t r o p e R l a u n n A 3 0 0 2 N O A A 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 Highly relevant advancements. Patented innovations. Meaningful manufacturing efficiencies. Anticipation of market needs. At AAON, staying ahead means raising the standard – including our own. © 2004 AAON, Inc. WHAT’S INSIDE: Financial Highlights Company Profile Letter to Shareholders Form 10K AAON’s People FINANCIAL HIGHLIGHTS BACKLOG As of the end of December ($ Millions) 2003 2002 2001 2000 1999 Income Data ($000) Net Sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148,845 155,075 157,252 154,982 131,947 Gross Profit. . . . . . . . . . . . . . . . . . . . . . . . . . . 36,249 37,882 38,853 34,749 30,718 Operating Income . . . . . . . . . . . . . . . . . . . . . 21,340 22,811 22,842 20,827 15,977 Interest Expense . . . . . . . . . . . . . . . . . . . . . . Interest Income . . . . . . . . . . . . . . . . . . . . . . . 21 346 95 214 892 – 904 – 574 – Depreciation. . . . . . . . . . . . . . . . . . . . . . . . . . 5,435 4,915 4,380 3,465 3,063 Pre-Tax Income. . . . . . . . . . . . . . . . . . . . . . . . 21,853 23,110 22,486 20,359 15,641 Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,227 14,611 14,156 12,794 9,697 Earnings Per Share (Basic) . . . . . . . . . . . . (Diluted) . . . . . . . . . . 1.12 1.07 1.11 1.06 1.09 1.04 0.97 0.92 0.69 0.67 Balance Sheet ($000) Working Capital . . . . . . . . . . . . . . . . . . . . . . . 35,369 21,149 19,888 15,456 19,231 Current Assets . . . . . . . . . . . . . . . . . . . . . . . . 64,635 46,482 42,273 47,358 36,477 Net Fixed Assets . . . . . . . . . . . . . . . . . . . . . . 37,450 35,231 34,022 29,460 22,179 Accumulated Depreciation . . . . . . . . . . . . . 31,285 Cash & Cash Investments. . . . . . . . . . . . . . . 16,186 Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . 102,085 27,114 15,071 91,713 22,273 19,063 15,650 1,123 17 25 76,295 76,818 58,656 Current Liabilities . . . . . . . . . . . . . . . . . . . . . 29,266 25,333 22,385 31,902 17,246 Long-Term Debt . . . . . . . . . . . . . . . . . . . . . . . – – 985 5,853 6,630 Stockholders’ Equity. . . . . . . . . . . . . . . . . . . 67,428 62,310 50,041 37,012 33,618 Stockholders’ Equity per Diluted Share . . . . 5.09 4.53 3.67 2.66 2.31 Funds Flow Data ($000) Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,469 21,931 23,879 14,040 11,953 Investments . . . . . . . . . . . . . . . . . . . . . . . . . . (7,626) (16,118) (8,817) (10,733) (6,649) Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7,728) (1,865) (13,956) (3,315) (5,304) Cash and Cash Equivalents . . . . . . . . . . . . . 1,115 3,948 1,106 (8) — Ratio Analysis Return on Average Equity . . . . . . . . . . . . . . 21.9% 26.0% 32.5% 36.2% 33.4% Return on Average Assets . . . . . . . . . . . . . . 14.7% Pre-Tax Income on Sales . . . . . . . . . . . . . . . 14.7% Net Income on Sales. . . . . . . . . . . . . . . . . . . 9.6% Total Liabilities to Equity . . . . . . . . . . . . . . . Quick Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . Current Ratio . . . . . . . . . . . . . . . . . . . . . . . . . 0.5 1.3 2.2 17.4% 14.9% 9.4% 0.5 1.5 1.8 18.5% 18.9% 17.8% 14.3% 13.1% 11.9% 9.0% 8.3% 7.4% 0.5 1.1 1.9 1.1 0.9 1.5 0.7 1.2 2.1 = 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. EARNINGS PER SHARE* Diluted STOCK PRICE* As of the end of December = Cash, cash investments + receivables / current liabilities * Reflects 3-for-2 stock splits, September 2001 and June 2002. Dear Shareholder, Despite an improving economic environment aided by low interest rates, minimal inflationary growth and a number of fiscal incentives implemented to stimulate business growth, commercial and industrial construction continued to perform lethargically throughout the year. This resulted in the third consecutive year of declines in the markets we serve. While the atmosphere surrounding AAON’s segment of the HVAC industry impacted our sales and earnings, the Company’s market share continued to increase. For the year ended December 31, 2003, net sales declined 4.0% to $148.8 million from $155.1 mil- lion, while net income dipped 2.7% to $14.2 million from $14.6 million. Fully diluted earnings per share in 2003, benefiting from reduced shares outstand- ing, rose slightly to $1.07 from $1.06 a year earlier. In my shareholders’ letter to you last year, I dis- cussed our decision to continue to pursue growth through ongoing innovation of our existing product August AAON, an Oklahoma corporation, was founded. 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 condi- tioning units 2-140 tons. December Formed AAON Coil Products, a Texas Corporation, as a sub- sidiary 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. October U.S. patent granted to AAON for air conditioner with energy recovery heat wheel. April AAON received U.S. patent for Blower Housing assembly. September Completed expansion of the Tulsa facility to 332,000 square feet. Spring Completed Tulsa, Oklahoma, and Longview, Texas, plant additions yielding a total exceeding 1 million square feet. Fall Industry introduction of the modular air handler and chiller products. June 3-for-2 stock split. 1 9 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. Summer Became a publicly traded company with the reverse acquisition of Diamond Head Resources (now “AAON, Inc.”), a Nevada corporation. December Listed on NASDAQ Small Cap – Symbol “AAON.” 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. September One-for-four reverse stock split. Retired $1,927,000 of subordinated debt. CELEBRATING ACHIEVEMENTS BY MARCHING FORWARD. lines and the introduction of new products. The past two will provide AAON years were devoted to the research, development and engi- neering phases of our current product line, 90% of which with improved growth and profitability in the has been redesigned. During that period, we spent approxi- future. 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. July AAON added as a member of the Russell 2000® Index. October AAON, listed in FORBES Magazine’s “Hot Shots 200 Up & Comers” mately $15.5 million on new equipment, research, development and R&D engineering. We completed 2003 confident that our goals to develop the most innovative, highest quality, best value line of products have been achieved and anticipate that the actions taken since 2001 RAISING STANDARDT E H On Innovation. This unique Blower Fan Assembly that provides easier removal for servicing is one of AAON’s many patented improvements that make service technicians recommend AAON by name. U.S. Patent Number 5,738,167 Issued 4/14/98 We concluded the past year with the knowledge that our current produc- tion capacity was not sufficient to meet Small advancements. Big effects. The patented AAON “dimple” enhances the heat transfer to the air stream. U.S. Patent Number 5,839, 505 Issued 11/24/98 the anticipated demand for our new products over the Higher Standards. Our research, development and engi- neering personnel were given a mandate to raise the standards of our product line. What has evolved over the past two years are products that are manufactured to operate with the environmentally safe refrigerant, R410A, that are more energy efficient and that require less maintenance over the life of the product. We are now able to deliver the most technolog- ically advanced products throughout the HVAC industry. Some of our significant product innovations over the past few years include: effects upon the environment, the Montreal Protocol on ozone depletion has mandated the use of environmen- tally safe refrigerants. This calls for two actions: 1) the phase-out of all HCFC production by the year 2020, and 2) the termination of all equipment manufacture using R22 by the year 2010. One of the characteristics of R410A is that it oper- ates at 60% to 70% higher pressure than R22. Over the past two years, we have reengineered, redesigned and installed new tooling to build coils which can accommodate the increased pressure of R410A. The entire process was achieved at a cost of $4 million. next few years. We estimate spending approximately $10 • We will be the first manufacturer to have all of its com- to $12 million on capital requirements this year. This is mercial air conditioning units provide R410A (a the largest annual expenditure in this category in the Company’s history. We have already broken ground on a new sheet metal facility (approximately 106,000 square “green” refrigerant) years in advance of the required date to replace Refrigerant 22 (R22). R22 is a chlo- rine-containing product referred to as HCFC. In feet) which will be added to our existing Tulsa facility, giv- recognition of the issue of global warming and its ing us a corporate total of 1,148,000 square feet. Furthermore, later this year, we anticipate delivery of additional sheet metal fabricating machinery which will result in increased manufacturing capability, and we are planning to enlarge the coil manufacturing capacity at our Longview, Texas plant. RAISING THE STANDARD ON COMPLIANCE. AAON is the first manufacturer of commercial air conditioning equipment to make newer, environmentally-friendly R-410A refrigerant available on all products – years in advance of the required 2010 deadline to replace all Refrigerant 22. RAISING THE STANDARD ON SERVICEABILITY. Leading the way in new standards of easy maintenance, all AAON products have hinged access doors to all areas that regularly require maintenance. Features like these save time for operating personnel and money for the building owner. were flat at 24.4% of sales or $36.2 million in 2003, com- from the fact that we continued to gain market share dur- pared to $37.9 million in 2002. SG&A expenses as a ing this period. Although the near-term outlook for our percentage of sales gained slightly to 10.0% or $14.9 million industry remains clouded, we are beginning to see an versus 9.7% or $15.1 million and reflected somewhat higher impressive building of pent-up demand for our products. administrative and advertising costs. Operating income Our December 31, 2003 backlog climbed to a record $38 declined 6.5% to $21.3 million or 14.3% of sales from $22.8 million and our manufacturers’ representative network million or 14.7% of sales in 2002. Net income, benefiting has recently witnessed a sizable increase in the number of from a lower effective tax rate (34.9% versus 36.8%), requests for project bids. declined 2.6% to $14.2 million or $1.07 per share from Over the next two to five years, we believe we can $14.6 million or $1.06 per share. Earnings per share calcu- achieve and maintain an annual revenue growth rate of at panel walls with foam insulation are stronger and have lations are based upon 13.3 million fully diluted shares least 15%. Our redesigned product line should outpace less than half of the heat loss compared to fiberglass outstanding in 2003 and 13.7 million in 2002. the projected industry growth rate of 5% to 6%, while we filled panels. We are in the process of incorporating this expect impressive, incremental growth from the introduc- Our complete line of products: RL units – 35 to 230 production method across our entire product line. Strong Financial Condition. Our balance sheet contin- tion of our new products. The manufacturers’ tons, RN units – 26 to 70 tons, RM units – 2 to 30 tons, ues to reflect our efforts to improve and strengthen our representative network is expected to provide a major LL chillers – 35 to 365 tons and CB condensing units – 2 • We have taken significant steps to substantially reduce financial position. At December 31, 2003, total current stimulus to our future sales growth. We expect over the to 5 tons for commercial and residential use, have been the cost and time of maintenance while improving the assets were $64.6 million, with a current ratio of 2.2:1. We next two years, that their contribution may well exceed totally redesigned to incorporate our R410A capabilities. energy efficiency and reducing the noise level of our had no long-term debt while our cash equivalents (includ- 80% of AAON’s total sales. equipment. One example is our new direct drive blower ing certificates of deposit) reached $16.2 million. This • The Company’s digital precise air control assembly, D-PAC fan assembly that eliminates air moving components, highly liquid position was accomplished despite capital (patent pending), will control the temperature and and increasing reliability. humidity in all types of loads with any outdoor tempera- ture using a minimum of energy consumption. This 2003 Financial Performance. Our successful long- expenditures of $7.7 million and the continuation of our stock repurchase program initiated in October 2002. During 2003 the Company purchased 597,000 shares at a cost of product, which provides an efficient method of control- term efforts to diversify our customer mix have enabled our $9.9 million. Since inception of the current program, which ling humidity, addresses the increasingly severe problem sales performance to withstand the continuing weakness in contemplates the purchase of 1.3 million shares or approxi- of mold development. This control option is available on both new office and manufacturing plant construction mately 10% of the shares outstanding, AAON has spent our air- handling equipment for all unitary systems. which