AAON Annual Report 2002 | Quarterlytics

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FY2002 Annual Report · AAON

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AAON, Inc.

2425 South Yukon Avenue

Tulsa, Oklahoma 74107

(918) 583-2266

Fax: (918) 583-6094

AAON Coil Products, Inc.

203 Gum Springs Road

Longview, Texas 75602

(903) 236-4403

Fax: (903) 236-4463

www.aaon.com

Alert

for opportunities.

2 0 0 2 A A O N A n n u a l R e p o r t

And going after them.

With the same

responsiveness and speed that continue

to help AAON pull away from the pack. That’s what

getting there first

is all about. Add to that: AAON’s amazing agility. Our

willingness and ability to turn challenges into opportunities is

setting the standard

for innovative advancements in

our field. With a keen eye to the future, we remain

committed to go where opportunity leads us,

without boundaries.

What’s Inside:

Financial Highlights

Company Profile

Letter to Shareholders

Form 10K

AAON’s People

Financial Highlights

2002

2001

2000

1999

1998

SALES
In $ Millions

157.3

155.1

155.0

Income Data ($000)

Net Sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155,075

157,252

154,982

131,947 109,624

Gross Profit. . . . . . . . . . . . . . . . . . . . . . . . . . . 37,882

38,853

34,749

30,718

19,829

Operating Income . . . . . . . . . . . . . . . . . . . . . 22,811

22,842

20,827

15,977

9,203

Interest Expense . . . . . . . . . . . . . . . . . . . . . .

892

904

574

1,017

Depreciation and Amortization . . . . . . . . .

4,915

4,380

3,465

3,063

2,848

109.6

131.9

41% Increase
1998 to 2002

Pre-Tax Income. . . . . . . . . . . . . . . . . . . . . . . . 23,110

22,486

20,359

15,641

8,545

Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . .

14,611

14,156

12,794

9,697

5,230

Earnings Per Share (Basic) . . . . . . . . . . . .

(Diluted) . . . . . . . . . .

1.11

1.06

1.09

1.04

0.97

0.92

0.69

0.67

0.38

0.36

Balance Sheet ($000)

Current Assets . . . . . . . . . . . . . . . . . . . . . . . . 46,482

42,273

47,358

36,477

31,953

Net Fixed Assets . . . . . . . . . . . . . . . . . . . . . . 35,231

34,022

29,460

22,179

18,553

Accumulated Depreciation . . . . . . . . . . . . .

27,114

22,273

19,063

15,650

12,678

Cash & Cash Investments. . . . . . . . . . . . . . .

15,071

1,123

Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . 91,713

76,295

76,818

58,656 50,506

Current Liabilities . . . . . . . . . . . . . . . . . . . . . 25,333

22,385

31,902

17,246

14,832

Long-Term Debt . . . . . . . . . . . . . . . . . . . . . . .

985

5,853

6,630 10,980

Stockholders’ Equity. . . . . . . . . . . . . . . . . . . 62,310

50,041

37,012

33,618

24,411

Stockholders’ Equity per Share . . . . . . . . .

4.53

3.67

2.66

2.31

1.70

Funds Flow Data ($000)

From (To) Operations . . . . . . . . . . . . . . . . . .

21,931

23,879

14,040

11,953

5,809

From (To) Investment . . . . . . . . . . . . . . . . . .

(16,118)

(8,817)

(10,733)

(6,649)

(4,767)

From (To) Financing . . . . . . . . . . . . . . . . . . .

(1,865)

(13,956)

(3,315)

(5,304)

(1,043)

From (To) Cash and Cash Equivalents . . . .

3,948

1,106

(8)

—

(1)

Ratio Analysis

Return on Average Equity . . . . . . . . . . . . . . 26.0%

32.5% 36.2% 33.4% 24.2%

Return on Average Assets . . . . . . . . . . . . . .

17.4%

Pre-Tax Income on Sales . . . . . . . . . . . . . . .

14.9%

Net Income on Sales. . . . . . . . . . . . . . . . . . .

9.4%

Total Liabilities to Equity . . . . . . . . . . . . . . .

Long-Term Debt to Equity . . . . . . . . . . . . . .

Current Ratio . . . . . . . . . . . . . . . . . . . . . . . . .

0.5

0.0

1.8

18.5%

14.3%

9.0%

0.5

0.0

1.9

18.9% 17.8% 11.2%

13.1% 11.9% 7.8%

8.3%

7.4% 4.8%

1.1

0.2

1.5

0.7

0.2

2.1

1.1

0.4

2.2

EARNINGS PER SHARE
Diluted

$1.06

$1.04

$0.92

$0.67

$0.36

186% Increase
1998 to 2002

98*

99*

00*

01*

02*

STOCK PRICE
As of end of December

$18.43

$16.31

$7.86

$6.39

$4.14

345% Increase
1998 to 2002

98*

99*

00*

01*

02*

= Reflects 3-for-2 stock splits in September 2001 and June 2002.

= Reflects reclassification of revolving loan from long-term debt to current liabilities for the years 2000, 2001 and 2002.

= Actual dollars and diluted number of shares for all years reflect both 3-for-2 stock splits.

* Reflects the 3-for-2 Stock Split, September 2001 and June 2002.

Always

Loyal

To Our Mission.

Dear Shareholder, The “Perfect Storm” was created by the

confluence of a number of severe weather systems at the same

time and location. During 2002, an already lethargic economic

atmosphere was negatively impacted by the convergence of geo-

political concerns and widespread corporate malfeasance. After

posting five consecutive years of record sales growth during

which time sales grew from $81.7 million in 1997 to $157.3 million

in 2001, or a gain of 92.5%, this past year we witnessed our first

year-over-year decline as sales dipped 1.4% to $155.1 million.

