $ 6,020
Commissions 4,063 5,009
Payroll 1,324 1,023
Other 706 305
------------------ -------------------
Total $ 12,244 $ 12,357
================== ===================
A provision is made for the estimated cost of warranty obligations at the time
the related products are sold based upon the warranty period, historical trends,
new products and any known identifiable warranty issues.
-13-
Changes in the Company's warranty liability during the three months ended March
31, 2004, and 2003, are as follows (in thousands):
Three Months Ended
March 31, March 31,
2004 2003
------------------- -------------------
Balance, beginning of period $6,020 $7,200
Warranties accrued during the period 979 487
Warranties settled during the period (848) (378)
------------------- -------------------
Balance, end of period $6,151 $7,309
=================== ===================
7. REVOLVING CREDIT FACILITY:
The Company's $15,150,000 bank line of credit bears interest payable monthly at
LIBOR plus 1.60% (2.70% at March 31, 2004), with a maturity date of July 31,
2004. The credit facility requires that the Company maintain a certain financial
ratio and prohibits the declaration and payment of dividends. At March 31, 2004,
the Company had a balance of $882,000 on the bank line of credit and had $
5,356,000 outstanding at December 31, 2003.
8. EARNINGS PER SHARE:
The following table sets forth the computation of basic and diluted earnings per
share:
Three Months Ended
March 31, 2004 March 31, 2003
------------------- -------- -------------------
(in thousands, except share and per share data)
Numerator:
Income available to common
stockholders $ 2,337 $ 3,495
Denominator:
Denominator for basic earnings per share -
Weighted average shares 12,482,186 12,880,299
Effect of dilutive employee stock options 514,836 535,156
------------------- -------------------
Denominator for diluted earnings per share - weighted
average shares 12,997,022 13,415,455
=================== ===================
Basic earnings per share $ 0.19 $ 0.27
=================== ===================
Diluted earnings per share $ 0.18 $ 0.26
=================== ===================
9. SUBSEQUENT EVENT:
On May 4, 2004, the Company acquired certain assets and assumed certain
liabilities of Air Wise Inc. of Mississauga, Ontario, Canada. Air Wise is
engaged in the engineering, manufacturing, and sale of custom air-handling
units, makeup air units and packaged rooftop units for commercial and industrial
buildings. The preliminary purchase price totaled approximately $1,749,600.
-14-
10. FOOTNOTES INCORPORATED BY REFERENCE:
Certain footnotes are applicable to the financial statements, but would be
substantially unchanged from those presented in the December 31, 2003, 10-K
filed with the SEC. Accordingly, reference should be made to this statement for
the following:
Note Description
============== ==========================================================
1 Business, Summary of Significant Accounting Policies and
Other Financial Data
5 Income Taxes
6 Benefit Plans
7 Stockholder Rights Plan
8 Contingencies
-15-
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits - None.
(b) Registrant did not file any reports on Form 8-K during the three
month period ended March 31, 2004.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AAON, INC.
Dated: May 5, 2004 By: /s/ Norman H. Asbjornson
--------------------------------------
Norman H. Asbjornson
President/CEO
Dated: May 5, 2004 By: /s/ Kathy I. Sheffield
--------------------------------------
Kathy I. Sheffield
Treasurer
-16-
Exhibit 31.1
CERTIFICATION
I, Norman H. Asbjornson, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of AAON, Inc.
2. Based on my knowledge, this quarterly 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 quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly 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
quarterly 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 quarterly report (the "Evaluation Date"); and
c) presented in this quarterly 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
quarterly 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
President/Chief Executive Officer
May 5, 2004
-17-
Exhibit 31.2
CERTIFICATION
I, Kathy I. Sheffield, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of AAON, Inc.
2. Based on my knowledge, this quarterly 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 quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly 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
quarterly 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 quarterly report (the "Evaluation Date"); and
c) presented in this quarterly 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
quarterly 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
May 5, 2004
-18-
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 Quarterly Report of AAON, Inc. (the "Company"), on Form
10-Q for the period ended March 31, 2004, as filed with the Securities and
Exchange Commission on the date hereof (the "Report"), I, Norman H. Asbjornson,
President/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,
to my knowledge:
(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
President/Chief Executive Officer
Dated: May 5, 2004
-19-
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 Quarterly Report of AAON, Inc. (the "Company"), on Form
10-Q for the period ended March 31, 2004, 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, to my
knowledge:
(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
Dated: May 5, 2004
-20-