declined on an industry-wide basis 11% and 17%, $13.9 million and purchased 812,964 shares. Total share- respectively in 2003. The retailing sector witnessed a mod- holders’ equity improved to $67.4 million or $5.09 per share • It is costly to repair coils that leak and to replace the refrigerant that is lost. Recognizing this problem, the erate decline in business as buying attitudes shift- Company has purchased two systems which use helium ed within the industry. technology to test for leaks. This testing method is a considerable improvement over previous methods and AAON customers should benefit from our ability to deliver a more efficient product. The educational, health care and other markets were again outstanding performers. The net result for AAON was a • Insulation is a critical factor in the energy efficiency of 4.0% decline in sales to a rooftop system. Traditionally, fiberglass insulation $148.8 million in 2003 Only AAON offers factory installed pumping packages for its water chiller products. This eliminates at December 31, 2003. This represents an increase of 8.2% from $62.3 million or $4.53 per share a year earlier. In 2002 our return on average shareholders’ equity was 26.0% and for 2003 the ROE stood at 21.9%. Sales Representative Performance. Our sales repre- sentative network with 101 offices in all 50 states continued to perform with record results. Despite a lackluster operating atmosphere, our manufacturers’ representatives achieved a sales gain of 8.0% to $111.3 million or 74.8% of total sales RAISING STANDARDT E H On Product Development. The patent-pending D-PAC (Digital Precise Air Control) controls temperature and humidity under all indoor loads, regardless of outdoor temperature. A patent- pending control system coordinates the operation of a digital compressor, hot gas reheat, and a return-air bypass damper assembly to minimize energy consumption within metal panels was used to contain the condi- from $155.1 million for jobsite construction costs and the for the year ended December 31, 2003. In 2002, representa- throughout the process. tioned air in the cabinet. A more efficient insulating the year ended need for a mechanical room – tive sales were 66.5% of total sales or $103.1 million. material, foam, sprayed between two sheets of steel, December 31, 2002. providing the building owner with While our sales and earnings performance for the past 2 U.S. Patents pending results in a lighter, more energy saving product since Gross profit margins more rentable space. three years has been uninspiring, we take some comfort RAISING STANDARDT E H On Performance. AAON’s patented Air Conditioner With Heat Wheel dramatically lowers the cost of heating or cooling ventilation air into the building. U.S. Patent Number 5,826, 641 Issued 10/27/98 Outlook. The demands upon our industry to manufacture equipment that is environmentally safe and more energy and maintenance efficient are becoming increasingly com- plex and immediate. We continue to commit a sizable amount of capital and time to increase our research, devel- opment and engineering efforts as well as our productive capacity to meet these future demands. We are now poised to deliver to our customers a product line that is the most technologically advanced in the industry. As always, we could not have attained our present leading industry position without the total support and cooperation of our loyal customers, sales representatives and sharehold- ers, as well as the dedication of our outstanding employees, all of whose names appear at the end of this report. I want to thank all of you for your past support. Fortified with your continuing confidence and commitment, AAON will meet Employees. The redesign of our product line and the the challenges before it and attain its future goals. introduction of many new technologically advanced prod- ucts could not have been achieved without our highly Sincerely, motivated and skilled workforce. It is mandatory for all new line workers to attend our formal training program which was initiated three years ago. In addition, our core employ- Norman H. Asbjornson ees also attend courses for the maintenance and review of their skills. Our investment in training has paid off hand- somely as we continue to witness significant improvement in our employee retention and productivity rates. We regu- larly review and improve our compensation and benefits structure. For the past ten years we have provided matching and discretionary contributions to our employees’ 401(k) accounts. As a result of these contributions, our employee retirement accounts aggregate to be one of our largest shareholders. In order to reduce investment risk, we do not allow our employees to invest any of their contributions in AAON stock. In addition to the Company’s 401(k) contribu- tions, AAON pays a quarterly cash bonus amounting to 10% of pre-tax profits which is distributed equally to all employ- ees. The short-term nature of our “Profit Sharing” payments combined with the long-term stock ownership incentive, align the interests of our employees with those of our share- holders. This factor, combined with a competitive wage and President / CEO April 15, 2004 AAON’s Desuperheater for Evaporative Air Conditioning is part of the evaporative cooling feature that can reduce benefits package, enable the Company to recruit and retain energy cost up to 40% over normal air cooled products. an excellent workforce. U.S. Patent pending UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2003 Commission file number: 0-18953 AAON, INC. (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. [ ] 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, 2003) was $171,059,000. As of February 27, 2004, Registrant had outstanding a total of 12,566,533 shares of its $.004 par value Common Stock. DOCUMENTS INCORPORATED BY REFERENCE Portions of Registrant’s definitive Proxy Statement to be filed in connection with the Annual Meeting of Stockholders to be held May 25, 2004, are incorporated into Part III. Table of Contents Item Number and Caption PART I 1. 2. 3. 4. PART II 5. 6. 7. Business. Properties. Legal Proceedings. Submission of Matters to a Vote of Security Holders. Market for Registrant’s Common Equity and Related Stockholder Matters and Purchases of Equity Securities. Selected Financial Data. Management’s Discussion and Analysis of Financial Condition and Results of Operations. 7A. Quantitative and Qualitative Disclosures About Market Risk. 8. 9. Financial Statements and Supplementary Data. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. 9A. Controls and Procedures. PART III 10. 11. 12. 13. 14. PART IV Directors and Executive Officers of Registrant. Executive Compensation. Security Ownership of Certain Beneficial Owners and Management. Certain Relationships and Related Transactions. Principal Accountant Fees and Services. 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K. Page Number 1 4 4 4 5 6 6 10 11 11 11 12 12 12 12 12 13 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 1989, pursuant to a Conversion/Exchange Agreement, AAON-Oklahoma became a wholly- owned subsidiary of AAON-Nevada. AAON-Oklahoma is engaged in the manufacture and sale of air-conditioning and heating equipment consisting of rooftop units, chillers, air-handling units, condensing units and coils. In 1991, AAON Coil Products, Inc. (“ACP”, formerly CP/AAON, Inc.), a Texas corporation, was organized as a wholly-owned subsidiary of AAON-Nevada to purchase most of the assets of a company in Longview, Texas. ACP manufactures coils used in the Company’s products. Products and Markets The Company’s products (identified above) serve the commercial and industrial new construction and replacement markets. To date virtually all of the Company’s sales have been to the domestic market, with foreign sales accounting for only 2% of its sales in 2003. The rooftop and condenser markets consist of units installed on commercial or industrial structures of generally less than 10 stories in height. Air-handling units, chillers and coils are applicable to all sizes of commercial and industrial buildings. The size of these markets is determined primarily by the number of commercial and industrial building completions. The replacement market consists of products installed to replace existing units/components which are worn or damaged. Historically, approximately half of the industry’s market has consisted of replacement units. The commercial and industrial new construction market is subject to cyclical fluctuations in that it is generally tied to housing starts, but has a lag factor of 6-18 months. Housing starts, in turn, are affected by such factors as interest rates, the state of the economy, population growth and the relative age of the population. When new construction is down, the Company emphasizes the replacement market. Based on its 2003 level of sales, approximately $149 million, the Company has a 13% share of the rooftop market and a 1% share of the coil market. Approximately 57% of the Company’s sales now come from new construction and 43% from renovation/replacements. The percentage of sales for new construction vs. replacement to particular customers is related to their stage of development. In the case of Wal-Mart, due to its growth posture, the Company’s sales to this major customer were approximately 75% for new construction and 25% replacement. The Company purchases certain components, fabricates sheet metal and tubing and then assembles and tests its finished products. The Company’s primary finished products consist of a single unit system containing heating, cooling and/or heat recovery components in a self-contained cabinet, referred to in the industry as “unitary” products. The Company’s other finished products are coils consisting of a sheet metal casing with tubing and fins contained therein, air-handling units consisting of coils, blowers and filters, and condensing units consisting of coils, fans and compressors, which, with the addition of a refrigerant-to-water heat exchanger, become chillers. 1 The Company currently has five groups of rooftop products: its RM and RN Series offered in 21 cooling sizes ranging from two to 70 tons; its RL Series, which is offered in 15 cooling sizes ranging from 40 to 230 tons; its HA Series, which is a horizontal discharge package for either rooftop or ground installation, offered in nine sizes ranging from four to 50 tons; and its HA/HB Series, which is offered in 11 sizes ranging from two to 50 tons. The Company’s air-handling units consist of the H/V Series and the Celebrity Series. The Company’s condensing units consist of the CA and CB Series. The Company’s heat recovery option applicable to its RM, RN and RL units, as well as its Celebrity air handlers, respond to the U.S. Clean Air Act mandate to increase fresh air in commercial structures. The Company’s products are designed to compete on the higher quality end of standardized products. Performance characteristics of its products range in cooling capacity from 28,000-4,320,000 BTU’s and in heating capacity from 69,000- 3,990,000 BTU’s. All of the Company’s products meet the Department of Energy’s efficiency standards, which are published to define the maximum amount of energy to be used in producing a given amount of cooling. A typical commercial building installation requires a ton of air-conditioning for every 300-400 square feet or, for a 100,000 square foot building, 250 tons of air-conditioning, which can involve multiple units. The Company has developed a prototype wall-hung heating and air-conditioning unit which it has begun to market for commercial buildings requiring a product designed for small space(s). Pilot production and testing of this product began in 2001. Since marketing activities have just recently commenced, sales to date have not been significant. The Company also has developed and is beginning to market a residential condensing unit (CB Series). Major Customers The Company’s largest customer last year was Wal-Mart Stores, Inc. Sales to Wal-Mart were 18% and 14% of total sales, respectively, in 2003 and 2002. The Company has no written contract with this customer. The loss of Wal-Mart would have a material adverse affect on the Company. However, with the continuing expansion of the Company’s customer base, management believes that the extent of its dependence on sales to this customer will diminish over a period of time. In order to diversify its customer base, the Company has added to and/or upgraded its sales representation in various markets. Sources and Availability of Raw Materials The most important materials purchased by the Company are steel, copper and aluminum, which are obtained from domestic suppliers. The Company also purchases from other domestic manufacturers certain components, including compressors, electric motors and electrical controls used in its products. The Company endeavors to obtain the lowest possible cost in its purchases of raw materials and components, consistent with meeting specified quality standards. The Company is not dependent upon any one source for its raw materials or the major components of its manufactured products. By having multiple suppliers, the Company believes that it will have adequate sources of supplies to meet its manufacturing requirements for the