Despite this lack of growth, net income attained record levels for

the seventh consecutive year, rising to $14.6 million or $1.06 per

share from $14.2 million or $1.04 per share.

hrough new product development and a more diverse customer

base, AAON’s share of the rooftop HVAC market increased from

7% in 1996 to 13% in 2002. According to the Air Conditioning and

Refrigeration Institute, while total industry unitary volume increased

7% in 2002, the segment above 5 tons capacity (AAON’s primary

sector of operation) decreased a similar amount. Furthermore, that

portion of industry volume above 20 tons declined approximately

15%. Once again, our ability to innovate and perform to our

customers’ expectations enhanced our prominent position in the

HVAC industry and enabled us to garner a larger share of the

market in which we operate.

Company Profile

AAON, Inc., headquartered in Tulsa, Oklahoma,

engineers, manufactures and markets commercial

air conditioning products including heating,

ventilating, heat recovery and heat transfer coils.

Products include single unit systems containing

heating, cooling and heat recovery components

in a self-contained cabinet, coils consisting of a

sheet metal casing with tubes and fins, air

handling units consisting of coils, blowers and

filters, chillers and condensing units consisting

of heat exchangers, fans and compressors.

Approximately 60% of the Company’s sales

come from new construction and 40% from

renovation/replacements. AAON sells to a wide

range of applications through sales representatives,

as well as to many national accounts, such as

Wal-Mart stores, Dillard’s and Wendy’s.

The company has about 13% share of the

commercial rooftop market and a 1% share of

the coil market.

The company’s subsidiary, AAON Coil Products,

Inc., is located in Longview, Texas and manufactures

coils, air handlers and condensing units.

O P P O RT U N I T Y:

Air Handlers.

The $500 million a year air handler industry has a brand new player that

once again demonstrates AAON’s commitment to customer satisfaction and

design flexibility. The CELEBRITY™ Modular Air Handler incorporates many

of the problem-solving features offered in AAON’s rooftop products, making

it a great solution for renovations or retrofits to existing systems.

Pursuit of New Horizons. In my shareholders’ letters to you over

earmarked for new and redesigned products at a cost of almost $3

the past two years, I discussed the industry-wide softening of demand,

million. These efforts have spawned an almost totally redesigned

which continued throughout all of 2002. During that period, two choices

product line as well as a number of new products, all of which have

of operating philosophies became apparent to us. One was to seek

many common goals: to improve energy efficiency, meet new

shelter from the storm: reduce expenses across the board, cut back on

technological needs and enhance overall quality – all to increase

capital costs and research and development expenditures and wait for

customer satisfaction.

product can compete effectively by offering our customer new

the portion of the air handler market that we are beginning to service

innovations as well as cost and energy-saving solutions. Over the

to be approximately $500 million annually.

next two to four years, we are hopeful of establishing a strong

foothold in this market, which is similar in size to the rooftop

2002 Financial Performance. AAON serves a diverse roster of

market estimated to be approximately $1.2 billion.

customers in five important market segments. They are: Retailing,

Our decision to move into the applied systems market has

Education, Industrial (Manufacturing), Medical and Health and Office

provided platforms for the introduction of a number of new air

Buildings. During the past year, we witnessed continuing severe

handler products including a large-capacity rooftop air handler that

weakness in both new office and manufacturing plant construction,

brings a semi-standardized product to a market previously dominated

which declined on an industry-wide basis 30% and 12%, respectively.

by custom manufacturers. In addition, we have recently released

The retailing sector was flat to down slightly from the previous year

CELEBRITY,™ our new modular air handler product, which incorporates

while the two bright spots continued to be the educational and

many application problem-solving features offered in our rooftop

medical and health markets. The net result for AAON was a slight

products. Furthermore, the modular nature of this product provides

decline in sales of 1.4% to $155.1 million in 2002 from $157.3 million

a business recovery to stimulate demand to prompt a return to our

Just a few years ago, our product line ranged in tonnage

flexibility of design as well as ease of retrofit installation. We estimate

for the year ended December 31, 2001.

prior growth objectives. The second choice was to continue to pursue

output from 2 to 140 tons. The introduction in 2001 of our RL Model

growth through continuing innovation of both our existing and new

Series of rooftop products expanded our tonnage limit to 230 tons.

product lines. The latter course, which we took, meant increasing both

Furthermore, the move into this market gave rise to the development

research and development expenditures and capital expenditures.

of our LL Model Series line of chillers in 2002 with capacity of 35 to

Since 2000, we have significantly accelerated our research and

365 tons in either air-cooled or evaporative-cooled configurations.

development program with approximately $2 million devoted to this

Evaporative cooling can result in energy savings of 30-40% annually.

effort. In addition, we have added machinery and increased capacity

While the chiller market is highly competitive, we believe AAON’s

O P P O RT U N I T Y:Chillers.

Just as AAON’s innovations changed the unitary rooftop market in 1988, the chiller market

is now being transformed with the introduction of the new AAON Model LL air and

evaporative cooled chiller, which has features that have never before been obtainable.

Spring
AAON purchased,
renovated and moved
into a 184,000 square
foot plant in Tulsa,
Oklahoma.

Introduced a new
product line of
rooftop heating
and air conditioning
units 2-140 tons.

August
AAON, an
Oklahoma
corporation,
was founded.

December
Formed AAON Coil Products, a Texas
Corporation, as a subsidiary to
AAON, Inc. (Nevada) and purchased
coil making assets of Coils Plus.

January
Introduced a desiccant
heat recovery wheel
option available on all
AAON rooftop units.

September One-for-four
reverse stock split. Retired
$1,927,000 of subordinated debt.

September
Completed
expansion of the
Tulsa facility
to 332,000
square feet.

April
AAON received U.S.
patent for Blower
Housing assembly.

October
U.S. patent granted to AAON
for air conditioner with energy
recovery heat wheel.

Spring
Completed Tulsa, Oklahoma,
and Longview, Texas, plant
additions yielding a total
exceeding 1 million square feet.

June
3-for-2 stock split.

8 7

1 9 8 8

1 9 8 9

1 9 9 0

1 9 9 1

1 9 9 2

1 9 9 3

1 9 9 4

1 9 9 5

1 9 9 6

1 9 9 7

1 9 9 8

1 9 9 9

2 0 0 0

2 0 0 1

2 0 0 2

2 0 0 3

September
Purchase of
John Zink Air
Conditioning
Division.

December
Listed on
NASDAQ Small
Cap – Symbol
“AAON.”

Summer
Became a publicly
traded company
with the reverse
acquisition of
Diamond Head
Resources (now
“AAON, Inc.”), a
Nevada corporation.

Spring
AAON Coil Products purchased,
renovated and moved into a
110,000 square foot plant in
Longview, Texas.

November
Listed on the
NASDAQ National
Market System.

March
Purchase of property with 26,000
square foot building adjacent to AAON
Coil Products plant in Longview, Texas
Issued a 10% stock dividend.

December
Purchased 40 acres with
457,000 square foot plant
and 22,000 square foot
office space located
across from Tulsa facility.

November 1998
AAON yearly
shipments exceed
$100 million.
Received U.S. patent
for Dimpled Heat
Exchanger Tube.

Fall
Expanded rooftop product line to 230 tons.
Introduced evaporative condensing energy
savings feature. 3-for-2 stock split.

Fall
Industry introduction of
the modular air handler
and chiller products.

July
AAON added as a member of
the Russell 2000® Index.

Gross profit margins narrowed slightly to 24.4% of sales or $37.9

introductions. SG&A expenses declined to $15.1 million or 9.7% of

GROWTH COMPANIES,” placing 23rd on the list. In addition, the

the Montreal Protocol, a “green” refrigerant such as R410A,

million in 2002 from 24.7% of sales or $38.9 million, reflecting pricing

sales from $16.0 million or 10.2% of sales, enabling 2002 operating

Company was selected to Fortune Small Business’ (July/August 2002)

which is considered environmentally safe, will replace R22. We have

pressures and higher start-up costs associated with new product

income to reach $22.8 million or 14.7% of sales. In 2001, operating

list of “AMERICA’S FASTEST GROWING SMALL COMPANIES.” For the third

substantially completed a significant portion of the engineering

income was also $22.8 million or 14.5% of sales. The elimination of

consecutive year, AAON made the list of Forbes magazine’s (10/28/02)

and research and development necessary to prepare our plants

our long-term debt combined with higher interest income beneficially

“200 BEST SMALL COMPANIES”, ranking 51st. On July 9, 2002, the

and products for the shift of our manufacturing process when the

impacted net income, which rose to $14.6 million (9.4% of sales), or

Company was added to the Russell 2000® Index.

industry converts to the use of R410A.

$1.06 per share in 2002. In 2001, net income totaled $14.2 million

(9.0% of sales) or $1.04 per share. Our earnings per share

Innovative Responsiveness. Our engineering and research and

Sales Representative Performance. Despite the most

calculations are based upon 13.7 million fully diluted shares

development personnel have played a major role in the redesigning of

difficult operating environment the industry has witnessed in the past

outstanding for 2002 and 13.6 million for 2001 and reflect two

our existing product line and the introduction of new products. These

several years, our manufacturers’ representative network once again

3-for-2 stock splits in September 2001 and June 2002.

technologically innovative products deliver improved energy efficiency

achieved record results. With 101 offices covering all 50 states, this portion

Strong Financial Condition. We maintained our efforts to

product’s life cycle.

Our sales performance for the past two years leaves little doubt

strengthen and improve our balance sheet. At December 31, 2002, total

In climates that have high humidity, the presence of mold has

as to the inherent cyclicality of our industry. While the current

and are manufactured with increased durability extending the

of our business gained about 10% to approximately 70% of total sales.

current assets were $46.5 million, with a current ratio of 1.8:1. During

become an increasingly severe problem throughout the building

business environment continues to cloud the near-term outlook for

the past year, we eliminated all long-term debt while our cash

industry. Both landlords and tenants find getting mold insurance almost

our industry, we are beginning to see significant building of pent-up

equivalents (including certificates of deposits) grew to $15.1 million.

impossible, and where available, it has become exorbitantly expensive.

demand for our products. Over the next two to five years we believe

This was accomplished despite capital expenditures of $6.1 million

AAON has recently introduced an energy-efficient method (patent

we can achieve and maintain an annual revenue growth rate of at

and the initial phase of a new stock purchase program in which the

pending) of controlling humidity (the presence of humidity is necessary

least 15%. Our redesigned product line is expected to grow at a

Company spent $4 million. In October 2002, the Board of Directors

for mold to form). This control option will be offered on all air handling

somewhat faster rate than the projected industry rate of 5-6%

authorized the purchase of up to 1.3 million shares or approximately

equipment for both the unitary and applied systems product lines.

annually. We anticipate additional growth from our recently introduced

10% of the shares outstanding. It should be noted that this was our

We have recognized the issue of global warming and the mandate

new products as well as future products currently on the drawing

second stock buyback program since late 1999. From October 1999

to use environmentally safe refrigerants. The refrigerant R22 that we

board. The manufacturers’ representative network should continue to

through September 2001, the Company purchased 747,000 shares at a

presently use has to be replaced by 2010. At that time, according to

play an increasingly important role in future sales growth. We believe

cost of $14 million. Total shareholders’ equity climbed to $62.3 million

or $4.53 per share at December 31, 2002, from $50 million or $3.67

per share a year earlier. In 2001, our return on average shareholders’

equity was 32.5%, and for 2002, the ROE stood at 26%.