foreseeable future. Further, the Company attempts to limit the impact of increases in raw materials and purchased component prices on its profit margins by negotiating with each of its major suppliers on a term basis from six months to one year. Distribution The Company employs a sales staff of nine individuals and utilizes approximately 84 independent manufacturer representatives’ organizations having 101 offices to market its products in the United States. The Company also has one international sales organization, which utilizes 12 distributors in other countries. Sales are made directly to the contractor or end user, with shipments being made from the Company’s Tulsa and Longview plants to the job site. Billings are to the contractor or end user, with a commission paid directly to the manufacturer representative. The Company’s products and sales strategy focus on “niche” markets. The targeted markets for its equipment are customers seeking products of better quality than offered, and/or options not offered, by standardized manufacturers. To support and service its customers and the ultimate consumer, the Company provides parts availability through two independent parts distributors and has a factory service organization at its Tulsa plant. Also, a number of the manufacturer representatives utilized by the Company have their own service organizations, which, together with the Company, provide the necessary warranty work and/or normal service to customers. The Company’s warranty on its products is: for parts only, the earlier of one year from the date of first use or 15 months from date of shipment; compressors (if applicable), an additional four years; on gas-fired heat exchangers (if applicable), 15 years; and on stainless steel heat exchangers (if applicable), 25 years. Research and Development All R&D activities of the Company are company-sponsored, rather than customer-sponsored. R&D has involved the HB, RM, RN and RL (rooftop units), LL (chillers), CB (condensing units) and WA (wall-hung units), as well as component evaluation and refinement, development of control systems and new product development. In the last three years, the Company has incurred an average of $796,000 per year in research and development expense. Backlog The Company had a current backlog as of March 1, 2004, of $37,384,000, compared to $24,972,000 at March 1, 2003. The current backlog consists of orders considered by management to be firm and substantially all of which will be filled by August 1, 2004; however, the orders are subject to cancellation by the customers. Working Capital Practices Working capital practices in the industry center on inventories and accounts receivable. The Company regularly reviews its working capital components with a view to maintaining the lowest level consistent with requirements of anticipated levels of operation. Its greatest needs arise during the months of July-November, the peak season for inventory (primarily purchased material) and accounts receivable. The Company’s working capital requirements are generally met by cash flow from operations and a bank revolving credit facility, which currently permits borrowings up to $15,150,000. The Company believes that it will have sufficient funds available to meet its working capital needs for the foreseeable future. Seasonality Sales of the Company’s products are moderately seasonal with the peak period being July-November of each year. 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 pri- marily on the basis of total value, quality, function, serviceability, efficiency, availability of product,s product line recognition and acceptability of sales outlet. However, in new construction where the contractor is the purchasing decision maker, the Company often is at a competitive disadvantage on sales of its products because of the emphasis placed on initial cost; whereas, in the replacement market and other owner-controlled purchases, the Company has a better chance of getting the business since quality and long-term cost are generally taken into account. Employees As of March 1, 2004, the Company had 989 employees and 262 temporaries, none of whom are represented by unions. Management considers its relations with its employees to be satisfactory. Patents, Trademarks, Licenses and Concessions The Company does not consider any patents, trademarks, licenses or concessions held by it to be material to its business oper- ations, other than patents issued regarding its heat recovery wheel option, blower, gas-fired heat exchanger, wall-hung curb and evaporative condenser desuperheater. 2 3 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, contain- ing manufacturing equipment designed for sheet metal fabrication and metal stamping. The manufacturing equipment contained in the original facility consists primarily of automated sheet metal fabrication equipment, supplemented by presses, press breaks and NC punching equipment. Assembly lines consist of four cart-type conveyor lines with variable line speed adjustment, three of which are motor driven. Subassembly areas and production line manning are based upon line speed. The manufacturing facility is 1,140 feet in length and varies in width from 390 feet to 220 feet. Production at this facility averaged approximately $12.1 million per month in 2003, which is 60% of the estimated capacity of the plant. Management deems this plant to be nearly ideal for the type of rooftop products being manufactured by the Company. The expansion facility, which was purchased in 1997, is 25% (122,000 sq. ft.) utilized by the Company and 75% leased to a third party. The Company uses 22,000 sq. ft. for office space, 20,000 sq. ft. for warehouse space and 80,000 sq. ft. for manufacturing. The remaining 357,000 sq. ft. will afford the Company additional plant space for long-term growth. The operations of ACP are conducted in a plant/office building at 203-207 Gum Springs Road in Longview, Texas, containing 226,000 sq. ft. on 14 acres. The manufacturing area (approximately 219,000 sq. ft.) is located in three 120-foot wide sheet metal buildings connected by an adjoining structure. The facility is built for light industrial manufacturing. Item 3. Legal Proceedings. The Company is not a party to any pending legal proceeding which management believes is likely to result in a material liability and no such action is contemplated by or, to the best of its knowledge, has been threatened against the Company. Item 4. Submission of Matters to a Vote of Security Holders. No matter was submitted to a vote of security holders, through solicitation of proxies or otherwise, during the period from October 1, 2003, through December 31, 2003. Part II Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters and Purchases of Equity Securities. The Company’s Common Stock is traded on the NASDAQ National Market under the symbol “AAON”. The range of closing prices for the Company’s Common Stock during the last two years, as reported by National Association of Securities Dealers, Inc. (adjusted for a 3-for-2 stock split on June 4, 2002), was as follows: Quarter Ended March 31, 2002 June 30, 2002 September 30, 2002 December 31, 2002 March 31, 2003 June 30, 2003 September 30, 2003 December 31, 2003 High $ 18.08 $ 21.54 $ 18.69 $ 21.00 $ 19.36 $ 19.64 $ 19.84 $ 20.49 Low $ 12.97 $ 16.94 $ 15.55 $ 16.00 $ 12.70 $ 12.48 $ 16.39 $ 17.13 On February 27, 2004, there were 1,040 holders of record, and 3,575 beneficial owners, of the Company’s Common Stock. Since its inception, no cash dividends have been paid on the Company’s Common Stock and the Company does not anticipate paying cash dividends in the foreseeable future. There is a negative covenant under the Company’s Revolving Credit and Term Loan Agreement which prohibits the declaration or payment of such dividends. Following repurchases of approximately 12% of its outstanding Common Stock between September 1999 and September 2001, the Company announced and began its current stock repurchase program on October 17, 2002, targeting repurchases of up to an additional 10% (1,325,000 shares) of its outstanding stock. Through December 31, 2003, the Company had repurchased a total of 812,964 shares under the current program for an aggregate price of $13,911,018, or an average of $17.11 per share. Repurchases during the fourth quarter of 2003 were as follows: ISSUER PURCHASES OF EQUITY SECURITIES Period (a) Total Number of Shares (or Units) Purchased (b) Average Price Paid Per Share (or Unit) (c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs (d) Maximum Number or Approximate Dollar Value of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs Month #1 October 1-31, 2003 Month #2 November 1-30, 2003 Month #3 December 1-31, 2003 17,600 $18.02 17,600 537,736 5,100 $19.05 5,100 532,636 20,600 $18.52 20,600 512,036 TOTAL 43,300 $18.38 43,300 4 5 Item 6. Selected Financial Data. The following selected financial data should be read in conjunction with the financial statements and related notes thereto for the periods indicated, which are included elsewhere in this report. Results of Operations: 2003 2002 Years Ended December 31, 2001 (in thousands, except per share data) 2000 Net sales Net income Basic earnings per share Diluted earnings per share Weighted average shares outstanding Basic Diluted $ 148,845 $ 14,227 1.12 $ 1.07 $ 12,685 13,251 $ 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 1999 $ 131,947 9,697 $ .69 $ .67 $ 14,043 14,535 Balance Sheet Data: 2003 2002 December 31, 2001 (in thousands) 2000 1999 Total assets Long-term debt Stockholders’ equity $ 102,085 – $ 67,428 $ $ $ 91,713 – 62,310 $ $ $ 76,295 985 50,041 $ 76,818 $ 5,853 $ 37,012 $ 58,656 $ 6,630 $ 33,618 Basic earnings per common share were computed by dividing net income by the weighted average number of shares of common stock outstanding during the reporting period. Diluted earnings per common share were determined on the assumed exercise of dilutive options, as determined by applying the treasury stock method. Effective September 28, 2001 and June 4, 2002, the Company completed three-for-two stock splits. The shares outstanding and earnings per share disclosures have been restated to reflect the stock splits. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. AAON engineers, manufactures and markets air-conditioning and heating equipment consisting of rooftop units, chillers, air-handling units, condensing units and coils. The Company currently has five groups of rooftop products: its RM and RN series offered in 21 cooling sizes ranging from two to 70 tons (the RM and RN units replaced the RK Series in 2003); its RL Series, which is offered in 15 cooling sizes ranging from 40 to 230 tons; its HA Series, which is a horizontal discharge package for either rooftop or ground installation, offered in nine sizes ranging from four to 50 tons; and its HA/HB Series, which is offered in 11 sizes ranging from two to 50 tons. The Company manufactures a Model LL chiller, which is available in both air-cooled condensing and evaporative cooled configurations. The Company’s air-handling units consist of the H/V Series and the Celebrity Series. The Company’s condensing units consist of the CA and CB Series. AAON sells its products to property owners and contractors through a network of manufacturers’ representatives and its internal sales force. Demand for the Company’s products is influenced by national and regional economic and demographic factors. The commercial and industrial new construction market is subject to cyclical fluctuations in that it is generally tied to housing starts, but has a lag factor of 6-18 months. Housing starts, in turn, are affected by such factors as interest rates, the state of the economy, population growth and the relative age of the population. When new construction is down, the Company emphasizes the replacement market. The principal components of cost of goods sold are labor, raw materials, component costs, factory overhead, freight out and engineering expense. The principal raw materials used in AAON’s manufacturing processes are steel, copper and aluminum. The major component costs include compressors, electric motors and electronic controls. Selling, general, and administrative (“SG&A”) costs include the Company’s internal sales force, warranty costs, profit sharing and administrative expense. Warranty expense is estimated based on historical trends and other factors. The Company’s warranty on its products is: for parts only, the earlier of one year from the date of first use or 15 months from date of shipment; compressors (if applicable), an additional four-years, on gas-fired heat exchangers (if applicable), 15 years, and on stainless steel heat exchangers (if applicable), 25 years. The office facilities of AAON, Inc. consist of a 337,000 square foot building (322,000 sq. ft. of manufacturing/warehouse space and 15,000 sq. ft. of office space) located at 2425 S. Yukon Avenue, Tulsa, Oklahoma (the “original facility”), and a 457,000 square foot manufacturing/warehouse building and a 22,000 square foot office building (the “expansion facility”) that is located across the street from the original facility. The Company utilizes 25% of the expansion facility and the remaining 75% is leased to a third party. The operations of AAON Coil Products are conducted in a plant/office