Kudos from the Investment Community. We are extremely

appreciative for the continuing recognition we received during the

past year from the financial community. For the third consecutive

year, AAON was selected to Business Week magazine’s (6/10/02) “HOT

Vertical Integration.

O P P O RT U N I T Y:

AAON’s expansion into new product lines has

been a natural progression. The combination

of established manufacturing techniques,

experienced personnel and products that

feature many of the same basic components

as other AAON products have allowed the

Company to adapt, leaving would-be competitors

consistently scrambling to keep up.

O P P O RT U N I T Y:

Be First.

With the introduction of the first AAON rooftop units, AAON
provided features, new to the market, to meet the requirements
for the Engineer, Contractor, Building Owner and the Occupant.

• Pre-engineered and factory installed options

• The elimination of the necessity for

field installed options

• Superior quality design to last the economic

life of the building

• 2000 hour salt spray tested paint finish for
a lasting new look and long-term durability

• Common mounting curbs for multiple capacity models

• Gear driven damper blades for simple and

dependable operation

• High efficiency, backward inclined fan assembly

that is slide-out for servicing

• Elevated compressor mounting platform

for reduced sound levels

• Filter changeout in minutes with no
tools, using hinged easy-open doors

• Hinged access door entry to all service

items including the compressors

• Color-coded wiring diagrams that are laminated
and permanently affixed to the inside of the
control compartment access door

• All larger size units include multiple compressors

for energy efficiency and dependability

This same distinctive philosophy of design for customer value
appears in all AAON products today.

that over the next two to three years, this segment may well

package in light of economic conditions. With our employee dedication

contribute at least 80% of AAON’s total sales.

and the investments we have made in manufacturing equipment, we

have obtained improved efficiencies and profitability.

Employees. Our continuing efforts are to align the interest of our

employees with those of our stockholders. We have done this by

Outlook. Fortified by innovative technology and a strong financial

emphasizing both long-term and short-term results through our 401(k)

position, we have carefully charted a path for our future growth. We

and Profit Sharing programs. The Company’s contributions to our

have enlarged our engineering and research and development efforts,

401(k) plan have caused the plan to be one of our largest shareholders

leading to a totally redesigned product line and the introduction of a

and thereby enabled our employees to share in AAON’s success. All

number of new products, with more to come. Our market presence and

company contributions are used to purchase AAON shares in the open

penetration have been expanded, and the business opportunities that

market and are subject to a five-year vesting schedule starting in the

exist today are more numerous than ever before. The successes of our

second year of employment. Profit Sharing provides immediate

endeavors cannot be attained without the confidence and cooperation

reinforcement by paying a quarterly cash bonus to each employee

of our loyal customers, sales representatives and shareholders, as well

based upon a percentage of pre-tax profits with the amount being

as the dedication of our outstanding employees, all of whose names

equal for all employees. These benefits, along with rising

appear at the end of this report. I want to thank all of you for your past

unemployment, have lowered our employee turnover. Reduced

support and your continuing commitment to enable AAON to achieve

employee turnover has not only cut our recruitment and training

its future goals.

costs, but also has created the best workforce in our history.

To maintain this workforce as the economy changes, we offer a

competitive wage and benefits package and regularly review the

Norman H. Asbjornson
President / CEO
April 18, 2003

Good Press.

2002

Selected as one of five companies mentioned in Forbes magazine’s “Money and Investing” column
Ranked 51st in Forbes magazine’s “200 Best Small Companies” list
Ranked 64th in Fortune Small Business magazine’s “America’s Fastest Growing Small Companies” list
Ranked 23rd in Business Week magazine’s “Hot Growth Companies” list

2001

Ranked 34th in Business Week magazine’s “100 Hot Growth Companies” list
Ranked 36th in Forbes magazine’s “200 Best Small Companies” list

2000

Ranked 92nd in Business Week magazine’s “100 Best Small Companies” list
Ranked 52nd in Forbes magazine’s “200 Best Small Companies” list
Featured in Investor’s Business Daily’s “New America” section

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, 2002

Commission file number: 33-18336-LA

AAON, INC.
(Exact name of Registrant as specified in its charter)

Nevada
(State or other jurisdiction
of incorporation or organization)

2425 South Yukon, Tulsa, Oklahoma
(Address of principal executive offices)

87-0448736
(IRS Employer
Identification No.)

74107
(Zip Code)

Registrant’s telephone number, including area code: (918) 583-2266

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, par value $.004
(Title of Class)
Rights to Purchase Series A Preferred Stock
(Title of Class)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes _✔
_

No ____

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]

The aggregate market value of Registrant’s common equity held by non-affiliates computed by reference to the closing price of
Registrant’s common stock on February 28, 2003, was approximately $121,766,000. For purposes of this computation, all officers, directors
and 5% beneficial owners of Registrant are deemed to be affiliates.

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes _✔

No ____

The aggregate market value of the common equity held by non-affiliates computed by reference to the closing price of Registrant’s com-
mon stock on the last business day of Registrant’s most recently completed second quarter (June 30, 2002) was $164,919,000.