building at 203-207 Gum Springs Road in Longview, Texas, containing 226,000 square feet (219,000 sq. ft. of manufacturing/warehouse and 7,000 sq. ft. of office space). Set forth below is income statement information with respect to the Company for years 2003, 2002 and 2001: 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 2003 Years Ended December 31, 2002 (in thousands) 2001 $ 148,845 112,596 $ 155,075 117,193 $ 157,252 118,399 36,249 14,909 21,340 21 (346) (188) 21,853 7,626 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 Net income $ 14,227 $ 14,611 $ 14,156 Results of Operations Net sales decreased $6.2 million in 2003 compared to 2002, and decreased $2.2 million in 2002 compared to 2001. The decrease in sales in 2003 was primarily due to economic conditions in the United States, production issues with the manufacturing of new products and shipment delays by the Company’s customers in the fourth quarter. The decrease in sales for 2002 was caused by a slowdown in production due to the heavy volume of new products produced and from a slowdown in the construction market caused by a downturn in the economy and uncertainty about future economic conditions. Gross margins in 2003 and 2002 were 24.4%, compared to 24.7% in 2001. Gross profit decreased $1.6 million (4.3%) to $36.2 million in 2003 from $37.9 million in 2002 and decreased $1.0 million (2.5%) to $37.9 million from $38.9 million in 2002 compared to 2001. While gross profit decreased as a result of lower sales, the margins in 2003 remained consistent with those of previous years. While the Company faces risks associated with rising commodity prices, the Company did not experience significant fluctuations in raw material costs during the three years ended 2003. The decrease in margins for 2002 compared to 2001 was primarily attributable to start-up costs related to the production of new products and lower plant utilization due to the decrease in sales. Selling, general and administrative expenses decreased $.2 million (1.1%) in 2003 compared to 2002 due to a decrease in warranty expenses primarily attributable to improved product quality, while advertising, state taxes and employee compensation costs increased. The SG&A decrease of $.9 million (5.9%) in 2002 compared to 2001 was primarily a result of a reduction in bad debt and warranty expense. 6 7 Interest expense was $21,000, $.1 million and $.9 million in 2003, 2002 and 2001, respectively. The reduction in interest expense was due to the retirement of all long-term debt in 2002, lower average borrowings under the revolving credit facility in 2003 and 2002 compared to 2001, and lower average interest rates. Interest income was $.3 million and $.2 million in 2003 and 2002, respectively, due to investments in short-term money markets and certificates of deposit. Other income was $.2 million in 2003 and 2002, and $.5 million in 2001. Other income is primarily attributable to rental income from the Company’s “expansion facility”. The decrease of $.3 million in 2002 was due to the expanded company use of its facilities. Financial Condition and Liquidity Net accounts receivable increased $.2 million at December 31, 2003, compared to December 31, 2002, due to a $.5 million increase in trade receivable caused by timing of receipts, offset by an increase of $.3 million in the allowance for doubtful accounts. Inventories increased $5.4 million at December 31, 2003, compared to December 31, 2002, due to production issues with the manufacturing of new products, shipment delays by the Company’s customers in the fourth quarter caused by adverse weather conditions in various parts of the country and the procurement of additional raw material and purchased parts required to manufacture units that had extended ship dates. With the backlog at $37,384,000, the bulk of the increase in inventories is committed for future manufacturing. Additionally, the rescheduling of some ship dates of equipment by customers increased finished goods. Prepaid expenses increased by $2.1 million at December 31, 2003, compared to December 31, 2002, due to deposits made on equipment acquisitions. Accounts payable and accrued liabilities increased $2.1 million at December 31, 2003, compared to December 31, 2002, due to timing of payments to vendors. The Company generated $16.5 million, $21.9 million and $23.9 million cash from operating activities in 2003, 2002 and 2001, respectively. Operating cash flows in 2003 consisted of $14.2 million of net income, $5.4 million of depreciation and $3.2 million of working capital and other changes. The decrease in cash provided from operating activities in 2003 is primarily due to an increase in inventories. Operating cash flows in 2002 consisted of $14.6 million of net income, $4.9 million of depreciation and $2.4 million in working capital and other changes. The decrease in 2002 is primarily due to an increase in inventories. Operating cash flows in 2001 consisted of $14.2 million of net income, $4.4 million of depreciation and $5.3 million in working capital and other changes. Cash flows used in investing activities were $7.6 million, $16.1 million and $8.8 million in 2003, 2002 and 2001, respectively. Cash flows used in investing activities in 2003 related to capital expenditure additions totaling $7.7 million, reflecting primarily additions to machinery and equipment and renovations made to the Company’s manufacturing and office facilities. In 2002 and 2001 cash used in investing activities was comprised primarily of capital expenditures totaling $6.1 million and $9.0 million, respectively. All capital expenditures and building renovations were financed out of cash generated from operations. Additionally in 2002, the Company invested $10 million in a certificate of deposit which matures in 2004. Due to anticipated production demands, the Company expects to expend approximately $10 million in 2004 for plant expansion and equipment requirements. The Company expects the cash requirements to be provided from cash flow from operations. Cash flows used in financing activities were $7.7 million, $1.9 million and $14.0 million in 2003, 2002 and 2001, respectively. In October 2002, the Company’s Board of Directors authorized a stock buyback program to repurchase up to 1,325,000 shares of stock. There were 597,001 shares of stock repurchased for a total of $9.9 million and 215,963 shares of stock repurchased for a total of $4.0 million in 2003 and 2002, respectively. The Company repurchased stock in 2001 totaling $2.8 million as part of its first stock buyback program. Additionally, during 2003, 2002 and 2001, the Company had net borrowings/(repayments) of $1.8 million, $3.1 million and ($6.5) million respectively, under its revolving credit facility and repaid $1.9 million and $5.4 million of long-term debt in 2002 and 2001 respectively. The Company’s revolving credit facility (which currently extends to July 31, 2004) provides for maximum borrowings of $15.2 million. Interest on borrowings is payable monthly at the Wall Street Journal prime rate less .5% or LIBOR plus 1.6%, at the election of the Company. Borrowings available under the revolving credit facility at December 31, 2003 were $9.2 million. The credit facility requires that the Company maintain a certain financial ratio and prohibits the declaration of dividends. As of December 31, 2003 the Company was not in compliance with its financial ratio covenant; however, the event of non-compliance was waived by the bank through July 31, 2004. The Company does not believe there will be any impact from the event of non- compliance on its financial condition or results of operations. Management believes the Company’s bank revolving credit facility (or comparable financing), and projected cash flows from operations will provide the necessary liquidity and capital resources to the Company for the foreseeable future. The Company’s belief that it will have the necessary liquidity and capital resources is based upon its knowledge of the HVAC industry and its place in that industry, its ability to limit the growth of its business if necessary, and its relationship with its existing bank lender. For information concerning the Company’s revolving credit facility at December 31, 2003, see Note 4 to the financial statements included in this report. Commitments and Contractual Agreements In January 2004, the Company executed a contract to construct a sheet metal facility at the Tulsa plant for an approximate cost of $2.0 million. The Company is a party to several short-term cancelable fixed price contracts with major suppliers for the purchase of raw material and component parts. The Company has cancelable commitments to purchase machinery and equipment at a cost of $4.2 million. Critical Accounting Policies The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Because these estimates and assumptions require significant judgment, future actual results could differ from those estimates and could have a significant impact on the Company’s results of operations, financial position and cash flows. The Company re-evaluates its estimates and assumptions on a monthly basis. The following accounting policies may involve a higher degree of estimation or assumption: Allowance for Doubtful Accounts - The Company establishes an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends in collections and write-offs, current customer status, the age of the receivable, economic conditions and other information. Aged receivables are reviewed on a monthly basis to determine if the reserve is adequate and adjusted accordingly at that time. Allowance for Excess and Obsolete Inventories – The Company establishes an allowance for excess and obsolete inventories based on the change in inventory requirements due to product line changes, the feasibility of using obsolete parts for upgraded part substitutions, the required parts needed for part supply sales and replacement parts. Warranty – A provision is made for estimated warranty costs at the time the product is shipped and revenue is recognized. The warranty period is: for parts only, the earlier of one year from the date of first use or 15 months from date of shipment; compressors (if applicable), an additional four years; on gas-fired heat exchangers (if applicable), 15 years; and on stainless steel heat exchangers (if applicable), 25 years. Warranty expense is estimated based on the Company’s warranty period, historical warranty trends and associated costs, and any known identifiable warranty issue. Due to the absence of warranty history on new products, an additional provision may be made for such products. Historically, reserves have been within management’s expectations. Stock Compensation - The Company has elected to follow Accounting Principles Board Opinion No. 25 (“APB 25”), Accounting for Stock Issued to Employees and related interpretations in accounting for stock options because the alternative fair value accounting provided for under the Statement of Financial Accounting Standards No. 123 (“SFAS 123”), Accounting for Stock- Based Compensation, requires the use of option valuation models that were not developed for use in valuing employee stock options and are theoretical in nature. Under APB 25, because the exercise price of the Company’s options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. 8 9 New Accounting Pronouncements Statement of Financial Accounting Standards (“SFAS”) No. 143, Accounting for Asset Retirement Obligations, requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred and a corresponding increase in the carrying amount of the related long-lived asset. The adoption of SFAS 143 in 2003 did not have a significant impact on the Company’s results of operations or financial position. The Financial Accounting Standards Board (FASB) issued SFAS No. 150 “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity.” This Statement establishes standards for how a company classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that a Company classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). Many of those instruments were previously classified as equity. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003; otherwise it is effective at the beginning of the first interim period beginning after June 15, 2003, Initial adoption of this statement did not have any impact on the Company’s consolidated results of operations or financial position. FASB Interpretation No. 46 (FIN 46) is an interpretation of Accounting Research Bulletin No. 51, Consolidated Financial Statements. FIN 46 addresses consolidation by business enterprises of variable interest entities. This Interpretation applies immediately to variable interest entities created after January 31, 2003, and to variable interest entities in which an enterprise obtains an interest after that date. The Company has no investments in or known contractual arrangements with variable interest entities, and therefore this Interpretation has not impacted the Company’s financial statements or related disclosures. Forward-Looking Statements This Annual Report includes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as “expects”, “anticipates”, “intends”, “plans”, “believes”, “seeks”, “estimates”, “will”, and variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions, which are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. The Company undertakes no obligations to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Important factors that could cause results to differ materially from those in the forward-looking statements include (1) the timing and extent of changes in raw material and component prices, (2) the effects of fluctuations in the commercial/industrial new construction market, (3) the timing and extent of changes in interest rates, as well as other competitive factors during the year, and (4) general economic, market or business conditions. Item 7A. Quantitative and Qualitative Disclosures About Market Risk. The Company is subject to interest rate risk on its revolving credit facility which bears variable interest based upon a prime or LIBOR rate. Foreign sales accounted for only 2% of the Company’s sales in 2003 and the Company accepts payment for such sales only in U.S. dollars; hence, the Company is not exposed to foreign currency exchange rate risk. Important raw materials purchased by the Company are steel, copper and aluminum, which are subject to price fluctuations. The Company attempts to limit the impact of price increases on these materials by entering cancelable fixed price contracts with its major suppliers for periods of 6 -12 months. The Company does not utilize derivative financial instruments to hedge its interest rate or raw materials price risks. Item 8. Financial Statements and Supplementary Data. The financial statements and supplementary data are included at page 18. 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. Item 9A. Controls and Procedures. Evaluation of disclosure controls and procedures At the end of the period covered by this Annual Report on Form 10-K, the Company’s management, under the supervision and with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer believe that: • 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 for timely decisions regarding the required disclosure. Changes in internal controls There have been no significant changes in the Company’s internal controls or other factors that could significantly affect the Company’s internal controls subsequent to their evaluation, nor has there been any need for any corrective actions with regard to significant deficiencies or material weaknesses in internal controls related to financial reporting. 10 11 PART III Item 10. Directors and Executive Officers of Registrant. The information required by Items 401 and 405 of Regulation S-K is incorporated by reference to the Company’s definitive Proxy Statement to be filed with the Securities and Exchange Commission in connection with the Company’s 2004 Annual Meeting of Stockholders. Code of Ethics The Company has adopted a code of ethics that applies to its principal executive officer, principal financial officer and principal accounting officer or persons performing similar functions (as well as its other employees and directors). The Company undertakes to provide any person without charge, upon request, a copy of such code of ethics. Requests may be directed to AAON, Inc., 2425 South Yukon Avenue, Tulsa, Oklahoma 74107, attention Kathy I. Sheffield, or by calling (918) 382-6204. Item 11. Executive Compensation. Incorporated by reference to the Company’s definitive Proxy Statement to be filed with the Securities and Exchange Commission in connection with the Company’s 2004 Annual Meeting of Stockholders. Item 12. Security Ownership of Certain Beneficial Owners and Management. The information required by Item 403 of Regulation S-K is incorporated by reference to the Company’s definitive Proxy Statement to be filed with the Securities and Exchange Commission in connection with the Company’s 2004 Annual Meeting of Stockholders. Summary of All Existing Equity Compensation Plans The following table sets forth information concerning the equity compensation plans of the Company as of December 31, 2003. EQUITY COMPENSATION PLAN INFORMATION Plan Category Number of securities to be issued upon exercise of outstanding options, warrants and rights Weighted-average exercise price of outstanding options, warrants and rights Number of securities remaining available for future issuance under equity compensation plan [excluding securities reflected in column (a)] Equity compensation plans Approved by security holders(1) Equity compensation plans not approved by security holders(2) TOTAL (a) 1,227,330 — 1,227,330 (b) $5.70 — $5.70 (1) Consists of shares covered by the Company’s 1992 Stock Option Plan, as amended. (2) The Company does not maintain any equity compensation plans that have not been approved by the stockholders. Item 13. Certain Relationships and Related Transactions. (c) 324, 361 — 324, 361 Incorporated by reference to the Company’s definitive Proxy Statement to be filed with the Securities and Exchange Commission in connection with the Company’s 2004 Annual Meeting of Stockholders. Item 14. Principal Accountant Fees and Services. Incorporated by reference to the Company’s definitive Proxy Statement to be filed with the Securities and Exchange Commission in connection with the Company’s 2004 Annual Meeting of Stockholders. Part IV Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K. (a) 1. 2. 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) (31.1) (31.2) (32.1) (32.2) 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 Section 1350 Certification – CEO Section 1350 Certification – 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, August 19, 2002, and July 31, 2003. 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, 2003, to December 31, 2003. 12 13 Signatures 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 Income Consolidated Statements of Stockholders’ Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements Page 16 17 18 19 20 21 22 Pursuant to the requirement of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized. AAON, INC. Dated: March 10, 2004 By: /s/ Norman H. Asbjornson Norman H. Asbjornson, President Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Dated: March 10, 2004 Dated: March 10, 2004 Dated: March 10, 2004 Dated: March 10, 2004 Dated: March 10, 2004 Dated: March 10, 2004 Dated: March 10, 2004 Dated: March 10, 2004 /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/ William A. Bowen William A. Bowen Director /s/ John B. Johnson, Jr. John B. Johnson, Jr. Director /s/ Thomas E. Naugle Thomas E. Naugle Director /s/ Anthony Pantaleoni Anthony Pantaleoni Director /s/ Jerry E. Ryan Jerry E. Ryan Director /s/ Charles C. Stephenson, Jr. Charles C. Stephenson, Jr. Director 14 15 Report of Independent Auditors Report of Independent Public Accountants* Stockholders AAON, Inc. We have audited the accompanying consolidated balance sheets of AAON, Inc. as of December 31, 2003 and 2002, and the related consolidated statements of income, stockholders’ equity and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. The consolidated financial statements of AAON, Inc. for the year ended December 31, 2001 were audited by other auditors who have ceased operations and whose report dated February 6, 2002, expressed an unqualified opinion on those statements before the restatement adjustments described in Note 1. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As discussed above, the financial statements of AAON, Inc. for the year ended December 31, 2001, were audited by other auditors who have ceased operations. As described in Note 1, in 2002 the Company’s Board of Directors approved a three-for- two stock split distributed in the form of a stock dividend, and all references to number of shares and per share information in the financial statements have been adjusted to reflect the stock split on a retroactive basis. We audited the adjustments that were applied to restate the number of shares and per share information reflected in the 2001 financial statements. Our procedures included (a) agreeing the authorization for the three-for-two stock split to the Company’s underlying records obtained from management, and (b) testing the mathematical accuracy of the restated number of shares, basic and diluted earnings per share and related stock option disclosures. In our opinion, such adjustments are appropriate and have been properly applied. However, we were not engaged to audit, review, or apply any procedures to the 2001 financial statements of the Company other than with respect to such adjustments and, accordingly, we do not express an opinion or any other form of assurance on the 2001 financial statements taken as a whole. In our opinion, the 2003 and 2002 financial statements referred to above present fairly, in all material respects, the consolidated financial position of AAON, Inc. at December 31, 2003 and 2002, and the consolidated results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States. ERNST & YOUNG LLP Tulsa, Oklahoma February 6, 2004 To the Stockholders of AAON, Inc.: We have audited the accompanying consolidated balance sheets of AAON, Inc. (a Nevada corporation) and subsidiaries as of December 31, 2001 and 2000, and the related consolidated statements of operations, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2001. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of AAON, Inc. and subsidiaries as of December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States. Tulsa, Oklahoma February 6, 2002 *This is a copy of a previous report and has not been reissued. ARTHUR ANDERSEN LLP 16 17 Consolidated Balance Sheets Consolidated Statements of Income Assets Current assets: Cash and cash equivalents Certificate of deposit Accounts receivable, net Inventories, net Prepaid expenses and other Deferred tax asset Total current assets Certificate of deposit Property, plant and equipment, net Total assets Liabilities and Stockholders’ Equity Current liabilities: Revolving credit facility Accounts payable Accrued liabilities Total current liabilities Deferred tax liability Stockholders’ equity: Preferred stock, $.001 par value, 5,000,000 shares authorized, no shares issued Common stock, $.004 par value, 50,000,000 shares authorized, 12,519,733 and 13,030,916 issued at December 31, 2003 and 2002, respectively Additional paid-in capital Retained earnings Total stockholders’ equity December 31, 2003 2002 (in thousands, except for share data) $ 6,186 10,000 22,553 19,711 2,653 3,532 64,635 - 37,450 $ 102,085 $ 5,356 11,553 12,357 29,266 5,391 - 50 67,378 67,428 $ $ $ 5,071 - 22,306 14,338 599 4,168 46,482 10,000 35,231 91,713 3,566 8,418 13,349 25,333 4,070 - 52 - 62,258 62,310 Total liabilities and stockholders’ equity $ 102,085 $ 91,713 See accompanying notes. Year Ending December 31, 2003 2002 2001 (in thousands, except per share data) $ 148,845 112,596 36,249 14,909 21,340 21 (346) (188) 21,853 7,626 14,227 1.12 1.07 12,685 13,251 $ $ $ $ 155,075 117,193 37,882 15,071 22,811 95 (214) (180) 23,110 8,499 14,611 1.11 1.06 13,158 13,740 $ $ $ $ $ $ $ 157,252 118,399 38,853 16,011 22,842 892 – (536) 22,486 8,330 14,156 1.09 1.04 12,992 13,641 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 Net income Earnings per share*: Basic Diluted Weighted average shares outstanding*: Basic Diluted * Reflects three-for-two stock split effective June 4, 2002. See accompanying notes. 18 19 Consolidated Statements Of Stockholders’ Equity Consolidated Statements Of Cash Flows Common Stock Shares* Amount Paid-in Capital (in thousands) Retained Earnings* Total Balance at December 31, 2000 Net income Stock options exercised, including tax benefits Stock issued to employees Stock repurchased and retired Balance at December 31, 2001 Net income Stock options exercised, including tax benefits Stock repurchased and retired Balance at December 31, 2002 Net income Stock options exercised, including tax benefits Stock repurchased and retired Balance at December 31, 2003 12,968 – 266 1 (236) 12,999 – 248 (216) 13,031 – 86 (597) 12,520 * Reflects three-for-two stock split effective June 4, 2002. See accompanying notes. $ 52 – 1 – (1) 52 – 1 (1) 52 – – (2) $ 50 $ $ $ $ – – 1,634 25 (596) 1,063 – 1,639 (2,702) – 811 (811) – $ 36,960 14,156 – – (2,190) 48,926 14,611 – (1,279) $ 62,258 14,227 – (9,107) $ 67,378 $ 37,012 14,156 1,635 25 (2,787) 50,041 14,611 1,640 (3,982) $ 62,310 14,227 811 (9,920) $67,428 Operating Activities Net income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation Provision for losses on accounts receivable Provision for excess and obsolete inventories, net Gain on disposition of assets Deferred income taxes Changes in assets and liabilities: Accounts receivable Inventories Prepaid expenses and other Accounts payable Accrued liabilities Net cash provided by operating activities Investing Activities Proceeds from sale of property, plant and equipment Investment in certificate of deposit Capital expenditures Net cash used in investing activities Financing Activities Borrowings under revolving credit agreement Payments under revolving credit agreement Proceeds from long-term debt Payments on long-term debt Stock issued to employees Stock options exercised Repurchase of stock Net cash used in financing activities Net increase in cash Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year See accompanying notes. Year Ended December 31, 2003 2002 2001 (in thousands) $14,227 $ 14,611 $ 14,156 5,435 467 50 (28) 1,957 (714) (5,423) (2,054) 3,135 (583) 16,469 74 – (7,700) (7,626) 33,742 (31,952) – – – 402 (9,920) (7,728) 1,115 5,071 $ 6,186 4,915 346 150 (6) 1,085 740 (1,017) (379) 859 627 21,931 8 (10,000) (6,126) (16,118) 33,855 (30,735) – (1,869) – 866 (3,982) (1,865) 3,948 1,123 $ 5,071 4,380 260 (100) (125) 475 4,595 1,769 25 (3,686) 2,130 23,879 200 – (9,017) (8,817) 56,290 (62,761) 2,500 (7,873) 25 650 (2,787) (13,956) 1,106 17 1,123 $ 20 21 Notes To Consolidated Financial Statements December 31, 2003 1. Business, Summary of Significant Accounting Policies and Other Financial Data AAON, Inc. (the Company, a Nevada corporation) is engaged in the manufacture and sale of commercial rooftop air conditioners, heating equipment and air conditioning coils through its wholly-owned subsidiaries AAON, Inc. (AAON, an Oklahoma corporation) and AAON Coil Products, Inc. (ACP, a Texas corporation). The consolidated financial statements include the accounts of the Company and its subsidiaries, AAON and ACP. All significant intercompany accounts and transactions have been eliminated. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Revenue Recognition The Company recognizes revenues from sales of products at the time of shipment. For sales initiated by independent manufacturer representatives, the Company recognizes revenues net of the representatives’ commission. Concentrations The Company’s customers are concentrated primarily in the domestic commercial and industrial new construction and replacement markets. At December 31, 2003 and 2002, two customers represented approximately 10% and 17%, respectively, of accounts receivable. Sales to customers representing 10% or greater of total sales consist of the following: Wal-Mart Stores, Inc. Target Home Depot *Less than 10% Year Ended December 31, 2003 2002 2001 18% * * 14% 11% * 14% 11% 10% Cash and Cash Equivalents Cash and cash equivalents consist of bank deposits and highly liquid, interest-bearing money market funds with initial maturities of three months or less. Accounts Receivable The Company grants credit to its customers and performs ongoing credit evaluations. The Company generally does not require collateral or charge interest. The Company establishes an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends, economic and market conditions and the age of the receivable. Past due accounts are generally written off against the allowance for doubtful accounts only after all collection attempts have been exhausted. Accounts receivable and the related allowance for doubtful accounts are as follows: Accounts receivable Less allowance for doubtful accounts Total, net Allowance for doubtful accounts: Balance, beginning of period Provision for losses on accounts receivable Accounts receivable written off, net of recoveries Balance, end of period December 31, 2003 2002 (in thousands) $23,698 1,145 $22,553 $ 23,166 860 $22,306 Year Ended December 31, 2003 2002 2001 (in thousands) $ $ 860 346 (346) 860 $ 1,050 260 (450) 860 $ $ 860 467 (182) $ 1,145 Inventories Inventories are valued at the lower of cost or market. Cost is determined by the first-in, first-out (FIFO) method. The Company establishes an allowance for excess and obsolete inventories based on product line changes, the feasibility of substituting parts and the need for supply and replacement parts. At December 31, 2003 and 2002, and for the three years ending December 31, 2003, inventory and the related allowance for excess and obsolete inventories are as follows: Raw materials Work in process Finished goods Less allowance for excess and obsolete inventories Total, net Allowance for excess and obsolete inventories: Balance, beginning of period Provision for excess and obsolete inventories Adjustments to reserve Balance, end of period December 31, 2003 2002 (in thousands) $ 13.874 2,700 4,187 20,761 1,050 $ 19,711 $ 11,508 2,750 1,080 15,338 1,000 $ 14,338 Year Ended December 31, 2003 2002 2001 (in thousands) $ 850 690 (540) $ 1,000 $ $ 950 – (100) 850 $1,000 250 (200) $1,050 22 23 Property, Plant and Equipment Property, plant and equipment are stated at cost. Maintenance, repairs and betterments, including replacement of minor items, are charged to expense as incurred; major additions to physical properties are capitalized. Property, plant and equipment are depreciated using the straight-line method over the following estimated useful lives: Buildings Machinery and equipment Furniture and fixtures Years 10 - 30 3 - 15 2 - 5 At December 31, property, plant and equipment were comprised of the following: Land Buildings Machinery and equipment Furniture and fixtures Less accumulated depreciation Total, net 2003 2002 (in thousands) $ 874 19,588 44,329 3,944 68,735 31,285 $37,450 $ 874 18,394 39,580 3,497 62,345 27,114 $ 35,231 Impairment of Long-Lived Assets The Company evaluates long-lived assets for impairment when events or changes in circumstances indicate, in management’s judgment, that the carrying value of such assets may not be recoverable. When an indicator of impairment has occurred, management’s estimate of undiscounted cash flows attributable to the assets is compared to the carrying value of the assets to determine whether impairment has occurred. If an impairment of the carrying value has occurred, the amount of the impairment recognized in the financial statements is determined by estimating the fair value of the assets and recording a loss for the amount that the carrying value exceeds the estimated fair value. Accrued Liabilities At December 31, accrued liabilities were comprised of the following: Warranty Commissions Payroll Income taxes Workers’ compensation Medical self-insurance Other Total 2003 2002 (in thousands) $ 6,020 5,009 1,023 (708) 408 478 127 $12,357 $ 7,220 3,495 1,069 533 363 437 232 $ 13,349 Warranties A provision is made for estimated warranty costs at the time the related products are sold based upon the warranty period, historical trends, new products and any known identifiable warranty issues. Warranty expense was $3.2 million, $4.3 million and $5.8 million for the years ended December 31, 2003, 2002 and 2001, respectively. Changes in the Company’s warranty liability during the years ended December 31, 2003, and 2002, are as follows: Balance, beginning of the year Warranties accrued during the year Warranties settled during the year 2003 2002 (in thousands) $ 7,220 3,160 (4,360) $ 6,020 $ 7,020 4,300 (4,100) $ 7,220 Stock Split On June 4, 2002, the Company effected a three-for-two stock split. Share and per share amounts have been retroactively restated to reflect this stock split. Earnings Per Share Basic earnings per common share are computed by dividing net income by the weighted average number of shares of common stock outstanding during the year. Diluted earnings per common share are determined based on the assumed exercise of dilutive options, as determined by applying the treasury stock method. For the years ended December 31, 2003, 2002 and 2001, 41,250, 41,250 and 22,500 options, respectively, were anti-dilutive. The computation of basic and diluted earnings per share (“EPS”) is as follows: Basic EPS Effect of dilutive securities Diluted EPS Basic EPS Effect of dilutive securities Diluted EPS Basic EPS Effect of dilutive securities Diluted EPS Year Ended December 31, 2003 (in thousands, except per share data) Weighted Average Shares 12,685 566 13,251 Per-Share Amount $ $ 1.12 – 1.07 Year Ended December 31, 2002 (in thousands, except per share data) Weighted Average Shares 13,158 582 13,740 Per-Share Amount $ $ 1.11 – 1.06 Year Ended December 31, 2001 (in thousands, except per share data) Weighted Average Shares 12,992 649 13,641 Per-Share Amount $ $ 1.09 – 1.04 Net Income $ 14,227 – $ 14,227 Net Income $ 14,611 – $ 14,611 Net Income $ 14,156 – $ 14,156 24 25 Stock Compensation The Company maintains a stock option plan for key employees and directors which is described more fully in Note 6. The Company accounts for the plan under the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. No stock-based employee compensation cost is reflected in net income, as all options granted under the plan had an exercise price equal to the market value of the underlying common stock on the date of grant. The effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123, Accounting for Stock-Based Compensation, to stock-based employee compensation is as follows: Net income, as reported Deduct: Total stock-based employee compensation expense determined under fair value method for all awards, net of related tax effects Pro forma net income Earnings per share: Basic, as reported Basic, pro forma Diluted, as reported Diluted, pro forma Year Ended December 31, 2003 2002 2001 (in thousands, except per share data) $14,227 $ 14,611 $ 14,156 (611) 13,616 $ 1.12 $ 1.07 $ 1.07 $ 1.03 (995) (575) $ 13,616 $ 13,581 $ 1.1 1 $ 1.03 $ 1.06 $ 0.99 $1.09 $ 1.05 $ 1.04 $ 1.00 Advertising Advertising costs are expensed as incurred. Advertising expense was $781,000, $372,000 and $454,000 for the years ending December 31, 2003, 2002 and 2001, respectively. Research and Development Research and development costs are expensed as incurred. Research and development expense was $837,000, $842,000 and $705,000 for the years ending December 31, 2003, 2002 and 2001, respectively. Shipping and Handling Shipping and handling costs are classified in cost of sales. New Accounting Pronouncements SFAS No. 143, Accounting for Asset Retirement Obligations, requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred and a corresponding increase in the carrying amount of the related long-lived asset. The adoption of SFAS 143 in 2003 did not have a significant impact on the Company’s results of operations or financial position. The Financial Accounting Standards Board (FASB) issued SFAS No. 150 “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity.” This Statement establishes standards for how a company classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that a Company classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). Many of those instruments were previously classified as equity. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003; otherwise it is effective at the beginning of the first interim period beginning after June 15, 2003. Initial adoption of this statement did not have any impact on the Company’s consolidated results of operations or financial position. FASB Interpretation No. 46 (FIN 46) is an interpretation of Accounting Research Bulletin No. 51, Consolidated Financial Statements. FIN 46 addresses consolidation by business enterprises of variable interest entities. This Interpretation applies immediately to variable interest entities created after January 31, 2003, and to variable interest entities in which an enterprise obtains an interest after that date. The Company has no investments in or known contractual arrangements with variable interest entities, and therefore this Interpretation has not impacted the Company’s financial statements or related disclosures. Segments The Company operates under one reportable segment as defined in SFAS 131, Disclosures about Segments of an Enterprise and Related Information. 2. Supplemental Cash Flow Information Interest payments of $21,000, $95,000 and $892,000 were made during the years ending December 31, 2003, 2002 and 2001, respectively. Payments for income taxes of $6,750,000, $7,156,000 and $6,754,000 were made during the years ending December 31, 2003, 2002 and 2001, respectively. 3. Certificate of Deposit The $10 million certificate of deposit bears interest at 3.25% per annum and has a maturity date of June 12, 2004. There is a three- month interest penalty for early withdrawal. 4. Revolving Credit Facility The Company has a $15,150,000 unsecured bank line of credit that matures July 31, 2004. The line of credit requires that the Company maintain a certain financial ratio and prohibits the declaration or payments of dividends. At December 31, 2003, the Company was not in compliance with its financial ratio covenant. However, the event of non-compliance was waived by the bank through July 31, 2004. Borrowings under the credit facility bear interest at prime rate less .5% or at LIBOR plus 1.60%. At December 31, 2003 and 2002, the Company had $5,356,000 and $3,566,000, respectively, outstanding under the credit facility bearing interest at 2.77% and 3.04%, respectively. In addition, the Company had a $600,000 bank Letter of Credit at December 31, 2003 and 2002. 