As of February 28, 2003, Registrant had outstanding a total of 13,032,266 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 28,
2003, are incorporated into Part III.

Table of Contents

Item Number and Caption

PART I

PART II

Business.

Properties.

Legal Proceedings.

Submission of Matters to a Vote of Security Holders.

Market for Registrant’s Common Equity and Related Stockholder Matters.

Selected Financial Data.

Management’s Discussion and Analysis of Financial Condition
and Results of Operations.

7A.

Quantitative and Qualitative Disclosures About Market Risk.

Financial Statements and Supplementary Data.

Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.

Directors and Executive Officers of Registrant.

Executive Compensation.

Security Ownership of Certain Beneficial Owners and Management.

Certain Relationships and Related Transactions.

Controls and Procedures.

PART III

10.

11.

12.

13.

14.

PART IV

15.

Exhibits, Financial Statement Schedules and Reports on Form 8-K.

Page
Number

Part I

Item 1. Business.

General Development 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 June 1989, pursuant to a Conversion/Exchange Agreement, AAON-Oklahoma became a
wholly-owned subsidiary of AAON-Nevada.

AAON-Oklahoma is engaged in the manufacture and sale of commercial rooftop air-conditioners and heating equipment.

In December 1991, AAON Coil Products, Inc. (“ACP”, formerly CP/AAON, Inc.), a Texas corporation, was organized as a wholly-
owned subsidiary of AAON-Nevada to purchase most of the assets of Coils Plus, Inc., of Longview, Texas. ACP manufactures
coils used in the Company’s products, as well as air handling and condensing units introduced in 1998.

Products and Markets
The Company engineers, manufactures and markets commercial rooftop air-conditioning, heating and heat recovery
equipment, air-conditioning coils, air handling and condensing units and chillers. Its products serve the commercial and
industrial new construction and replacement markets. To date virtually all of the Company’s sales have been to the
domestic market, with foreign sales accounting for only 2% of its sales in 2002.

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, coils and chillers 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 2002 level of sales, approximately $155 million, the Company has a 13% share of the rooftop market and a 1%
share of the coil market. Approximately 60% of the Company’s sales now come from new construction and 40% from
renovation/replacements. The percentage of sales for new construction vs. replacement to particular customers is related
to their stage of development. In the case of Wal-Mart and Target, due to their growth posture, the Company’s sales to
these major customers was approximately 80% for new construction and 20% replacement. Sales of air handling and
condensing units and chillers in 2002 amounted to approximately $4.5 million.

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.

The Company currently has five groups of rooftop products: its RK Series offered in 18 cooling sizes ranging from three to 60
tons, which is being phased out and will be replaced by the 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; and 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. The Company’s
heat recovery option applicable to its RK, RM, RN and RL units (which responds to the U.S. Clean Air Act mandate to increase
fresh air in commercial structures and increases the capacity of these units by up to 50% with no additional energy cost) has
gained significant customer acceptance.

The Company’s products are designed to compete on the high side of standardized, packaged rooftop products. Accordingly,
its prices range from $300 to $550 per ton of cooling, which is approximately 4%, on average, higher than other standardized
products. Performance characteristics of these products range in cooling capacity from 28,000-2,676,000 BTU’s and in heating
capacity from 69,000-3,990,000 BTU’s. All of the Company’s rooftop products meet the Department of Energy’s efficiency
standards, which are designed to set the maximum amount of energy to be used in producing a given amount of cooling.

A typical commercial building installation requires a ton of air-conditioning for every 300-400 square feet or, for a 100,000
square foot building, 250 tons of air-conditioning, which would involve multiple units.

The Company has developed a prototype wall-hung heating and air-conditioning unit which it plans to market for commercial
buildings requiring a product designed for small space(s). Pilot production and testing of this product began in 2001, but sales
to date have not been significant. In December 2001, the Company began marketing commercial water chillers. The
development of these products did not require a material investment, but could produce material results.

Major Customers
The Company’s largest customers last year were Wal-Mart Stores, Inc., and Target Stores, Inc. Sales to Wal-Mart and Target
were 14% and 11% of total sales, respectively, in 2002 and 2001. The Company has no written contract with these customers.

The loss of either of the above customers would have a material adverse affect on the Company. However, with the continuing
expansion of the Company’s customer base, management believes that the extent of its dependence on sales to its major
customers will diminish over a period of time.

In order to diversify its customer base, the Company has added to and/or upgraded its sales representation in various markets.

Sources and Availability of Raw Materials
The most important materials purchased by the Company are steel, copper and aluminum, which are obtained from domestic
suppliers. The Company also purchases from other domestic manufacturers certain components, including compressors,
electric motors and electrical controls used in its products. The Company endeavors to obtain the lowest possible cost in its
purchases of raw materials and components, consistent with meeting specified quality standards. The Company is not
dependent upon any one source for its raw material or the major components of its manufactured products. By having
multiple suppliers, the Company believes that it will have adequate sources of supplies to meet its manufacturing
requirements for the foreseeable future.

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.

Distribution
The Company utilizes a direct sales staff of nine individuals and approximately 84 independent manufacturer representatives’
organizations having 101 offices to market its products in the United States. The Company also has one international sales
organization, which utilizes 12 distributors in other countries. Sales are made directly to the contractor or end user, with
shipments being made from the Company’s Tulsa and Longview plants to the job site. Billings are to the contractor or end
user, with a commission paid directly to the manufacturer representative.