5. Income Taxes The Company follows the liability method of accounting for income taxes which provides that deferred tax liabilities and assets are based on the difference between the financial statement and income tax bases of assets and liabilities using currently enacted tax rates. The income tax provision consists of the following: Current Deferred Year Ending December 31, 2003 2002 2001 (in thousands) $ 5,669 1,957 $ 7,626 $ 7,414 1,085 $ 8,499 $ 7,855 475 $ 8,330 The reconciliation of the federal statutory income tax rate to the effective income tax rate is as follows: Federal statutory rate State income taxes, net of federal benefit Other Year Ending December 31, 2003 2002 2001 35% 4 (4) (35%) 35% 4 (2) 37% 35% 4 (2) 37% The tax effect of temporary differences giving rise to the Company’s deferred income taxes at December 31 is as follows: Deferred tax assets: Valuation reserves Warranty accrual Other accruals Other, net Deferred tax liability: Depreciation and amortization 2003 2002 (in thousands) $ 900 2,342 253 37 $ 3,532 $ 5,391 $ 705 2,737 708 18 $ 4,168 $ 4,070 26 27 6. Benefit Plans The Company’s stock option plan reserves 2,925,000 shares of common stock for issuance under the plan. Under the terms of the plan, the exercise price of shares granted may not be less than 85% of the fair market value at the date of the grant. Options granted to directors vest one year from the date of grant and are exercisable for nine years thereafter. All other options granted vest at a rate of 20% per year, commencing one year after date of grant, and are exercisable during years 2- 10. At December 31, 2003, 324,361 shares were available for future option grants. For the years ended December 31, 2003 and 2002, the Company reduced its income tax payable by $409,000 and $774,000, respectively, as a result of nonqualified stock options exercised under the Company’s stock option plan. The number and exercise price of options granted were as follows: Outstanding at January 1, 2000 Granted Exercised Cancelled Outstanding at December 31, 2001 Granted Exercised Cancelled Outstanding at December 31, 2002 Granted Exercised Cancelled Outstanding at December 31, 2003 Weighted Average Exercise Price Per Share $ 3.77 11.49 2.47 5.46 $ 5.01 – 3.57 5.20 $ 5.33 13.53 4.69 8.71 $ 5.70 Number of Shares 1,794,487 196,875 (266,813) (69,600) 1,654,949 – (247,598) (129,808) 1,277,543 56,250 (85,818) (20,645) 1,227,330 The weighted-average grant date fair value for options granted during 2003 was $6.47. The following is a summary of stock options outstanding as of December 31, 2003: Options Outstanding Options Exercisable Range of Exercise Prices $ 2.28 - $ 3.39 $ 4.00 - $ 5.78 $ 8.44 - $ 12.36 $13.29 - $19.27 TOTAL Number Outstanding at December 31, 2003 486,875 523,455 110,250 106,750 1,277,330 Weighted Average Exercise Price $ 3.05 5.16 9.74 16.26 $ 5.70 Weighted Average Remaining Contractual Life 3.23 Years 5.39 Years 7.28 Years 8.33 Years Number Exercisable at December 31, 2003 Weighted Average Exercise Price 486,875 464,889 46,350 49,450 1,047,564 $ 3.05 5.10 9.74 18.30 $ 4.97 For purposes of the stock compensation information presented in Note 1, the fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions: Expected dividend yield Expected volatility Risk-free interest rate Expected life *The Company granted no options in 2002. 2003 0% 37.8% 3.7% 8 yrs 2002 * * * * 2001 0% 45.38% 5.04% 8 yrs The Company sponsors a defined contribution benefit plan. Employees may make contributions at a minimum of 1% and a maximum of 15% of compensation. The Company may, on a discretionary basis, contribute a Company matching contribution not to exceed 6% of compensation. The Company made matching contributions of $585,000, $535,000 and $504,000 in 2003, 2002 and 2001, respectively. The Company maintains a discretionary profit sharing bonus plan under which 10% of pre-tax profit at each subsidiary is paid to eligible employees on a quarterly basis. Profit sharing expense was $2,428,000, $2,573,000 and $2,507,000 for the years ended December 31, 2003, 2002 and 2001, respectively. 7. Stockholder Rights Plan During 1999, the Board of Directors adopted a Stockholder Rights Plan (the “Plan”) which was amended in 2002. Under the Plan, stockholders of record on March 1, 1999, received a dividend of one right per share of the Company’s common stock. Stock issued after March 1, 1999, contains a notation incorporating the rights. Each right entitles the holder to purchase one one-thousandth (1/1,000) of a share of Series A Preferred Stock at an exercise price of $90. The rights are traded with the Company’s common stock. The rights become exercisable after a person has acquired, or a tender offer is made for, 15% or more of the common stock of the Company. If either of these events occurs, upon exercise the holder (other than a holder owning more than 15% of the outstanding stock) will receive the number of shares of the Company’s common stock having a market value equal to two times the exercise price. The rights may be redeemed by the Company for $0.001 per right until a person or group has acquired 15% of the Company’s common stock. The rights expire on August 20, 2012. 8. Contingencies The Company is subject to claims and legal actions that arise in the ordinary course of business. Management believes that the ultimate liability, if any, will not have a material effect on the Company’s results of operations or financial position. 28 29 9. Quarterly Results (Unaudited) The following is a summary of the quarterly results of operations for the years ending December 31, 2003 and 2002: Exhibit 23 Consent of Independent Auditors 2003 Net sales Gross profit Net income Earnings per share: Basic Diluted 2002 Net sales Gross profit Net income Earnings per share: Basic Diluted March 31 June 30 September 30 December 31 (in thousands, except per share data) Quarter Ending $32,856 8,697 3,495 0.27 0.26 $37,222 8,808 3,357 0.26 0.25 $41,003 9,512 3,635 0.29 0.27 $37,764 9,232 3,740 0.30 0.29 March 31 June 30 September 30 December 31 (in thousands, except per share data) Quarter Ending $35,990 9,617 3,647 0.27 0.27 $ 40,181 9,737 3,666 0.28 0.27 $41,702 10,401 4,186 0.32 0.30 $37,202 8,127 3,112 0.24 0.23 We consent to the incorporation by reference in the Registration Statement (Post-Effective Amendment No. 2 to Form S-8 No. 33- 78520) pertaining to the AAON, Inc. 1992 Stock Option Plan, as amended, of our report dated February 6, 2004, with respect to the consolidated financial statements of AAON, Inc. included in the Annual Report (Form 10-K) for the year ended December 31, 2003. ERNST & YOUNG LLP Tulsa, Oklahoma March 10, 2004 30 31 31 Exhibit 31.1 CERTIFICATION Exhibit 31.2 CERTIFICATION I, Norman H. Asbjornson, certify that: I, Kathy I. Sheffield, certify that: 1. 2. 3. 4. I have reviewed this Annual Report on Form 10-K of AAON, Inc. 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; 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; 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) b) c) 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: evaluated the effectiveness of the registrant’s disclosure controls and procedures as of the end of the period covered by this annual report (the “Evaluation Date”); and 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; 1. 2. 3. 4. I have reviewed this Annual Report on Form 10-K of AAON, Inc. 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; 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; 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) b) c) 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: evaluated the effectiveness of the registrant’s disclosure controls and procedures as of the end of the period covered by this annual report (the “Evaluation Date”); and presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions): 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) b) 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 any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and 6. The registrant’s other certifying officer and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. /s/ Norman H. Asbjornson Norman H. Asbjornson Chief Executive Officer March 10, 2004 a) b) 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 any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and 6. The registrant’s other certifying officer and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. /s/ Kathy I. Sheffield Kathy I. Sheffield Chief Financial Officer March 10, 2004 32 33 Exhibit 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of AAON, Inc. (the “Company”), on Form 10-K for the year ended December 31, 2003, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Norman H. Asbjornson, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ Norman H. Asbjornson Norman H. Asbjornson Chief Executive Officer March 10, 2004 Exhibit 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of AAON, Inc. (the “Company”), on Form 10-K for the year ended December 31, 2003, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Kathy I. Sheffield, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ Kathy I. Sheffield Kathy I. Sheffield Chief Financial Officer March 10, 2004 Officers Norman H. Asbjornson has served as President and a director of the Company since 1988. Mr. Asbjornson has been in senior management positions in the heating and air conditioning industry for over 40 years. Robert G. Fergus has served as Vice President of the Company since 1988. Mr. Fergus has been in senior management positions in the heating and air conditioning industry for 38 years. Kathy L. Sheffield became Treasurer of the Company in 1999 and Vice President in June of 2002. Ms. Sheffield previously served as Accounting Manager of the Company from 1988 to 1999. John B. Johnson, Jr. has served as Secretary and a director of the Company since 1988. Mr. Johnson is a member of the firm of Johnson, Jones, Dornblaser, Coffman & Shorb, which serves as General Counsel to the Company. Board of Directors Jerry E. Ryan was elected as a director by the Board in 2001. Mr. Ryan serves on the Boards of Directors of Lone Star Technologies of Dallas, Texas and Global Energy Equipment Group, Tulsa, Oklahoma. Norman H. Asbjornson President / CEO John B. Johnson, Jr. Secretary Thomas E. Naugle has served as a director of the Company since 1998. From 1985 to present, Mr. Naugle has served as Chairman of the Board and/or President of Naugle & Co., a company engaged in the business of investments. William A. Bowen served as Vice President-Finance of the Company from 1989 to 1999. He previously served as Chairman and CEO of The First National Bank and Trust Company in Tulsa, Oklahoma. He also held senior management positions with Wachovia Bank and Trust Company in North Carolina. Corporate Data Transfer Agent and Registrar Progressive Transfer Company 1981 East Murray-Holladay Road, Suite 200 Salt Lake City, Utah 84117 Auditors Ernst & Young LLP 3900 One Williams Center P.O. Box 1529 (74101) Tulsa, Oklahoma 74172 General Counsel Johnson, Jones, Dornblaser, Coffman & Shorb 2200 Bank of America Center 15 West Sixth Street Tulsa, Oklahoma 74119 Investor Relations Jerry Levine 105 Creek Side Road Mt. Kisco, New York 10549 Ph: 914-244-0292 Fax: 914-244-0295 Jerry.levine@worldnet.att.net Executive Offices 2425 South Yukon Avenue Tulsa, Oklahoma 74107 Common Stock NASDAQ–AAON Website Address www.aaon.com Charles C. Stephenson, Jr. has served as a director of the Company since 1996. Mr. Stephenson is Chairman of the Board of Vintage Petroleum, Inc., based in Tulsa, Oklahoma. 34 35 Anthony Pantaleoni has served as a director of the Company since 1989. Mr. Pantaleoni is a partner of Fulbright & Jaworski LLP in New York, New York. AAON proudly honors our people, whose dedication brings success to our company – and meaning to our work. FIDEL AZUA NORA BACKUS TIMOTHY BAEHLER LAMARCUS BAILEY LONNIE BAILEY ASHLEY BAKER ERNEST BAKER STEPHEN BALLARD MARCELO BAMACA LORENZO BARBA CAROLYN BARBER CANDY BARBOSA EFRAIN BARRADAS MARIA BARRAGAN GUALBERTO BARRIOS CAROLINA BARRON ESTHER BARRON FEDERICO BARRON MARIA BARRON MANUEL BARTHOLIC MICHAEL BASS STUART BAUGH ARTURO BAUTISTA DANIEL BAUTISTA HUMBERTO BAUTISTA OVIDIO BAUTISTA RIGOBERTO BAUTISTA SAUL BAUTISTA JASON BAZAN DAVID BEASLEY ELBERT BEASLEY SHANNON BECK TORREY BELCHER BRIAN BELL JASON BELL GUZMAN BENITEZ OFELIA BENITEZ ISAAC BENN BONNIE BENSON IDA BERMUDEZ VICKIE BERRY ROBERT BISCAINO JASON BLACK JAMES BLACKWOOD MARIA BLANCO CARLOS ACOSTA MARIA ACOSTA MARTHA ACOSTA FRANCISCO ADAME-GARCIA GARY ADAMS CHRISTOFER ADDISON ESVIN AGUILAR FREDY AGUILAR GERARDO AGUILAR MARINO AGUILAR SOCORRO ALANIS IMELDA ALBA ANGEL ALDAMA JAMES ALEXANDER DONALD ALLEN KEVIN ALLEN MICHAEL ALLEN WILLIAM ALLEN ANGEL ALVARADO EDUARDO ALVARADO FELIPE ALVARADO MANUEL ALVARADO RUBEN ALVARADO MICHAEL AMBURGEY CYNTHIA AMENT SHAHRAM AMINZADEH FERNANDO ANDALON LARRY ANDERSON CHARLES ANDERSON, JR. ALFREDO ANTONIO MARTIN ARECHIGA GARY ARNOLD NORMAN ASBJORNSON SCOTT ASBJORNSON GARY ASHMORE DWIGHT AUSTIN JOSEPH AVILA PEDRO AVINA DAVID BLEVINS JIMMY BLEVINS JUSTIN BLEVINS EDWARD BODNARYUK GENE BOESE RANDY BOGLE EDGAR BOJ JAMES BOND LARRY BOSWELL ELI BOTELLO ROSENDO BOTELLO BECKY BOYD DEMETRIUS BOYD JOHN BOYD MYOSHIA BRADLEY STEVEN BRADLEY IVAN BRANTLEY, JR. GLEN BRAUER, JR. RAYNOR BRENTON BRYAN BRINLEE JEFFREY BRINT RYAN BRISTLE JAMES BROOKS MITCHELL BROOKS ANTHONY BROWN DAVID BROWN HARLEY BROWN TIMEKA BROWN WENDY BROWN JAMES BRUCE CHRISTOPHER BRYANT WILLIAM BRYANT BANG BUI BICH BUI FRED BUNTON ROBERT BURCH MONICA BURNS CHARLES BURRIS DOUGLAS BURTRUM TINA BUSH WAYNE BUSH FILOMENO BUSTOS PEDRO BUSTOS KENNETH COCHRAN JARROD COGER MICKEY COLE PENNY COLE MARY COLEMAN DALE CONKWRIGHT JOSEPH CONLEY ERASTO BUSTOS, JR. JOHN BUTLER MARTHA CALDERAS-MOSQUEDA JONATHAN CONNELL GUILLERMINA CONTRERAS MARK COOK ROBERT COOK DONNA COONFIELD ELAINE CORKHILL BLANCA CORONA HERON CORONA ROBERTO CORONA ROSA CORTEZ MARIO COSTILLA BILLY COX CHRISTINE COX JERRY COX JOHN COX ADRIAN CRABTREE RICHARD CRAITE STEVEN CRASE DEVIN CREECH MIKEL CREWS CLARK CROSBY, JR. DARRELL CROW WILLIAM CRUMP CAROLYN CRUTCHFIELD HECTOR CRUZ PEDRO CRUZ ROGELIO CUEVAS ROBERT CUMMINGS GENE CURTIS KELLY CUTTING GWENDOLYN DANIELS JOHN