The Company’s products and sales strategy focus on a “niche” market. The targeted market for its rooftop equipment is
customers seeking a product of better quality than offered, and/or options not offered, by standardized manufacturers.

To support and service its customers and the ultimate consumer, the Company provides parts availability through two
independent parts distributors and has a factory service organization at its Tulsa plant. Also, a number of the manufacturer
representatives utilized by the Company have their own service organizations, which, together with the Company, provide the
necessary warranty work and/or normal service to customers.

The Company’s warranty on its products is: for parts only, the earlier of one year from the date of first use or 15 months from
date of shipment; compressors (if applicable), an additional four years; 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. Ongoing work involves the RM,
RN and LL (chiller) Series, component evaluation and refinement, development of control systems and new product
development. This work will cost approximately $600,000 per year and is budgeted as a normal, recurring expense.

Backlog
The Company had a current backlog as of March 1, 2003, of $24,972,000, compared to $28,800,000 at March 1, 2002. The
current backlog consists of orders considered by management to be firm and substantially all of which will be filled by August
1, 2003; however, the orders are subject to cancellation by the customers.

Working Capital Practices
Working capital practices in the industry center on inventories and accounts receivable. The Company regularly reviews its
working capital components with a view to maintaining the lowest level consistent with requirements of anticipated levels of
operation. Its greatest needs arise during the months of July-November, the peak season for inventory (primarily purchased
material) and accounts receivable. The Company’s working capital requirements are generally met through a bank revolving
credit facility, which currently permits borrowings up to $15,150,000. The Company believes that it will have sufficient bank
credit available to meet its working capital needs for the foreseeable future.

Seasonality
Sales of the Company’s products are moderately seasonal with the peak period being July-November of each year.

Competition
In the domestic market, the Company competes primarily with Trane Company, a division of American Standard, Inc., Carrier
Corporation, a subsidiary of United Technologies Corporation, Lennox International, Inc., and York International Corporation.
All of these competitors are substantially larger and have greater resources than the Company. The Company competes
primarily on the basis of total value, quality, function, serviceability, efficiency, availability of product, product line recognition
and acceptability of sales outlet. However, in new construction where the contractor is the purchasing decision maker, the
Company often is at a competitive disadvantage on sales of rooftop units because of the emphasis placed on initial cost;
whereas, in the replacement market and other owner-controlled purchases of such units, the Company has a better chance of
getting the business since quality and long-term cost are generally taken into account.

Employees
As of March 1, 2003, the Company had 965 employees and 107 temporaries, none of whom are represented by unions.
Management considers its relations with its employees to be good.

Patents, Trademarks, Licenses and Concessions
The Company does not consider any patents, trademarks, licenses or concessions held by it to be material to its business
operations, other than patents issued regarding its heat recovery wheel option, blower, gas-fired heat exchanger, wall-hung
curb and evaporative condenser desuperheater.

Environmental Matters
Laws concerning the environment that affect or could affect the Company’s domestic operations include, among others, the
Clean Water Act, the Clean Air Act, the Resource Conservation and Recovery Act, the Occupational Safety and Health Act, the
National Environmental Policy Act, the Toxic Substances Control Act, regulations promulgated under these Acts, and any other
federal, state or local laws or regulations governing environmental matters. The Company believes that it presently complies
with these laws and that future compliance will not materially adversely affect the Company’s earnings or competitive position.

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.

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 $12.5 million per month in 2002, which is 60% of the estimated capacity of the plant. Management deems this
plant to be nearly ideal for the type of rooftop products being manufactured by the Company.

The expansion facility, which was purchased in December 1997, is 25% (122,000 sq. ft.) utilized by the Company and 75% leased
to third parties. 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 335,000 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 square feet on 14 acres. The manufacturing area (approximately 219,000 square feet) is located in three 120-foot wide
sheet metal buildings connected by an adjoining structure. The facility is built for light industrial manufacturing.

Item 3. Legal Proceedings.

The Company is not a party to any pending legal proceeding which management believes is likely to result in a material
liability and no such action is contemplated by or, to the best of its knowledge, has been threatened against the Company.

Item 4. Submission of Matters to a Vote of Security Holders.

No matter was submitted to a vote of security holders, through solicitation of proxies or otherwise, during the period from
October 2, 2002, through December 31, 2002.

Part II

Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters.

The Company’s Common Stock is traded on the NASDAQ National Market under the symbol “AAON”. The range of closing prices
for the Company’s Common Stock during the last two years, as reported by National Association of Securities Dealers, Inc.
(adjusted for 3-for-2 stock splits on September 28, 2001, and June 4, 2002), was as follows:

Quarter Ended

March 31, 2001
June 30, 2001
September 30, 2001
December 31, 2001

March 31, 2002
June 30, 2002
September 30, 2002
December 31, 2002

High

$ 1 1.05
$ 12.33
$ 14.22
$ 16.31

$ 18.08
$ 21.54
$ 18.69
$ 21.00

Low

$ 8.22
7.45
$
$ 1 1.25
$ 10.67

$ 12.97
$ 16.94
$ 15.55
$ 16.00

On February 28, 2003, there were 1,037 holders of record, and 4,048 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.

Item 6. Selected Financial Data.

Set forth below is income statement information with respect to the Company for years 2002, 2001 and 2000:

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.