DANIELS NATALYA DANIL CHENKO ALEKSEY DANIL'CHENKO LORETTA DARLING ANDREA DAVIS ANGELA DAVIS ANTHONY DAVIS MARIA CAMPA CASEY CAMPBELL NATHAN CAMPBELL ARTHUR CANDLER ARTHUR CANDLER, III FAUSTINO CARDENAS FERNANDO CARDENAS MARIA CARDENAS MARIA G CARDENAS CARLOS CARDONA JORGE CARMONA CARL CARPENTER CURTIS CARR, JR. ABEL CARRANZA JUAN CARRANZA ARMANDO CARRILLO LEON CARTWRIGHT JOSE CASTELLON RODRIGO CASTILLO JAY CASTOE GABRIEL CASTRO ROBERTO CASTRO JOSE CASTRO M MARIE CAYETANO MARIA CERDA MARK CHALMERS JOSH CHATTILLON ADALBERTO CHAVEZ GREGORY CHAVEZ DALE CHERRY DANIEL CHERRY KRISTEN CHEVALLIER LARENZO CHILES GEORGE CLARK JOHN CLARK MORRIS CLARK RICHARD CLARK FLOYD CLEGHORN ROBERT CLEMANS RAYMOND CLEVELAND WILLIAM CLEVELAND VERNETT COBB JOSE FELICIANO ROBERT FERGUS DARRELL FERGUSON ELIZABETH FERGUSON PEDRO FERNANDEZ STERLYN FINCH BRUCE FISHER LACRETIA FISHER JEFF FIX SERGIO FLEITAS BOBBY FLEMING HARRY FLETCHER TERRA FLETCHER ALEJANDRO FLORES CECILIO FLORES EFIGENIA FLORES FREDDY FLORES JOEL FLORES JUANA FLORES LAURA FLORES MARIA FLORES RUBY FLOYD RUDY FOGLE KENNETH FONTENOT SHARON FONTENOT SHEILA FORREST DERRICK FORT CLAUDE FORTSON FREDERICK FOSTER LORETTA FOWLKES KENNETH FOYIL CHRISTIAN FRANCO PHILLIP FRANK WARREN FRANKLIN JERRY FRANKS REVONDA FRANKS KIMBERLY FRAZIER GARY FREDERIKSEN, JR. GARY FREELS GARY FRENCH NELSON FRY DOMINGO FUENTES FERMIN FUENTES RUDY FUENTES ELBERT FULLER BRAD FYFFE RANULFO GALICIA YOLANDA GALVAN HUGO GAMAS FRANCISCO GAMEZ ROEL GAMEZ MARIA GARAY ALEJANDRO GARCIA EDGAR GARCIA HENRY GARCIA MINGO GARCIA WILSON GARCIA CARLOS GARZA GUSTAVO GARZA RALPH GASAWAY STEVE GEARY JAMES GEORGE JUAN GERRERO DERRICK GILLIS ERIC GILLIS WESLEY GODFREY HENRY GOLDSTON LARRY GOLETTO ALFREDO GOMEZ HUMBERTO GOMEZ EDILBERTO GONZALES ADRIAN GONZALEZ DEMETRIO GONZALEZ GABRIEL GONZALEZ MARISELA GONZALEZ MARTIN GONZALEZ MIGUEL GONZALEZ ROXANA GONZALEZ JERRY GOODALE BARRY GOODSON PERRY GORDON BUENAS GRANADOS JOSE GRANADOS DERRICK GREEN JAMES GREEN JESSE GREEN, JR. GUADALUPE GRIMALDO RONALD GRIMES CRISTINO GUEVARA YENY GUEVARA AUGUSTO GUILLERMO REMIA GUTHERY MANUEL GUTIEREZ ALBERTO GUTIERREZ RAQUEL GUTIERREZ ELSA GUZMAN JAVIER GUZMAN NANCY HACKNEY CHRISTOPHER HADEN TERRY HAIR JOSHUA HALFPAP JACK HALL KELLY HALL ROBERT HALL STEPHEN HALL ROBERT HALTON SCOTT HAMILTON OTIS HAMILTON SAM HAMMOUD DONALD HARDEN CARMEKA HARDING FRANKIE HARLEY JOSHUA HARRIS OLLIE HARRIS STACEY HARRIS DONALD HATLEY JOE HAYS TIM HEFFLIN DANIEL HENDERSON MIKE HENSLEY PHILLIP HERL ARMANDO HERNANDEZ EDUARDO HERNANDEZ FRANCISCO HERNANDEZ FRANCISCO D HERNANDEZ FRANCISCO O HERNANDEZ JOSE HERNANDEZ JOSE L HERNANDEZ MARIA HERNANDEZ MAYTE HERNANDEZ OSCAR HERNANDEZ MARCOS HERRERA VICENTE HERRERA JESSE HETTICK TAKEO HIGA DEWAYNE HIGHTOWER TYSON HINTHER JAMES HOLLINGSWORTH DONNA HOLLOWAY JUSTIN-DANIEL HOLM MICAH HOLT TIM HOLT STEPHEN HOOVER WILBURN HORNER, JR. DANIEL HORRELL STANLEY HORTON JERRY HOUSTON LARRY HOWARD CLARENCE HUBBELL LYDIA HUDSON NICHOLAS HUDSON TOBY HUDSON LARRY HUFFMAN BILLY HUGHART SHANNON HUGHES BRENDA HURTADO RONALD HUTCHCRAFT GARY HUTCHINS BILLY HUTCHINSON JOSE IBARRA-FLORES ARISTEO IBARRA-GARCIA STEPHEN IGLESIAS SAMUEL INGRAM TIM IRWIN ARIEL IXLAJ-VASQUEZ BELINDA JACKSON JARROD JACKSON JEFF JACKSON URSULA JACKSON MAVIS JACKSON, JR. JORGE JAMAICA JOSE JAMAICA MCKINLEY JAMES JUSTINE JENKINS JASON JEWELL GENELLE JIMBOY FILEMON JIMENEZ GUADALUPE JIMENEZ LUIS JIMENEZ OMAR JIMENEZ PASCUAL JIMENEZ VINCENT JIMENEZ KAREN JOBE ED JOHNSON JOHN JOHNSON LEROY JOHNSON REX JOHNSON KELLI JONES LISA JONES ROSE JONES SANDRA JONES JAIME JUAREZ YONI JUAREZ LAURA KAPELUCK RICHARD KEATON STEVEN KEELING DERRICK KELLUM AARON KELLY GREGG KENNEDY KIRK KHILLINGS ALAN KILGORE BOBBY KILGORE LORI KING RUSSELL KING ALEKSANDR KIRYUKHIN BILLIE KITCH DAVID KNEBEL ROBERT KNUTH JOHN KOERBER RAYMOND KOLLOCK NIKOLAI KORAN JAMES KOSS MIKHAIL KRUPENYA KARL KUENEMANN JERRY DAVIS LEKENDRIC DAVIS MOTY DAVIS RICHARD DAVIS GWENDOLYN DECKARD AMMORY DECOSTA BOBBY DEGRAFFENREID BENITA DEKKER AMBER DELANCY ISMAEL DELAPAZ EVA DELATORRE MELVIN DELEON JUANA DELOBO EUFEMIO DEPAZ CHARLES DEWEESE WILVERT DIAZ ERRIN DIXON HOMER DODD RICKEY DODSON WILBER DOMINGUEZ SEAN DONALD HAROLD DOUGLAS ERIC DOWNING CATHRYN DUBBS CHRISTOPHER DUKE CRAIG DUKE LINDA DUNEC RALPH DURBIN RANDY DWIGGINS JERRY EARLEY, JR. WENDELL EASILEY CATHY EASLEY CHRIS EASLEY MOUN'TAE EDMUNDSON BETTY ELI EARL ELLIOTT GEORGE ELLIOTT TRAVIS ELLIOTT TINISHA ENGLISH FRANCISCO ENSALDO CHARLES EPPS STEPHEN ETTER GILDA ETUMUDOR RICKY EVANS SEWELL EVERETT WEI FANG GREG FARLEY KENNY LAFAYETTE JEANETTE LAIRD LEE LAMB DEBORAH LANE JOEY LANKFORD JEREMY LANOY GLEN LATHAN JEFFREY LAWSON RICHARD LAWSON RONALD LAWSON CYNTHIA LEE JACQUELINE LEE QUENTIN LEE RHONDA LEE MATTHEW LEEPER PETER LEININGER PATRICIA LENNOX HUGO LERMA RONALD LESTER KEVIN LEWIS LEE LEWIS JERRY LINCOLN JAMES LINWOOD ELIZABETH LISCANO RAQUEL LISCANO FRANKLIN LOGAN, JR. ARCADIO LOPEZ FAUSTO LOPEZ FRANCISCO LOPEZ JAVIER LOPEZ MARGARITO LOPEZ MARIO LOPEZ MARTIN LOPEZ SERGIO LOPEZ THOMAS LOPEZ YASMINA LOPEZ VINCENT LOWE PAUL LOWERY FRANCISCO LOZOYA LORENA LOZOYA ANDREA LUECK BILLY LUMPKIN, JR. JOSE LUNA MARIANA LUNA ADAN MACARIO ALBERTO MACARIO JULIO MACARIO GREGORY MACK DON MADEWELL JUSTIN MAINUS BARBARA MALONE CARLOS MALONE GUINBEL MANCILLA ERIC MANN KENNETH MANN MARIA MANZO-MEJIA ANA MARROGUIN ECO MARSHALL JAMIE MARTIN THOMAS MARTIN ADRIAN MARTINEZ ALEJANDRO MARTINEZ ARTURO MARTINEZ DONIS MARTINEZ FRANCISCO MARTINEZ JAVIER MARTINEZ JOSE E MARTINEZ JOSE M MARTINEZ JUAN A MARTINEZ JUAN J MARTINEZ KAREN MARTINEZ ROBERTO MARTINEZ BEVERLEY MASON JAMES MASON CHRISTOPHER MASON, JR. ARTURO MATUL RON MAUCH WILSON MAURICIO DEBORAH McATEER TINA McBEATH CHRISTOPHER McCLAIN DORIS McCLOUD ROY McCONNELL RAY McCORMICK DEBRA McCOWAN SHAWN McCRARY KATHY McCULLOCH FLORENCE McDANIEL JAMES McELROY RICHARD McKINNEY DOMINGO McKNIGHT RAYMOND McLAUGHLIN GEORGIE McNAC GINA MEANS ARTURO MEDINA BARTOLO MEDINA JAMES MELDA HERNAN MEMBRILA JAIME MEMIJE KEVIN MENDENHALL FERNANDO MENDEZ IRMA MERCADO AUBREY METCALF, JR. VIVIAN MEYER BERNARD MGAWE RONALD MIKEL RANULFA MILIAN CHRIS MILLER BRIAN MINGLE GENNER MIRANDA ANTHONY MITCHELL DOUGLAS MITCHELL JAY MODISETTE IRMA MOGUEL JOSE MOLINA OCTAVIO MOLINA STEVEN MOLSTER JOSHUA MOLT LUKE MOMODU JOSE MONREAL MARIO MONTES MARC MOORE MARIA MOORE TONY MOORE JOHNNY MORALES JOSE MORALES TONY MOREHEAD ANTHONY MORGAN DAVID MORGERSON GLENN MORRILL ANSEL MORROW MARCUS MORROW CLAYTON MOTE MELESIO MUNGUIA ALEKSEY MURASHOV EDUARDO MURILLO ELVIA MURILLO JOHNNY MUSGRAVE DAVID MYERS MARIA NAVA MARTIN NAVA OVIDIO NAVARRO ROELI NAVARRO VICTOR NAVARRO NATALIE NEILSON RONALD NELSON SHAWN NEVELS AN NGUYEN GAOXIA NI NITA NICHOLS DERRICK NICKLEBERRY JERRY NOLAN MARIO NOLASCO MATTHEW NORRIS CATHERINE NORTON DEBRA NOTHNAGEL DANIEL PEURIFOY SENG PHANNAVONG FELICIA PHILLIPS JOHN PHILLIPS TONY PHILLIPS JEFF PICKERING PHILLIP PITTMAN KEVIN PITTSER MICHAEL POGUE BERT POHL BASANT POKHREL RENU POKHREL MARK POOL DENNY PORTILLO OSCAR POUND ARDESHIR POURARYAN PHILLIP POWELL RUDY POWELL GREG POWERS JEFFERY POWERS TRAVIS POWERS JOSE PRADO TANISHA PRITCHETT THOMAS PRYOR ALMA PUGA GABRIEL PULIDO ALBERTO QUE JESUS QUINONES MARCO QUINTERO JOHN QUINTON ASUNCION RAMIREZ HECTOR RAMIREZ MARTIN RAMIREZ OMAR RAMIREZ JOSE RAMON JOSE RANGEL TERRY RATZLOFF ROBERT RAYNO SANDRA READER DIEGO REBOLLAR FLOR REBOLLAR ANTHONY REED DAVID REED JAMES REED LYNN REED MARGARET REEVES EVERETT REITZ DIXIE REMY FELIX NUNEZ JAMES O'NEILL, JR. JAMES O'NEILL, SR. ALEXANDER OFOSU DONALD OLDEN LEE OLIVER, JR. ANTHONY OLIVERAS ERIC OLSON ARMANDO OLVERA JOSE OLVERA MARGARITO OLVERA-RUIZ CARLOS ORDONEZ JUAN ORELLANA JUVENTINO ORNELAS, JR. LETICIA ORONA ADELSO OROZCO EDDY OROZCO ELMAN OROZCO FREDY OROZCO RODOLFO OROZCO URIAS OROZCO JUAN ORTEGA MANUEL ORTEGA ADAN ORTIZ DAVID OSBORNE ROBERT OTIS GUILLERMO PACHECO EDMUNDO PAIZ JOE PALOMINO STEPHEN PARGETER JAMES PARRO MARIO PASTOR CORRY PATTERSON RONNIE PATTON VADEN PAULSEN KIMBERLY PEEKS WILLIAM PEGUES CHRIS PENCZAK VLADIMIR PENIAZ CATALINO PERALTA SERGIO PERALTA CARLOS PEREZ CESAR PEREZ CLEIVER PEREZ ELIAS PEREZ GABRIEL PEREZ MARIA PEREZ SANDRA PEREZ SERGIO PEREZ SERGIO R PEREZ BRIAN PERKINS ERIC PERKINS SANTIAGO PERU JOHN SALINAS JAY SALMON DAVID SAMPLES DAMON SAMUELS BETTY SANCHEZ FRANCISCA SANCHEZ JOSE SANCHEZ VICTOR SANCHEZ MICHAEL SANDOR, JR. PEDRO SANTILLAN DAVID SARANT GALINA SAVINA ERICK SAWYER WILLIAM SCHAROSCH ROBERT SCHOOLEY RUSSELL SCHOONOVER DWAYNE SCHWARTZ VIVIAN SCROGGINS KATHLEEN SEALS JOSEPH SEHION MARC SEIP EFRAIN SERRANO ALEXSANDR SHAPOVALOV NATALYA SHAPOVALOVA STEVEN SHAW THOMAS SHAW KATHY SHEFFIELD STEPHANIE SHELL GILBERT SHELTON DARRELL SHEPHERD BARBARA SHIPMAN FELICIANO SIFUENTES OTT SILUANGKHOT CHARLES SIMMERS PATRICK SIMPSON MICHAEL SKINNER JAWAUN SLAUGHTER JOHN SLINKER LARRY SLONE BRETT SMITH BYRON SMITH CURTIS SMITH RYAN SMITH SWEETIE SMITH MIKE SNOBLE DENNIS SNOW MALCOLM SOLES FERNANDO SOLIS JOSE SOSA EDUARDO SOTO KEVIN SOUVANNASING ELDA SPEARS SUSAN SPENCER MICHAEL SPORTEL NICK SPROWSO IRA SPURLOCK BONNIE STANDRIDGE LAWANA STANE SONDRA STANSELL LARRY STANTON JOHN STEDMAN GLENN STEFFY BERT STEPHENS DEVERELL STEPHENS TOMMY STEWART JOHN STINSON BRENT STOCKTON RUSSELL STONER CAMERON STRANGE MICHAEL STRAUB BILLY STRENGTH MICHAEL SUMMERS GARY SWARER JENNIFER SWIFT ERIC SYPERT JAMES TABER JIMMY TALBOT DENNIS TANNER JESUS TAPIA JOE TART TENNA TATUM CHARLES TAYLOR KEVIN TEAKELL ROBERT TEIS JUANA TELLES ROBERT THOMAS CHARLES THOMASON CHRISTOPHER THOMPSON MARK THOMPSON JOHN THOMPSON, SR. LARRY THROCKMORTON JOEL TIBBETS FREDELL TIGER LAMARCUS TIPPS ROBERT TITSWORTH, JR. WILLIAM TOBAR EDGAR TOJ ELIU TOJ NELSON TOJ CHRISTOPHER TOLES BRENY TORNES GUTEMBERG TORNES DANIEL TORRES JORGE TORRES DAVID TOWNSEND UT TRAN JACKIE REMY DAVID RENEAU SVYATOSLAV RESHETOV ERIC REYNA TONY REYNOLDS PAUL RHEA MILDRED RICHARDSON SYLVESTER RICHARDSON ANGELA RIDEOUT NORBEY RINCON TONY RISER STEPHEN RISER JAMES RITCHIE JESUS RIVAS FRANCISCO RIVERA SAMUEL RIVERA ALONSO RIVERA-MARTINEZ KENNETH ROBINSON TIM ROBINSON JOSE ROBLES JULIO ROBLES KENYAN RODGERS DIANA RODRIGUEZ GILBERTO RODRIGUEZ HECTOR RODRIGUEZ JUAN RODRIGUEZ MARIA C RODRIGUEZ MARIA G RODRIGUEZ MARICRUZ RODRIGUEZ OMAR RODRIGUEZ PABLO RODRIGUEZ PAT RODRIGUEZ PETRA RODRIGUEZ RODRIGO RODRIGUEZ TERESA RODRIGUEZ MARCO RODRIQUEZ MARIA RODRIQUEZ RAYMOND ROETTGER GROVER ROGERS LIDIA ROJAS NELSON ROJAS JEFF ROLLINS TERRY ROMBACH RAUL ROMERO ROBERT ROMO CURTIS ROSS, JR. KEVIN RUCKMAN JASON RUDD RONALD RUENGERT AVA RUSSELL PATRICIA RUSSELL J SALDIVAR JOSE SALDIVAR MIGUEL SALDIVAR VICTOR SALDIVAR LINDA TREADWELL DANIEL TREJO HA TRINH SANGUS TRIPLETT PAUL TURBE PHYLLIS TYISKA PERNELL UNDERWOOD ALFREDO URIOSTEGUI CARLOS URIOSTEGUI EFRAIN URQUIZA MARIA URQUIZA SOLIN URQUIZA YADIRA URQUIZA ANTHONY UTLEY ARMANDO VALERO JOHN VANNESS JUAN VARGAS EFRAIN VASQUEZ FELIPE VASQUEZ HECTOR VASQUEZ JUAN VASQUEZ LUCIANO VASQUEZ MAYNOR VASQUEZ VICENTE VASQUEZ WYLLY VASQUEZ DEBORAH VAUGHT SHERRY VAUGHT DELIA VEGA VICTOR VEGA AROLDO VELASQUEZ ELMAR VELASQUEZ GILMAR VELASQUEZ ANGEL VENEGAS RENE VERASTEGUI BENITO VERGARA EFFRAIN VILLA MIGUEL VILLEGAS CUONG VO SUONG VO TONG VO LINH VU IVAN VYSOTSKY STEPHEN WAKEFIELD GENE WALKER RODERICK WALKER WILLIAM WALKER MARK WALKUP GARY WALLACE STACEY WALTERS PERRY WARNER DONALD WASHINGTON GREGORY WASHINGTON SAM WASHINGTON VIELKA WASHINGTON GERALDINE WATSON JOHN WATTS DEMETRIA WEBB ANTHONY WELCH SUSAN WERNER CAROLYN WESLEY SHARON WEST DIANA WHEELER DEBORAH WHITAKER HARVEY WHITAKER TIMOTHY WHITE WENDY WHITLOW RANDY WHITTEN TIMOTHY WHITTEN STEVEN WHORTON JACKIE WILES JERRY WILES DONNA WILLIAMS JOHNATHAN WILLIAMS ROBERT WILLIAMS JAMES WILLIAMSON PAUL WILLS RALPH WILLS CHARLES WILSON JAMES WILSON THOMAS WIND JIM WINGFIELD WANDA WINKFIELD MICAH WISDOM EDWARD WOFFORD CURTIS WOLF GREG WOLF HERMAN WRITT JIM WYRICK LINDA WYRICK ECTOR YANCEY, JR. GERARDO YANEZ MICHAEL YOHE KATHRYN YOUNG MARC YOUNG DINAH YOUNGBLOOD NIKOLAY ZAGORODNIY CARLOS ZALDIVAR CESAR ZAMARRIPA AURORA ZAVALETA JOHN ZENTER JORGE ZUNIGA PRODUCTS ABOUT AAON, INC. RM RN Packaged Packaged Rooftop Units Rooftop Units RL Packaged Rooftop & Air Handlers & Air Handlers Conditioners & Air Handlers H2 V2 CA AAON, Inc., engineers, manufactures and markets commercial air conditioning products including heating, ventilating, heat recovery and heat transfer coils. The company’s product offering includes: • single unit systems containing heating, cooling and heat recovery components in a self-contained cabinet • chillers and condensing units consisting of heat exchangers, fans and compressors • air handling units consisting of coils, blowers and filters Horizontal Indoor Vertical Indoor Condensing • coils consisting of a sheet metal casing Air Handlers Air Handlers Units with tubes and fins CL Celebrity™ LL Condensing Horizontal or Chillers Units Vertical Indoor Air Handlers HA Coils Horizontal Booster coils, Hot Discharge Water, Chilled Water Cooling Units & DX Coils Rooftop Air Handlers 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. Approximately 60% of the company’s sales come from new construction; the remaining from renovations and replacements. AAON has about a 13% share of the commercial rooftop market and a 1% share of the coil market. Headquartered in Tulsa, Oklahoma, AAON was founded in 1988. The company’s subsidiary, AAON Coil Products, Inc., is located in Longview, Texas and manufactures coils, air handlers and condensing units.