Results of Operations:

2002

2001

Years Ended December 31,
2000
(in thousands, except per share data)

1999

Net sales
Net income
Basic earnings per share
Diluted earnings per share
Weighted average shares outstanding

Basic
Diluted

$ 155,075
14,611
$
$
1.11
1.06
$

13,158
13,740

$ 157,252
14,156
$
1.09
$
1.04
$

12,992
13,641

$ 154,982
12,794
$
.97
$
.92
$

13,190
13,896

$ 131,947
9,697
$
.69
$
.67
$

14,043
14,535

1998

$ 109,624
5,230
$
.37
$
.36
$

13,955
14,367

Balance Sheet Data:

2002

2001

December 31,
2000
(in thousands)

1999

1998

Total assets
Long-term debt
Stockholders’ equity

91,713
–
$ 62,310

$ 76,295
$ 985
50,041
$

$
$
$

76,818
5,853
37,012

$ 58,656
$ 6,630
$ 33,618

$ 50,506
$ 10,980
24,411
$

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 a three-for-two stock split. The shares outstanding and earnings per share
disclosures have been restated to reflect the stock split.

Item 7. Management’s Discussion and Analysis of Financial Condition

and Results of Operations.

AAON, Inc. engineers, manufactures and markets commercial rooftop air-conditioning, heating and heat recovery equipment,
chillers, air conditioning coils, air handlers and condensing units. The Company’s primary products are its RK, RL, RM and RN
Series units. In the second quarter of 2002, the new, highly energy-efficient RM was introduced to replace the RK. AAON has
also introduced an expanded air-handler product. In the third quarter of 2002, a new Modulating Hot Gas Reheat feature was
introduced for the rooftop product lines, condensing units and air handlers. The new feature addresses humidity, mold and
indoor air quality problems that plague many environments due to excessive moisture.

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 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
period is generally one year from the date of first use or 15 months from date of shipment; however, compressors (if
applicable) carry an additional four-year warranty, gas-fired heat exchangers (if applicable) have a 15-year warranty, and
stainless steel heat exchangers (if applicable) have a 25-year warranty.

Net sales
Cost of sales

Gross profit

Selling, general and administrative expenses

Income from operations

Interest expense
Interest income
Other income

Income before income taxes
Income tax provision

2002

Years Ended December 31,
2001
(in thousands)

2000

$ 155,075
117,193

157,252
118,399

154,982
120,233

37,882

15,071

22,811

95
(214)
(180)

23,110
8,499

38,853

16,011

22,842

892
–
(536)

22,486
8,330

34,749

13,922

20,827

904
–
(436)

20,359
7,565

Net income

14,611

14,156

12,794

Results of Operations
Net sales decreased by 1% in 2002 compared to 2001, and 2001 sales were 1.5% greater than in 2000. The decrease in sales
for 2002 was caused by a slowdown in production in the second quarter 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. Following the events of September 11, 2001, the Company experienced a period of minimal sales
activity and many orders were delayed by the Company’s customers, resulting in a decrease in sales for the fourth quarter of
2001 of 11% compared to the same period in 2000. The increase in sales in 2001 compared to 2000 resulted from increases
in the Company’s market share in all areas of its business aided by both new product introductions and newly developed
versions of existing product lines. The increase was attributable to more sales generated by manufacturer’s representatives
and replacement business. Sales to existing customers continued to account for 85% of the Company’s business, with the
balance coming from new business.

Gross profit in 2002 was 24.4% compared to 24.7% in 2001 and 22.4% in 2000. The decrease in margins for 2002 vs. 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. The increase in margins in 2001 compared to 2000 was due to efficiencies realized from higher plant
utilization and a more stable work force which allowed the Company to reduce the amount of overtime incurred and also
allowed the Company to realize better overall labor efficiencies.

Selling, general and administrative expenses decreased by $.9 million (6%) in 2002 compared to 2001, primarily as a result of a
reduction in bad debt and warranty expense. The SG&A increase of $2.1 million (15%) in 2001 compared to 2000 was primarily due
to higher warranty reserves related to the introduction of new products both within existing and new product lines.

Interest expense was $.1 million, $.9 million and $.9 million in 2002, 2001 and 2000, respectively. The reduction in interest expense
was due to the retirement of all long-term debt in 2002 and lower average borrowings under the revolving credit facility.

Interest income in 2002 was $.2 million due to investments in short-term money markets and certificates of deposits.

Other income was $.2 million, $.5 million and $.4 million in 2002, 2001 and 2000, respectively. Other income is primarily
attributable to rental income from the Company’s “expansion facility”. The decrease of $.4 million in 2002 compared to 2001 is
due to the expanded company use of its facilities.

The Company’s effective tax rate in 2002, 2001 and 2000 was 37%.

Financial Condition and Liquidity
Accounts receivable decreased $1.1 million at December 31, 2002, compared to December 31, 2001, due to improved collection results.

Inventories increased $.9 million at December 31, 2002, compared to December 31, 2001, due to the procurement of additional
inventory required for the manufacturing of new products.

Prepaid expenses increased by $.4 million at December 31, 2002, compared to December 31, 2001, due to deposits made on
equipment acquisitions.

Accounts payable and accrued liabilities increased $.7 million at December 31, 2002, compared to December 31, 2001, due
primarily to timing of payments to vendors.

The Company generated $21.9 million, $23.9 million and $14.0 million cash from operating activities in 2002, 2001 and 2000,
respectively. Operating cash flows in 2002 consisted of $14.6 million of net income, $4.9 million of depreciation and $2.4
million of working capital and other changes. 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 $16.1 million, $8.8 million and $10.7 million in 2002, 2001 and 2000, respectively.
Cash flows used in investing activities in 2002 related to investments in certificates of deposit of $10 million and capital
expenditure additions totaling $6 million, reflecting primarily additions to machinery and equipment and renovations made to
the Company’s manufacturing and office facilities. In 2001 and 2000 cash used in investing activities was comprised primarily
of capital expenditures totaling $9.0 million and $10.7 million, respectively. All capital expenditures and building renovations
were financed out of cash generated from operations. The Company had no long-term debt at December 31, 2002, compared
to $1.0 million at December 31, 2001.

Cash flows used in financing activities were $1.9 million, $14 million and $3.3 million in 2002, 2001 and 2000, respectively. In
October the Company’s Board of Directors authorized a stock buy back program to repurchase up to 1,325,000 shares of stock.
In 2002, there were 215,963 shares of stock repurchased for a total of $4 million. The Company repurchased stock in 2001 and
2000 totaling $2.8 million and $10.4 million, respectively. Additionally, during 2002 the Company had net borrowings of $3.1
million under its revolving credit facility and repaid $1.9 million of long-term debt. During 2000 and 2001, the Company had net
(repayments)/borrowings under its revolving credit facility totaling ($6.5 million) and $2.1 million, respectively.

The Company’s revolving credit facility (which currently extends to July 31, 2003) 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, 2002 were $11.6 million.

Management believes the Company’s bank revolving credit facility (or comparable financing), term loans, 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.

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 the estimated cost of warranty obligation 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.

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. This Statement is effective for fiscal years
beginning after June 15, 2002. Management does not expect the adoption of SFAS 143 to have a significant impact on its
results of operations or financial position.

SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities, addresses financial accounting and reporting for
costs associated with exit or disposal activities. Under this Statement, a liability for a cost associated with an exit or disposal
activity is recognized at fair value when the liability is incurred rather than at the date of an entity’s commitment to an exit plan.
The provisions of this Statement are effective for exit or disposal activities that are initiated after December 31, 2002. The adoption
of this Statement is not expected to have a significant impact on the Company’s results of operations or financial position.

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 material prices, (2) the
effects of fluctuations in the commercial/industrial new construction market, (3) the timing and extent of changes in interest
rates, as well as other competitive factors during the year, and (4) general economic, market or business conditions.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

The Company is 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 2002 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 negotiating with each of its major
suppliers on a term basis from six months to one year.

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 16.

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.

PART III

Item 10. Directors and Executive Officers of Registrant.

Incorporated by reference to the Company’s definitive Proxy Statement to be filed with the Securities and Exchange
Commission in connection with the Company’s 2003 Annual Meeting of Stockholders.

Item 11. Executive Compensation.

Incorporated by reference to the Company’s definitive Proxy Statement to be filed with the Securities and Exchange
Commission in connection with the Company’s 2003 Annual Meeting of Stockholders.

Item 12. Security Ownership of Certain Beneficial Owners and Management.

Incorporated by reference to the Company’s definitive Proxy Statement to be filed with the Securities and Exchange
Commission in connection with the Company’s 2003 Annual Meeting of Stockholders.

Item 13. Certain Relationships and Related Transactions.

Incorporated by reference to the Company’s definitive Proxy Statement to be filed with the Securities and Exchange
Commission in connection with the Company’s 2003 Annual Meeting of Stockholders.

Item 14. Controls and Procedures.

Evaluation of disclosure controls and procedures
Within the 90-day period prior to the filing date of 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:

•

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

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 timely decision 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 have there been any corrective actions with regard to
significant deficiencies or material weaknesses.

Part IV

Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K.

(a)

Financial statements.

See Index to Consolidated Financial Statements on page 15.

Exhibits:

(3)

(A)
(A-1)
(B)
(B-1)

(4)

(A)

(A-1)
(B)

(10)

(21)

(23)

(99.1)

(99.2)

Articles of Incorporation (i)
Article Amendments (ii)
Bylaws (i)
Amendments of Bylaws (iii)

Second Restated Revolving Credit and Term Loan Agreement
(“Loan Agreement”) and related documents (iv)
Latest amendments of Loan Agreement (v)
Rights Agreement dated February 19, 1999, as amended (vi)

AAON, Inc. 1992 Stock Option Plan, as amended (vii)

List of Subsidiaries (viii)

Consent of Ernst & Young LLP

Certification of CEO

Certification of CFO

(i)

(ii)

(iii)

(iv)

(v)

(vi)

(vii)

(viii)

Incorporated herein by reference to the exhibits to the Company’s Form S-18 Registration
Statement No. 33-18336-LA.

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.

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.

Incorporated by reference to exhibit to the Company’s Form 8-K dated September 25, 1996.

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, and August 19, 2002.

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.

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.

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, 2002, to December 31, 2002.

Signatures

Pursuant to the requirement of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly
caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.

AAON, INC.

Dated: March 26, 2003

By:

/s/ Norman H. Asbjornson
Norman H. Asbjornson, President

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Dated: March 26, 2003

/s/ Norman H. Asbjornson
Norman H. Asbjornson
President and Director
(principal executive officer)

/s/ Kathy I. Sheffield
Kathy I. Sheffield
Treasurer
(principal financial officer
and principal accounting officer)

/s/ John B. Johnson, Jr.
John B. Johnson, Jr.
Director

/s/ Thomas E. Naugle
Thomas E. Naugle
Director

/s/ Jerry E. Ryan
Jerry E. Ryan
Director

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 a date within 90 days

prior to the filing date of 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; and

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 26, 2003

Index To Consolidated Financial Statements

Report of Independent Auditors – Ernst & Young LLP

Report of Independent Public Accountants – Arthur Andersen LLP

Consolidated Balance Sheets

Consolidated Statements of Operations

Consolidated Statements of Stockholders’ Equity

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

Page

Certification

I, Kathy I. Sheffield, certify that: